A surge in litigation charges led Goldman Sachs to miss earning expectations for the second quarter in a row, setting a sombre tone as chief executive David Solomon prepares for a landmark investor day later this month.
The Wall Street giant suffered a 26 per cent fall in net income in the three months to the end of the year, a performance starkly worse than rival JPMorgan Chase, which reported record profits for both the quarter and the 2019 year.
Litigation provisions took more than $1bn off the bank’s bottom line, leaving it with net income of $1.7bn in the quarter — well below the $2bn expected by analysts in a Bloomberg poll.
The bank did not disclose with what was behind the provisions but they were likely to be related to final negotiations over the 1MDB bribery and money-laundering scandal.
Revenues across the group rose 23 per cent, to $9.96bn, for the quarter, fuelled by a 63 per cent surge in fixed income revenues versus a year earlier.
“We aim to drive higher returns in the future, and look forward to sharing our strategic goals and financial targets at Investor Day later this month,” Mr Solomon said, nonetheless describing the fourth quarter’s performance as “strong”.
The results mark the first time Goldman has reported under a new divisional structure which was unveiled earlier in the year. The changes mean that the old investing & lending division, which was prone to big swings in results, has been split among the four divisions.
Investment banking was Goldman’s worst performing division in the fourth quarter, with revenues falling 6 per cent year-on-year, versus a 6 per cent rise at both Citigroup and JPMorgan Chase.
Goldman blamed the result on lower deal volumes, and said comparisons were tough because the bank had such strong results in the fourth quarter of 2018.
The global markets arm, which includes fixed income and equities trading, enjoyed a 33 per cent jump in fourth-quarter revenues, fuelled by fixed income trading performance, which also lifted rivals JPMorgan and Citi.
Revenues in Goldman’s newly-created ‘consumer and wealth management division’, which includes online bank Marcus, the Apple credit card, United Capital and Goldman’s traditional wealth management business, rose 1 per cent, as provisions for loan losses fell 8 per cent year on year.
The results also included a $120m provision for credit losses at Goldman’s asset management division — a 155 per cent increase from the fourth quarter of 2018.
The results come a fortnight before Mr Solomon is due to host Goldman’s first investor day since it went public 20 years ago.
He has promised to tell investors more about new ventures such as Marcus and the Apple card, as well as the bank’s push into cash management and its plans to turn its investing and lending business into a mini Blackstone by raising more outside capital.
He will also have to convince investors that his team has found a way to improve returns at Goldman’s trading businesses, which has struggled with profitability after post-crisis regulations made trading more costly.
Goldman Sachs shares slid 0.5 per cent in pre-market trade to $244.50.
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January 15, 2020 at 08:15PM
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Goldman Sachs disappoints for second straight quarter - Financial Times
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