GOLDMAN Sachs Group Inc reported a bigger-than-expected fall in quarterly profit on Wednesday as the Wall Street bank set aside more money to cover legal costs for the 1MDB corruption scandal, overshadowing a rebound in its trading business.

The bank set aside US$1.09 bil (RM4.44 bil) in the fourth quarter ahead of an expected settlement that could touch US$2 bil or more. Goldman’s full-year earnings took a hit of US$3.16 per share from the provision.

The legal woes come at a time when CEO David Solomon is launching a major shift in strategy away from trading – long its main profit engine – to the construction of a bigger consumer business that shields it from wild swings on financial markets.

Earlier in January, Goldman reshuffled most of its major reporting lines and, for the first time, unveiled the size of its consumer business, responding to long-standing requests for more transparency from analysts and investors.

Last week, the bank unveiled the size of its consumer business for the first time. The unit, which includes the online retail bank, Marcus, as well as its credit card business, reported a 23% jump in revenue to US$228 mil in the fourth quarter.

Rivals JP Morgan Chase & Co, Citigroup and Bank of America boast of much larger consumer businesses.

“Overall, the provision missed and comp ratio was higher than expected, so results look weak this quarter excluding the equity investment gains,” said analysts at Keefe, Bruyette & Woods in a note to clients.

Trading rebound 

Despite a slump in profit, the bank posted robust revenue growth as three of its four main reporting lines performed strongly.

Revenue from global markets, which houses the trading business, jumped 33% to US$3.48 bil, thanks partly to easier comparisons from a year earlier when financial markets were roiled by uncertainty related to trade and global growth.

Bond trading surged 63% to US$1.77 bil.

The strong performance from trading mirrored similar trend at other major rivals – JPMorgan Chase, Citigroup and Bank of America.

The only sore spot for Goldman during the quarter was investment banking, where revenue fell 6% to US$2.06 bil, hurt by lower M&A advisory fees, as well as a slowdown in corporate lending.

The bank’s net earnings applicable to common shareholders fell to US$1.72 bil in the quarter ended Dec 31 from US$2.32 bil a year earlier. Earnings per share fell to US$4.69 from US$6.04.

Analysts on average had expected earnings of US$5.47 per share, according to the IBES estimate from Refinitiv.

Operating expenses jumped 42% to US$7.3 bil.

Total net revenue, however, jumped 23% to US$9.96 bil. – Jan 15, 2020 Reuters

Share this post