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Goldman Sachs, America's largest investment bank reported much stronger than expected fourth quarter earnings before the bell Tuesday. Revenue at all four of $GS businesses rose in the quarter with trading adding the most, jumping 23% to $4.3 billion

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Goldman Sachs Group Inc NYSE: GS Reported Before Open Tuesday

$12.08 Beat $7.47 EPS and $13.30 Bil Beat $9.99 Billion Forecast in Revenue

Earnings

Goldman Sachs reported fourth quarter net income attributable to common shareholders more than doubled, to $4.4 billion, or $12.08 per share, from $1.7 billion, or $4.69 per share, in the year-earlier period. Analysts had expected a profit of $7.47 per share on average, according to IBES data from Refinitiv.

Revenue at all four of Goldman’s businesses rose in the final quarter with trading adding the most to its bottom line, jumping 23% to $4.3 billion on robust volumes and asset values. Total revenue climbed 18% to $11.7 billion well above the expected $9.99 billion.

Goldman Sachs Group Inc NYSE: GS

Market Reaction: Close $294.20 ▼ 6.81 (-2.26%)

Highlights

"We hope this year brings much needed stability and a respite from the pandemic, but we remain ready to handle a wide range of outcomes and are poised to meet the needs of our clients," CEO David Solomon said in a statement.

Trading accounted for 47% of Goldman’s revenue in 2020, up from 40% the prior year

  • Goldman's equities revenue reached $2.39 billion  up 40% from the fourth quarter of 2019
  • Goldman's Fixed-income sales and trading brought in $1.88 billion for the bank. That was up 6% from the year-ago period.
  • Investment banking revenue climbed 27% from the fourth quarter of 2019 to $2.61 billion.

Goldman’s trading operation registered its best annual performance in a decade as investors churned portfolios during the extreme volatility in markets from the volatility in the US with internal domestic politcs and in the EU and UK with Brexit. This was then magnified with the coronavirus infections, deaths and chaos that followed with with fiscal and monetary policy responses, Throw into that social-injustice protests and riots then ahistoric U.S. election volatility reached levels by any historic measure.

GS Q4 2020 earnings

Goldman absorbed Malaysia’s 1MDB corruption scandal and bad loans

The mega results helped Goldman absorb the massive $3 billion settlement with the U.S. Department of Justice and other regulators over its role in Malaysia’s 1MDB corruption scandal. Goldman also set aside $3.1 billion to cover bad loans, compared to $1.1 billion last year, reflecting the impact of the Covid-19 pandemic.

Outlook

David M. Solomon — Chairman and Chief Executive Officer

Looking ahead, the extreme volatility of 2020 is unlikely to repeat given the government actions taken last year. Nevertheless, I am confident that Goldman Sachs will continue to benefit from the established wallet share gains made in 2020 across an expanding client set, particularly in Investment Banking and Global Markets and continue to develop more durable revenue sources across asset Management and Consumer Wealth Management.

In the 12 months since our Investor Day, we’ve made steady progress towards our medium-term goals, and we remain confident that we will achieve these targets as well as our longer-term goal of mid-teens or higher returns.

Our 2020 ROE when adjusted to exclude the impact of litigation comfortably exceeds our 13% medium-term target. We are pleased with our progress on funding diversification as we grew deposits by $70 billion in 2020. While the Fed funds rate declined faster than the reduction in our deposit rates, we have since adjusted our pricing, which should allow us to achieve our funding optimization goals by 2022.

We are making headway in realizing expense efficiencies throughout the organization and have achieved approximately half of the $1.3 billion initial target we presented at our Investor Day. We will continue to make progress from here, and we will evaluate additional opportunities for further expense savings.

Source: Goldman Sachs Live From The Pit

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