MESSAGE
| DATE | 2021-01-19 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [Hangout - NYLXS] This is why there is NO urgency to defeat the
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https://www.wsj.com/articles/goldman-sachs-profit-more-than-doubles-powered-by-trading-11611060879?mod=hp_lead_pos2
--Goldman Sachs, With Big Earnings Jump, Is Having a Profitable Pandemic
Peter Rudegeair
7-9 minutes
For many Americans, 2020 was a year to forget. For Goldman Sachs Group
Inc., GS -2.26% it was one for the record books.
Fueled by the markets’ quick recovery from the worst of the
pandemic-induced recession, Goldman generated $44.56 billion in annual
revenue, the most since 2009, harking back to the last time the bank
successfully navigated a crisis and its aftermath. Trading revenue for
2020 reached a 10-year high.
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The $4.51 billion in fourth-quarter profit that the Wall Street firm
reported on Tuesday, or $12.08 per share, was more than double Goldman’s
profit from the same quarter a year earlier. Both quarterly net income
and quarterly revenue of $11.74 billion were much better than the
expectations of analysts polled by FactSet, who forecast profit of $7.39
a share on revenue of $9.99 billion.
For the U.S. banking industry, 2020 was a roller-coaster year. Markets
plunged and economic activity declined in the spring as the coronavirus
spread across the country. With many businesses closed and many
consumers out of work, banks girded themselves for widespread defaults.
A robust federal spending program helped forestall the worst-case
economic scenario, and in earnings reports last week, bank executives
signaled the economy has held up better than expected.
On Friday, JPMorgan Chase & Co. said fourth-quarter profit soared 42% to
a record $12.14 billion after the bank released $2.9 billion from its
stockpile of funds previously set aside to cover soured loans. On
Tuesday, Bank of America Corp. said profit fell 22% but topped analysts’
expectations after it released $828 million from its loan-loss reserves.
With its relatively small loan book and heavy exposure to underwriting
and trading securities, Goldman was better placed than peers for the
environment of the past several months. Initial public offerings,
corporate borrowing and major stock indexes hit new records in 2020, all
trends that Goldman capitalized on.
Trading revenue rose 23% from a year earlier to $4.27 billion, and the
firm’s investment bankers brought in $2.73 billion in revenue, a 49%
increase from 2019’s fourth quarter. The boom in stock offerings,
including IPOs of tech companies and so-called blank-check companies,
was particularly lucrative for Goldman: The fees it earned in the fourth
quarter from underwriting stocks were a record and exceeded the fees it
earned from advising on deals for the first time.
Goldman CEO David Solomon said some business the firm had won with
trading clients should be more sustainable than it was in 2009.
Photo: olivier douliery/Agence France-Presse/Getty Images
Chief Executive David Solomon told analysts on a conference call that
some of the business Goldman won with top trading clients should be more
sustainable than 2009 given that they occurred in a more competitive
environment. In investment banking, Mr. Solomon said he expected
activity levels in 2021 to be below those in 2020, due in part to
investors starting to cool off on blank-check companies, also known as
special-purpose acquisition companies, or SPACs.
“You have something here that is a good capital markets innovation,” Mr.
Solomon said of SPACs. “But like many innovations, there’s a point in
time as they start where they have a tendency maybe to go a little bit
too far and then need to be pulled back or rebalanced.”
Compared with its rivals, Goldman’s profit was less affected by large
provisions for future expected charge-offs, given the nascency of its
corporate-banking and consumer-finance offerings. Goldman held about $8
billion in consumer-loan balances, split roughly equally between its
personal-loan business and co-branded credit card with Apple Inc., but
performance has been better than executives expected.
Like other banks, though, the profitability of Goldman’s lending and
deposit-taking business has been crimped by low interest rates and
stricter loan-approval standards. Mr. Solomon said that Marcus, as
Goldman’s consumer-banking division is known, is likely to report a
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