Goldman Sachs Quarterly Profit Falls 46% -- Update
April 15 2020 - 8:23AM
Dow Jones News
By Liz Hoffman
Goldman Sachs Group Inc.'s profit fell 46% in the first quarter,
a three-month stretch when the coronavirus pandemic battered
markets, companies and investors hoarded cash and the U.S. economy
ground to a halt.
The Wall Street bank reported a quarterly profit of $1.21
billion, or $3.11 a share, down from $2.25 billion a year ago.
Revenue of $8.74 billion was basically flat from the first quarter
of 2019.
The results met muted expectations from Wall Street analysts but
held up slightly better than rivals JPMorgan Chase & Co. and
Wells Fargo & Co., which both reported steep declines in
quarterly profits Tuesday. Analysts polled by FactSet had expected
earnings of $1.4 billion, or $3.11 per share, on revenue of $8.3
billion.
The first three months of 2020 presented banks their most
daunting challenges in more than a decade, with interest rates
falling near zero and the global economy in free fall. Companies
tapped their credit lines -- $144 billion in a single week in March
alone, according to Morgan Stanley analysts -- an unprofitable and
anxiety-producing development for their lenders. Nearly 17 million
Americans have sought unemployment benefits in the past three
weeks.
JPMorgan Chase, the largest U.S. bank, reported a 69% drop in
quarterly profits Tuesday. Wells Fargo, another giant, posted an
89% drop.
Still, most of the pain for banks is yet to come. As a proxy for
the economy, bank results tend to be lagging indicators of trouble.
Nearly one-third of U.S. renters didn't make their April monthly
payments, a move that will take a few weeks to ricochet through the
mortgage market. Credit-card balances are likely to go unpaid,
too.
JPMorgan and Wells Fargo socked away more than $10 billion
between them to cover expected loan losses. At Goldman -- a smaller
firm whose roots are in Wall Street investment banking, not Main
Street commercial banking -- that number was $937 million, nearly
as much as the $1.07 billion it set aside in all of 2019.
For all of Goldman's changes in recent years, which include an
embrace of consumer lending and money management, the firm still
leans heavily on its traders and investment bankers.
That can cut both ways in wild markets like early 2020s,
providing opportunities they don't get in calm times but also
exposing them to risks that are hard to manage. (JPMorgan posted a
32% rise in trading revenue, but also took $900 million in
quarterly losses on derivatives it held on its books.)
Goldman's trading revenue rose 28% to $5.16 billion. Its
fixed-income traders, who deal in everything from bonds to
commodities to interest-rate products, had their best quarter in
five years. Groups that help clients wager and manage volatility in
asset prices flourished, too.
Revenue from mergers fell 11%, though that is less a reflection
of the economic outlook because bankers collect their fees only
when deals are completed, typically months after they are struck.
Revenue from stock and bond offerings rose 29%.
Goldman's $1.3 trillion money-management arm reported losses in
its debt and equity investments as both stock and bond prices
plummeted.
All eyes are on Goldman's nascent consumer bank, Marcus, where
it makes small personal loans and offers online savings accounts.
When Goldman launched the business in 2016 -- in what already
appeared to be the late innings of a heady run in consumer
confidence -- it told investors it was focused on
"through-the-cycle" profits, corporate-speak for looking past any
downturn that would result in early losses.
Goldman had $4.7 billion in outstanding consumer loans as of
Dec. 31, and another $13.7 billion in credit lines made available
to, but undrawn by, holders of its Apple Inc. co-branded credit
card.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
April 15, 2020 08:08 ET (12:08 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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