Goldman Sachs profit more than doubles amid Covid-19 upheaval

Goldman's profits soared to US$4.4 billion in the final quarter of 2020.
Goldman's profits soared to US$4.4 billion in the final quarter of 2020.PHOTO: REUTERS

NEW YORK (AFP) - Goldman Sachs reported another blowout quarter on Tuesday (Jan 19) to conclude a highly profitable 2020 despite the coronavirus pandemic, which provided lucrative opportunities to the investment bank while battering much of the US economy.

Goldman's profits soared to US$4.4 billion (S$5.8 billion) in the final quarter of the year, more than double the earnings from the same period a year ago, as it scored higher revenues in all four operating divisions and easily topped analyst estimates.

The just-ended quarter showed a continuation of the heady trends from Goldman's third quarter: more strength in equity and fixed-income trading amid financial markets volatility and huge growth in financial advising revenues as corporate clients pursued mergers or raised equity against a fast-changing macroeconomic backdrop.

And amid coronavirus-induced restrictions on movement, the financial giant saw lower travel and entertainment costs.

Chief executive David Solomon praised the company's performance, but cautioned that the outlook for the global economy remains dependent on getting Covid-19 under control with a successful vaccination campaign.

"I urge political leaders at all levels and across all jurisdictions to do everything possible to implement a coordinated and comprehensive distribution plan," Mr Solomon said during an earnings conference call.

"In its absence, economic recovery will be unnecessarily delayed."

Several key economic sectors remain in deep trouble due to the prolonged downturn, including energy, airlines, hospitality and commercial real estate.

Eyeing main street growth

Goldman enjoyed especially strong growth in fourth quarter revenues in investment banking, up 27 per cent, and global markets, up 23 per cent.

Overall revenues rose 18 per cent from the year-ago period to US$11.7 billion.

For all of 2020, Goldman Sachs reported profits of US$8.9 billion, up 13 per cent, on a revenue increase of 22 per cent to US$44.6 billion.

Goldman's results came on the heels of a series of mixed earnings releases Friday from rival financial heavyweights JPMorgan Chase, Citigroup and Wells Fargo.

Bank of America on Tuesday reported fourth-quarter earnings of US$5.2 billion, down 23 per cent from the year-ago period on a 10.5 per cent drop in revenues.

Like JPMorgan and others that reported last week, Bank of America's results were boosted by an US$828 million reserve release after earlier provisions for bad loans from coronavirus were not needed.

However, Bank of America suffered a 16 per cent drop in net interest income due to lower interest rates.

Goldman, which has a much smaller consumer-oriented business than those other large banks, ended up with a net increase in provisions for credit losses of US$293 million, citing the need for reserves for credit card loan growth.

Goldman Sachs has been building up its consumer-oriented Marcus business since 2016, and Mr Solomon indicated plans to continue to invest in the venture.

Goldman is getting ready to launch a new investment platform on Marcus that will permit individuals to put in as little as US$1,000 through Goldman programs on asset allocation and exchange traded funds.

Goldman is also preparing a new digital checking offering for later this year, Mr Solomon said.

Mr Solomon reiterated that Goldman is intent on building Marcus into a long-term business and will set the bar "extremely high" on acquisition targets.

Mr Solomon said additional investments in the venture could delay the targets for the consumer business to reach profitability, but would not affect firm-wide financial targets.

Goldman shares fell 2.3 per cent to US$294.20 in early afternoon trading, while Bank of America fell 0.7 per cent to US$32.77.

Analysts attributed the sell-off in part to a rise of more than 30 per cent in leading bank shares in the prior two and a half months.