The US economy is still a mess — and Goldman Sachs is still cleaning up.
As consumer banks continue to grapple with the wreckage that the pandemic has wrought on jobs and wages, the Wall Street giant more than doubled its profits amid historically frothy markets.
Fueled by surging stock-trading revenues and fees from a slew of big mergers and IPOs, Goldman on Tuesday reported fourth-quarter earnings per share of $12.08, smashing the consensus analyst estimate of $7.47 per share. The megabank’s revenue was $11.74 billion, also blowing past the $9.9 billion forecast.
It has been a bumpy year for banks including Goldman, which was forced in October to shell out $2.9 billion to the Justice Department for its role in the 1MDB Malaysian bribery scandal. But its shares have nearly tripled since their pandemic-induced lows last March.
When the pandemic hit last spring, Wall Street’s biggest firms took out billions of dollars in reserves, bracing for a wave of defaults and bankruptcies. But the Trump administration’s rescue plan staved off the worst and lenders this week said their worst fears about the economy haven’t materialized.
In the case of Goldman, trading revenue surged 23 percent to $4.27 billion, even as the firm’s investment banking unit’s revenue leaped 49 percent from a year earlier to $2.73 billion.
Nevertheless, Goldman Chief Executive David Solomon on Tuesday warned that the bank doesn’t expect to coast through 2021. Last year’s craze for blank-check companies — which are used to take private companies public by merging with them, sidestepping the hassles of a traditional IPO — appears to be losing momentum, he warned.
“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,” Solomon told analysts on a conference call.
Likewise, Solomon made it clear that his bank had made the best of an unprecedented year but cautioned that a repeat of 2020 would be bad news for everybody.
After urging political leaders to focus on rescuing the moribund economy by combating the virus and moving together on an efficacious vaccine rollout, Solomon warned “in its absence, the economic recovery will be unnecessarily delayed.”
The call also focused heavily on giving an update on the progress of Solomon’s restructuring of the firm, highlighting Goldman’s increased efficiency and transparency as it reorganizes into four distinct business lines.
Goldman’s overall tone also appeared to include a tacit acknowledgement of its intensifying rivalry with Morgan Stanley. A presentation on the reorganization cited Goldman’s high rankings among its peers across its business lines, showing that it is No. 1 or No. 2 in all of them.
But despite those successes, a slew of clawbacks related to the 1MDB scandal appeared to take their toll on Goldman bankers’ compensation — a longtime lightning rod. Last year, compensation totaled $13.3 billion, or 30 percent of revenue — a record low percentage for the firm, according to financial chief Stephen Scherr.
