January 15, 2020 / 12:58 PM / 3 days ago

Goldman profits slump on 1MDB legal woes

(Reuters) - Goldman Sachs Group Inc (GS.N) reported a bigger-than-expected fall in quarterly profit on Wednesday as the Wall Street bank set aside more money to cover legal costs for the 1MDB corruption scandal, overshadowing a rebound in its trading business.

The Goldman Sachs company logo is seen in the company's space on the floor of the New York Stock Exchange, (NYSE) in New York, U.S., April 17, 2018. REUTERS/Brendan McDermid/Files

The bank set aside $1.09 billion in the fourth quarter ahead of an expected settlement that could touch $2 billion or more. Goldman’s full-year earnings took a hit of $3.16 per share from the provision.

The legal woes come at a time when Chief Executive Officer David Solomon is launching a major shift in strategy away from trading - long its main profit engine - to the construction of a bigger consumer business that shields it from wild swings on financial markets.

Earlier in January, Goldman reshuffled most of its major reporting lines and, for the first time, unveiled the size of its consumer business, responding to long-standing requests for more transparency from analysts and investors.

Last week, the bank unveiled the size of its consumer business for the first time. The unit, which includes the online retail bank, Marcus, as well as its credit card business, reported a 23% jump in revenue to $228 million during the fourth quarter.

Rivals JP Morgan Chase & Co, Citigroup and Bank of America boast of much larger consumer businesses.

“Overall, the provision missed and comp ratio was higher than expected, so results look weak this quarter excluding the equity investment gains,” said analysts at Keefe, Bruyette & Woods in a note to clients.

TRADING REBOUND

Despite a slump in profit, the bank posted robust revenue growth as three of its four main reporting lines performed strongly.

Revenue from global markets, which houses the trading business, jumped 33% to $3.48 billion, thanks partly to easier comparisons from a year earlier when financial markets were roiled by uncertainty related to trade and global growth.

Bond trading surged 63% to $1.77 billion.

The strong performance from trading mirrored similar trend at other major rivals - JPMorgan Chase (JPM.N), Citigroup (C.N) and Bank of America (BAC.N).

The only sore spot for Goldman during the quarter was investment banking, where revenue fell 6% to $2.06 billion, hurt by lower M&A advisory fees, as well as a slowdown in corporate lending.

The bank’s net earnings applicable to common shareholders fell to $1.72 billion in the quarter ended Dec. 31 from $2.32 billion a year earlier. Earnings per share fell to $4.69 from $6.04.

Analysts on average had expected earnings of $5.47 per share, according to the IBES estimate from Refinitiv.

Operating expenses jumped 42% to $7.3 billion.

Total net revenue, however, jumped 23% to $9.96 billion.

Reporting by Anirban Sen in Bangalore and Elizabeth Dilts in New York; Editing by Anil D'Silva

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