Goldman Sachs Group Inc.
third-quarter profit nearly doubled, the latest confirmation that, even in a pandemic and a recession, Wall Street can still make money.
Goldman reported a quarterly profit of $3.62 billion, or $9.68 a share, on revenue of $10.78 billion. Both measures were better than the expectations of stock analysts, who forecast $1.94 billion in profit, or $5.54 a share, on revenue of $9.38 billion. Goldman posted a profit of $1.88 billion, or $4.79 a share, in the third quarter of 2019.
Worries that the coronavirus would rival 2008 as a threat to the U.S. financial system have subsided for now. Banks’ trading fees have surged. Bond investors’ appetite has allowed companies that borrowed billions from banks in emergency loans this spring to pay them back. Big corporate bankruptcies have leveled off.
Pain may still lie ahead, especially if unemployment stays high and a resurgence in the virus sparks new or tougher lockdowns. But unlike the 2008 crisis, when banks posted multibillion-dollar losses, today’s lenders are still squarely in the black. And they aren’t facing the same investor panic that sparked fatal bank runs last time around.
& Co. doubled from the second quarter and was 4% higher than a year ago, when the U.S. economy was booming. After socking away some $19 billion earlier this year as a cushion for expected loan defaults, the bank added only modestly to that number in the quarter.
Bank of America Corp.
were profitable, too, though less so than a year ago.
Goldman has had a relatively easy crisis so far. Efforts by the Federal Reserve to support markets have allowed the firm to move loans off its books and reap fees by buying and selling securities. And with a smaller lending book—about $112 billion as of Sept. 30 to JPMorgan’s nearly $1 trillion—it is less exposed to defaults.
Trading revenue rose 29% from a year ago to $4.55 billion. The firm’s investment bankers brought in $1.43 billion in underwriting fees, up 60% from a year ago thanks to a surge in companies going public, which compensated for a drop in merger fees. And Goldman’s own portfolio of equity investments rallied along with the stock market.
Goldman set aside $278 million for loan losses, in part on higher expected charge-offs in its new credit-card business. But that was less than one-fifth of what it set aside in the second quarter.
The bank’s return on equity, a measure of how profitably it uses shareholders’ money, was its highest since 2010. And it got some breathing room with regulators by raising its capital levels above a new minimum level put in place this month.
Results at big commercial banks were boosted because they set aside less money for potential loan losses as they had earlier in the year, reflecting either a rosier outlook or an abundance of caution back in the spring.
Still, without renewed stimulus measures, including an expansion of unemployment benefits, executives warned that losses could mount. JPMorgan’s James Dimon on Tuesday said the country was still at risk of a double-dip recession, which could cost his bank an additional $20 billion in loan losses.
The coronavirus recession sets a troublesome background for what was already going to be a high-wire act for Goldman. The Wall Street firm is in the early innings of a yearslong pivot that Chief Executive David Solomon hopes will boost revenue, make it less vulnerable to market swings and snap its stock price out of a yearslong sideways drift.
Some of those moves are likely undisturbed by a recession—and may even be aided by it, such as a plan to raise $100 billion in new private-equity funds by 2025. Investment bargains will emerge from the economic wreckage. And with interest rates likely to stay near zero for years, investors are flocking to complex and opaque investments that offer higher returns.
Others, though, look riskier with the economy in a funk. Goldman’s new consumer bank specializes in unsecured loans and credit cards, the kind of bills that often go unpaid in times of financial hardship and aren’t backed by collateral. That business, for now, looks fine: Revenue rose 50% from a year ago to $326 million.
One cloud still hanging over the firm is the resolution of a yearslong investigation into its dealings with a Malaysian investment fund. Earlier this year it agreed to pay up to $3.9 billion to Malaysia’s government, and is continuing negotiations with the U.S. Justice Department over a fine that The Wall Street Journal has reported could top $2 billion.
The firm has $3.15 billion set aside to cover all its expected litigation and regulatory matters, a number it didn’t meaningfully add to in the third quarter.
Write to Liz Hoffman at [email protected]
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