Goldman Sachs profit misses estimates on higher costs
Goldman Sachs Group Inc (GS.N) on Wednesday reported quarterly profit that missed analysts' estimates by a wide margin, hurt by weakness in its investment banking business and higher operating costs.
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. Revenue from investment banking fell 6% to $2.06 billion, hurt by lower M&A advisory fees, as well as a slowdown in corporate lending.
Total net revenue, however, jumped 23% to $9.96 billion as three of its four main reporting lines performed strongly.
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.
Operating expenses jumped 42% to $7.3 billion. Provision for credit losses rose 51% to $336 million in the fourth quarter, while the bank recorded net provisions of $1.24 billion for 2019, mainly due to legal costs related to the 1MDB litigation. Under Chief Executive Officer David Solomon, Goldman has undertaken a major shift in strategy from its focus on trading to building a bigger consumer business in a bid to shield its revenue from wild swings in financial markets.
Last week, Goldman unveiled the size of its consumer business for the first time. The unit, which includes the online retail bank, Marcus, and 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.
When Goldman Sachs released a long-awaited app for customers of its Marcus consumer bank last week, it did so with little fanfare or hype. Unlike the intense attention on its last retail product, the Apple Card, the launch of the bank's Marcus app was heralded by little more than a smattering of user reviews. But the app may prove to be far more important to Goldman than its credit card partnership with Apple. That's because the portal, which today lets customers check balances and set up recurring transactions, will one day serve as the bank's storefront and one-stop shop for an array of digital banking services, according to Adam Dell, a Goldman Sachs partner and head of product at Marcus.
"Over time, our ambition is to extend the capabilities of the Marcus app and have that be the centerpiece of our consumer-facing experience," Dell said in an exclusive interview.
The app comes at a crucial time for Goldman. Ahead of the bank's first-ever investor day later this month and earnings report this week, shareholders are eager to hear about how 3-year-old Marcus will drive revenue growth. Last week, Goldman, which has served corporations, heads of state and rich individuals for most of its 150-year history, changed its reporting lines to give its retail operations a stand-alone division for the first time.
Goldman executives like Dell - an entrepreneur and brother of billionaire Michael Dell who joined Goldman in 2018 after selling his start-up to the bank for $100 million - have made no secret of their intention to beat big retail banks at their own game. That means expanding Marcus from its two products - savings and personal loans - to potentially include wealth management, mortgages, car loans, insurance and cards beyond the Apple Card.
Dell, who is a part of a recent wave of outsiders to join Goldman at the senior-most partner level, said the firm spent much of last year planning, building and testing the app with hundreds of employees.