Investor bank’s 4Q gain doubles
Goldman-Sachs helped by trades
NEW YORK — Goldman Sachs said Tuesday its profits more than doubled from a year earlier thanks to a surge in both trading and advising revenue.
The New York-based investment bank said it earned a fourth-quarter profit of $4.36 billion, or $12.08 per share, up from a profit of $1.72 billion, or $4.69 a share, in the same period a year earlier. The earnings were significantly better than the $7.45-pershare profit that analysts were expecting.
Meanwhile, Bank of America’s fourth-quarter profits fell 18% from a year ago, as lower interest rates weighed down its results. However the bank was able to release more than $800 million from its credit reserves, a sign that it sees the U.S. economy improving in the coming months.
Goldman’s results reflect that Wall Street had a strong year, despite the pandemic and millions of Americans out of work. After plunging sharply in March and April, the stock market went basically straight up for seven months as investors tried to look beyond the near-term death and pain and focus on where the U.S. economy will be in a year or two years’ time.
Goldman’s profits were
driven higher by its investment bank and trading desks, the cornerstone to the bank’s business models. Investment banking revenue was up 29% from a year earlier to $2.73 billion. The bank saw higher underwriting revenue — fees the bank collects to take companies public or underwrite debt they want to offer — as well as trading revenue, which rose 23% from a year earlier.
The bank also saw revenue gains in its wealth management arm as well is nascent consumer banking business, which focuses on consumer loans, savings accounts as well as handling the underwriting for Apple’s credit card. Like its competitors, Goldman also moved some of the money it had set aside to cover credit losses out of its reserves. However Goldman’s exposure through consumer and business loans is significantly smaller than commercial banks like Citigroup, JPMorgan Chase and Wells Fargo so it wasn’t a significant part of its overall results.
The stellar quarter also will result in stellar bonuses for Goldman’s well-compensated employees. The bank set aside $13.31 billion to pay out bonuses and payroll this year, up 8% from a year earlier. Most of Goldman’s top employees make most of their money in year-end bonuses.
BANK OF AMERICA REPORT
Separately, Bank of America said Tuesday that it earned a profit of $5.47 billion, or 59 cents a share, down from a profit $6.99 billion, or 74 cents per share, in the same period a year earlier. Analysts were expecting the bank to earn 56 cents a share, according to Zacks Investment Research.
Like its Wall Street competitors, North Carolinabased Bank of America was able to release hundreds of millions of dollars from its loan-loss reserves — money the bank had set aside earlier in the pandemic to cover loans that might be now be unpayable. But as the economy has relatively improved, banks have been able to free up some of those reserves.
In the quarter, Band of America released $828 million from its credit reserves. This type of release goes straight to a bank’s bottom line, but it’s largely because the money was moved out of an escrow-like account and was now free to be used again.
Low interest rates were the biggest drag on the bank’s results compared with last year. The Federal Reserve sharply cut rates once the pandemic hit. Bank of America’s balance sheet is heavily weighted toward short-term interest rates, so it was hit harder than the rest of its competitors. Interest revenue in the quarter went from $12.14 billion to $10.25 billion.