Goldman Sachs profit drops after $5bn mortgage-backed bond settlement

Goldman Sachs Blink

Goldman Sachs’ profit slumped for the third straight quarter as a $5bn settlement of crisis-era legal claims ate into earnings and trading woes impacted profits during a tumultuous three months.

Despite the settlement, Goldman Sachs beat analysts’ expectations on Wednesday when it reported that its 2015 net revenue was $33.82bn. Revenue for the fourth quarter was $7.27bn, down from $7.69bn a year ago. It was, however, more than the $7.07bn that the analysts expected.

Analysts also expected the bank to report earnings of about $3.53 a share.

Goldman, the last of the big US banks to release fourth quarter earnings, reported a 71.8% fall in net income applicable to common shareholders to $574m, or $1.27 a share, from $2.03bn, or $4.38 a share, a year earlier.

Last week, Goldman Sachs said it will pay $5.06bn to resolve civil claims related to the firm’s securitization, underwriting and sale of residential mortgage-backed securities from 2005 to 2007. The bank expected the agreement to reduce fourth quarter earnings by about $1.5bn after tax.

The settlement reduced earnings by $3.41 a share. Adjusted earnings were $4.68 a share.

Goldman Sachs also announced that it ranked first worldwide in completed mergers and acquisitions for the year. In 2015, it advised on completed transactions valued at more than $1tn.

“We are pleased that our diversified business mix allowed us to deliver solid results in a year characterized by uneven global economic activity,” CEO Lloyd Blankfein said in a statement. “Looking ahead, we believe our strong global client franchise leaves us well positioned to generate superior returns over the long term.”

Blankfein’s statement echoed what he had said in October when the bank saw its third quarter revenues fall to $6.86bn from $8.39bn a year ago. At the time, he blamed global market fears for “lower levels of activity and declining asset prices”.

Goldman, like other banks, had a tough year as oil prices plummeted, concerns about China’s economy intensified, and nervousness about the timing and pace of US interest rate increases weighed on credit markets.

The new year has also started on a grim note, with oil prices falling to their lowest level in 13 years and stock prices dropping sharply around the world.

Goldman’s revenue from trading bonds, currencies and commodities (FICC) was $1.12bn, the lowest since the fourth quarter of 2008 during the depths of the financial crisis, during which the firm recorded losses from investments and trading credit products.

Bond trading by US banks has been declining since 2009, mainly due to new rules that discourage banks from taking unnecessary risks.

To increase its revenue, Goldman has turned to debt financing such as loans and bond underwriting for additional profit, the Wall Street Journal reported on Tuesday.

Reuters contributed to this report.

Powered by Guardian.co.ukThis article was written by Jana Kasperkevic in New York and agencies, for theguardian.com on Wednesday 20th January 2016 14.12 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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