Goldman Sachs Group Inc. turned in a better-than-expected profit during David Solomon’s first quarter at the helm, helped by dealmakers in the division the new chief executive once oversaw.
A 56-per-cent jump in M&A fees as well as higher equities-trading revenue during a volatile quarter for stocks helped offset another decline in bond trading, a business whose structural issues have forced Goldman to rethink its overall business model.
Shares of the fifth-largest U.S. bank surged more than 8 per cent in midday trading on Wednesday.
Using a plan Mr. Solomon co-developed in 2017, Goldman Sachs is trying to generate US$5-billion in additional annual revenue by growing its consumer operation, wooing new institutional customers and persuading existing clients to do more business with the bank.
“We will not be complacent waiting for the market to return,” Mr. Solomon said on a conference call with analysts, referring to bond trading.
The comments broke with a precedent set by previous CEO Lloyd Blankfein, who did not publicly speak to analysts each quarter.
Mr. Solomon also addressed Goldman’s involvement in the Malaysian 1MDB scandal, apologizing for a former employee’s role while defending the broader bank’s innocence.
Goldman reported a profit of US$2.3-billion, or US$6.04 a share, in the fourth quarter. That compared with a loss of US$2.1-billion, or US$5.51 a share, in the year-ago period when the bank took a big one-time hit from the U.S. tax code overhaul.
Analysts had expected a profit of US$4.45 a share, according to IBES data from Refinitiv. Analysts said the bank handily beat consensus expectations when taking into account one-time items.
Goldman’s total revenue was US$8.1-billion, greater than analysts’ average estimate of US$7.6-billion. The biggest line-item gain was the US$1.2-billion of M&A advisory fees Goldman reported.
The bank’s US$1.6-billion of quarterly equities trading revenue was up 17 per cent, with bond trading revenue dropping 18 per cent to US$822-billion. Goldman took in more than US$6-billion in quarterly bond-trading revenue at the business’s peak.
Goldman tends to be more sensitive to market fluctuations than peers that have large, stable revenue streams from other businesses.
Even so, Wall Street banks including JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. reported similar trends this week, with their bond trading down 15 per cent to 21 per cent. The industry also reported declines in stock and bond underwriting revenue, which was expected.
Under Mr. Solomon’s plan, Goldman is trying to look more like its rivals by growing its fledgling consumer bank, expanding further into wealth management and building a corporate cash management business.
Growing deposits from consumers and businesses will also help Goldman lessen its cost of funding. The bank has so far gathered US$35-billion in deposits from its Marcus consumer business, including US$7-billion from its recent expansion into Britain, chief financial officer Stephen Scherr said on the call.
Despite its efforts, Goldman’s shares have been underperforming peers thanks to worries about its possible exposure to 1MDB-related costs.
“The 1MDB situation is like the real hold up for people right now,” Evercore ISI analyst Glenn Schorr said.
The bank added US$844-million to its legal and regulatory provisions last year, more than four times what it set aside in 2017, although it did not specify the purpose.
Goldman’s stock has fallen 30 per cent over the past 12 months and is trading at a discount to its tangible book value.