Goldman pledges concrete expense target after profit decline
Jan 16: Goldman Sachs Group Inc (GS.N) will set an expense target at its investor day later this month, management said on Wednesday, after the bank missed Wall Street profit expectations due to inflated costs.
A big portion of Goldman's bloated expense line came from setting aside another $1.1 billion to cover legal and regulatory costs related to the 1MDB Malaysian corruption scandal.
However, Goldman also spent more on compensation, technology, occupancy costs and professional fees, some of which pertained to new businesses, like the credit card it launched with Apple Inc APPL.O and its transaction banking business.
The bank's operating expenses rose 42per cent in the fourth quarter and 6per cent for the full year.
Overall, the bank spent 68 cents for every dollar of revenue it produced in 2019, up from 64 cents per dollar the prior year. Investors watch that efficiency metric closely, to gauge how well a company manages costs.
Several analysts quizzed Chief Executive Officer David Solomon and Chief Financial Officer Stephen Scherr about costs on an earnings call, asking when the bank's investments in various businesses will start paying off. Goldman spent roughly $700 million on growth initiatives in 2019, before taxes.
Management plans to offer an expense target "in very concrete terms" at its investor day on Jan. 29, Scherr said.
He also said Goldman will move away from a $5-billion fresh annual revenue target it outlined in 2017, confirming a Reuters report from November. The bank will instead set measures for returns and efficiency, which better represent its goals, Scherr said.
Scherr also mentioned that of its equity investments, which are investments the bank makes with its own money, it dumped its shares of Uber Technologies Inc (UBER.N) and reduced the amount of shares it owned in Tradeweb Markets Inc. (TW.O).
Goldman shares rose 0.3per cent to $246.34 in afternoon trading.
During the fourth-quarter, Goldman's profit fell 26per cent, to $1.7 billion, or $4.69 per share, from $2.3 billion, or $6.04 per share in the same period of 2018.
Analysts had expected a profit of $5.47 per share, on average, according to the IBES estimate from Refinitiv. Some said the bank beat estimates by a stretch when excluding legal and regulatory provisions.
All but one of Goldman's four new business units reported better quarterly results.
Global markets, which houses the trading business, reported $3.5 billion in revenue, up 33per cent, thanks to easy comparisons with the year-ago period. The strong trading performance mirrored trends at major rivals JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N) and Bank of America Corp (BAC.N).
The only sore spot for Goldman during the quarter was investment banking, where revenue fell 6per cent to $2.1 billion, hurt by lower M&A advisory fees, as well as a slowdown in corporate lending.
Goldman changed its reporting lines this month in response to long-standing requests for more transparency from analysts and investors. -Reuters