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Goldman Sachs tops revenue expectations, but quarterly profit hit by $1.1 billion legal bill

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Goldman Sachs on Wednesday beat analysts’ estimates for revenue, but quarterly profit was marred by a $1.1 billion litigation charge.

The New York-based bank posted quarterly revenue of $9.96 billion, a 23% increase and more than $1 billion higher than the $8.51 billion expected by analysts.

But quarterly profit was stung by the litigation charge, driving a 22% decline in earnings to $4.69 per share. Excluding the legal expense, which stems from an impending settlement of the bank’s 1MDB scandal, profit was $7.64 per share, which would have exceeded the $5.47 estimate of analysts surveyed by Refinitiv.

Shares of the bank were unchanged after being in the red earlier Wednesday. 

“Strong performance in the fourth quarter helped us to deliver solid results for the year, while continuing to invest in new businesses,” CEO David Solomon said in the release. “We aim to drive higher returns in the future, and look forward to sharing our strategic goals and financial targets at Investor Day later this month.”

The bank’s global markets division, by far its largest business, posted a 33% increase in revenue to $3.48 billion as bond trading revenue jumped 63% to $1.77 billion, exceeding the $1.16 billion estimate by more than $500 million. Stock trading climbed 12% to $1.71 billion, essentially matching analysts’ estimate.

Another factor in the bank’s sales beat was the 52% increase in asset management revenue to $3 billion on gains in public and private equity holdings. That is an activity that used to be disclosed in its investing and lending division before the bank changed its reporting lines this month.

Investment banking revenue slipped 6% to $2.06 billion on a drop in advisory and corporate lending fees as merger activity slowed in the last three months of 2019.

In the firm’s new consumer and wealth management division, revenue climbed 8% to $1.41 billion on rising assets under management and deposits. But the nascent consumer efforts, which includes the firm’s popular credit card with Apple, also helped drive a 51% increase in credit loss provisions to $336 million as retail loans soured.

Solomon has had a busy few months. Last week, Goldman disclosed that it is reorganizing its businesses to more closely resemble its big-bank peers and give retail banking operations its own category for the first time. It also released a mobile app for its Marcus consumer finance business.

The bank is in advanced negotiations with the Department of Justice to pay about $2 billion to resolve an investigation into the 1MDB scandal, according to people with knowledge of the matter. The firm will likely have to create an independent monitor to oversee compliance efforts, the people said.

Goldman bankers have been accused of helping a Malaysian financier plunder billions of dollars from the $6.5 billion 1MDB investment fund, money that was meant to spur the country’s economic development.

But more importantly to investors, later this month Goldman is holding its first-ever investor day, where Solomon will disclose the results of a business review and his plans to turbocharge growth and hit new financial targets.

Goldman shares climbed 37% last year, but the bank still has the lowest valuation among the big six U.S. lenders, a situation Solomon would like to remedy.

Also Wednesday, posted higher-than expected profits on a rebound in trading revenue. On Tuesday, J.P. Morgan and Citigroup posted profit that beat analysts’ expectations on surging bond-trading results and strong revenue from credit-card operations. Wells Fargo missed analysts’ profit estimates as it booked costs tied to its fake accounts scandal.

Here’s what Wall Street expected for Goldman:

Earnings: $5.47 a share, a 9.5% decline from a year earlier, according to Refinitiv.
Revenue: $8.51 billion, a 5.3% increase from a year earlier.
Trading Revenue: Fixed Income $1.16 billion, Equities $1.72 billion.
Investment Banking Revenue: $1.86 billion.

Source: Earnings