Goldman Sachs Earnings Had Real Bright Spots, Despite Falling Stock

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Strip out the one-off litigation expense from Goldman Sachs’ fourth quarter and we have a strong looking business.

The stock fell 1.49% to $242 a share Wednesday.

Revenue for the quarter beat estimates, coming in at $9.9 billion, beating analysts estimate of $8.5 billion. Earnings per share, however, missed Wall Street estimates, coming in at $4.69 against expectations of $5.47.

“The increase in operating expenses compared with 2018 primary reflected significantly higher net provisions for litigation and regulatory proceedings,” the company said on its earnings release.

Driving much of the strong revenue was global markets revenue, which reflects trading revenue, grew 33% to $3.48 billion. Like Citigroup, fixed-income revenue was strong, growing 63%, albeit against an easy comparable in Q4 2018. The revenue number was $1.77 billion.

As for the litigation expense, the bank said stripping the cost out would result in a $3.16 lift to EPS, enabling a significant beat of expectations. Plus, return on tangible equity — net income as a percentage of total net assets — would have been 1.6 percentage points higher. The result was 9.2%, but would have been 10.8%, narrowly missing estimates of 10.9%. Banks have been making a hard push to leverage technology to produce earnings more efficiently.

The other bright spot was a $1 billion net interest income revenue line, beating estimates of $984 million. While net interest margin fell, the lower interest rate environment is clearly spurring loan demand across banks.