Goldman Sachs, led by David Solomon, reported quarterly results Wednesday.
Photo: olivier douliery/Agence France-Presse/Getty ImagesGoldman Sachs Group Inc.’s profit fell 46% in the first quarter, a three-month stretch when the coronavirus pandemic battered markets, companies and investors hoarded cash and the U.S. economy ground to a halt.
The Wall Street bank reported a quarterly profit of $1.21 billion, or $3.11 a share, down from $2.25 billion a year ago. Revenue of $8.74 billion was basically flat from the first quarter of 2019.
The results met muted expectations from Wall Street analysts but held up slightly better than rivals JPMorgan Chase JPM -2.74% & Co. and Wells Fargo WFC -3.98% & Co., which both reported steep declines in quarterly profits Tuesday. Analysts polled by FactSet had expected earnings of $1.4 billion, or $3.11 per share, on revenue of $8.3 billion.
The first three months of 2020 presented banks their most daunting challenges in more than a decade, with interest rates falling near zero and the global economy in free fall. Companies tapped their credit lines—$144 billion in a single week in March alone, according to Morgan Stanley analysts—an unprofitable and anxiety-producing development for their lenders. Nearly 17 million Americans have sought unemployment benefits in the past three weeks.
JPMorgan Chase, the largest U.S. bank, reported a 69% drop in quarterly profits Tuesday. Wells Fargo, another giant, posted an 89% decline.
Still, most of the pain for banks is yet to come. As a proxy for the economy, bank results tend to be lagging indicators of trouble. Nearly one-third of U.S. renters didn’t make their April monthly payments, a move that will take a few weeks to ricochet through the mortgage market. Credit-card balances are likely to go unpaid, too.
JPMorgan and Wells Fargo socked away an extra $10 billion between them to cover expected loan losses. At Goldman—a smaller firm whose roots are in Wall Street investment banking, not Main Street commercial banking—that number was $937 million, nearly as much as the $1.07 billion it set aside in all of 2019.
Its investment portfolio—the equities and debt securities it holds—took an $868 million loss. Investors have long questioned that segment, criticizing it as opaque and unpredictable, and Goldman proved unable to avoid the bloodshed in markets, which swung wildly during the quarter.
For all of Goldman’s changes in recent years, which include an embrace of consumer lending and money management, the firm still leans heavily on its traders and investment bankers.
That can cut both ways in wild markets like in early 2020, providing opportunities they don’t get in calm times but also exposing them to risks that are hard to manage. (JPMorgan posted a 32% rise in trading revenue, but also took $900 million in quarterly losses on derivatives it held on its books.)
Goldman’s trading revenue rose 28% to $5.16 billion. Its fixed-income traders, who deal in everything from bonds to commodities to interest-rate products, had their best quarter in five years. Groups that help clients wager and manage volatility in asset prices flourished, too.
Revenue from mergers fell 11%, though that is less a reflection of the economic outlook because bankers collect their fees only when deals are completed, typically months after they are struck. Revenue from stock and bond offerings rose 29%.
Goldman’s $1.3 trillion money-management arm reported losses in its debt and equity investments as both stock and bond prices plummeted.
All eyes are on Goldman’s nascent consumer bank, Marcus, where it makes small personal loans and offers online savings accounts. When Goldman launched the business in 2016—in what already appeared to be the late innings of a heady run in consumer confidence—it told investors it was focused on “through-the-cycle” profits, corporate-speak for looking past any downturn that would result in early losses.
Goldman had $4.7 billion in outstanding consumer loans as of Dec. 31, and another $13.7 billion in credit lines made available to, but undrawn by, holders of its Apple Inc. co-branded credit card.
Read More
- Bank of America Profit Falls 45% As It Prepares for Loan Defaults
- JPMorgan, Wells Fargo Profits Tumble as Banks Brace for a Recession
- Bank Stocks Are in a Ditch. Earnings Won’t Change That. (April 12)
- Fed Eases Wells Fargo’s Asset Cap to Lend to Small Businesses Harmed by Coronavirus (April 8)
- Wells Fargo Curtails Jumbo Loans Amid Market Turmoil (April 4)
- Fed Temporarily Eases Capital Requirements for Big Banks (April 1)
Write to Liz Hoffman at liz.hoffman@wsj.com
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