New York — Goldman Sachs Group has Wall Street’s biggest investment portfolio, a boast that became a liability in the first quarter as fallout from the coronavirus weighed on the firm’s holdings.
The business took an almost $900m hit that contributed to a 46% decline in profit, even as it included gains from pending private-equity sales. A strong showing in the trading operations, the firm’s biggest division, helped counter the damage as market volatility boosted demand for trading services.
Goldman’s large investing operation has helped drive some of its most profitable quarters. But it also leaves the firm more exposed to market gyrations, and executives have said they’re moving away from taking stakes with the firm’s own money to focus on raising more client funds. The company said it had “significant net losses” in debt securities and mark-to-market hits on the stock portfolio.
“Our quarterly profitability was inevitably affected by the economic dislocation,” CEO David Solomon said in a statement on Wednesday. “As public policy measures to stem the pandemic take root, I am firmly convinced that our firm will emerge well positioned to help our clients and communities recover.”
Goldman Sachs fell 5% to $169.25 in New York on Tuesday. The shares are down 26% in 2020 through to Tuesday, compared with a 30% decline for the S&P 500 Financials Index.
Equity and debt holdings slashed $890m from revenue, after generating almost $2.3bn of gains in the fourth quarter. The firm estimated in its annual 10-K filing in February that a 10% decline in the value of those holdings would cut $4.2bn from net revenue.
The company did not disclose which pending sales helped offset losses in its investing division. In February, Goldman announced the largest-ever private real estate transaction in the UK — the sale of a student-housing business to Blackstone Group. That along with the sale of AirTrunk, a data-storage business in Australia, are two deals that helped counter the quarter’s losses, a person familiar with the matter said.
Trading gains
The quarter’s wild market swings led to big gains for the trading operation, which posted a 28% surge in revenue on the best fixed-income performance in five years. Stocks that had climbed to record highs in January followed up with the steepest decline since the 1987 crash as the worst of the pandemic started to unfold.
It’s unclear if the trading boost will be sustainable, and a prolonged period of economic upheaval could knock the company off its strategy of boosting returns through expense cuts and improvements to its cost of funds.
Goldman’s investment bankers turned in their second-best quarterly performance on record, bringing in $2.2bn for the quarter, comfortably above analysts’ estimates.
The ups and downs at Goldman Sachs mirror the performance at JPMorgan Chase, which on Tuesday said trading revenue soared along with provisions for loan losses. Wells Fargo Wells also reported a plunge in first-quarter profit. Bank of America said Wednesday that it allocated $4.76bn for loan losses, the most since 2010.
Goldman has been making a bigger foray into consumer banking in the past few years. Its credit-loss provision more than quadrupled to $937m from $224m. The firm cited “pressure in the energy sector”, the impact of Covid-19 and new accounting standards.
Other highlights:
- Net income dropped 46% to $1.2bn, or $3.11 a share.
- Total revenue fell 1% to $8.7bn.
- Consumer deposits increased by a record $12bn to $72bn.
Bloomberg
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.