Global investment banking leader Goldman Sachs (GS – Free Goldman Stock Report) reported mixed financial results for the fourth quarter of 2019. Revenue of $13.8 billion was about 10% higher than the year-ago figure and 3% better than our estimate. However, earnings per share of $4.69 marked a significant decline from the $6.04 sum for the fourth quarter of 2018, and fell short of our $5.99 call. Shares of Goldman Sachs traded lower on the news.
Part of the reason for the reduced profit margin was a steep increase in provisions for litigation and regulatory proceedings. This was likely connected to the U.S. Justice Department's investigation into the company's dealings with 1MDB, a Malaysian fund implicated in a corruption scandal. Also boosting expenses were Goldman's expansions into the credit card and retail banking arenas, both of which are aimed at diversifying the company's revenue base over the long term.
On the brighter side, the top line benefited from a 52% increase in Asset Management revenues, which reflected strong gains in public equities compared with net losses in the previous-year period, as well as higher gains from investments in debt instruments. The investment banking behemoth also saw solid growth in its Global Markets segment, which was largely owed to a sharp advance in fixed income revenues. However, a decline in Investment Banking revenues, reflecting slower merger and acquisition activity, as well as fewer initial public offerings, provided a partial offset.
In light of stronger-than-expected companywide revenue growth and increased costs as a result of Goldman's expansion into new businesses, we have adjusted our 2020 estimates slightly. Whereas we had previously foreseen revenues of $55 billion, we now anticipate a $57 billion sum. Meanwhile, we have lowered our share-net call from $26.00, to $24.00.
All told, we believe the high-quality shares of Goldman Sachs are a solid long-term investment on a risk-adjusted basis.
About The Company: The Goldman Sachs Group, Inc. is a leading global investment banking, securities, and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments, and individuals.
– Adam J. Platt
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
