Goldman Sachs tops 4Q net income expectations, meets revenue forecasts

Goldman Sachs’ profit slumped for the third straight quarter as a $5bn settlement of crisis-era legal claims ate into earnings and trading woes impacted profits during a tumultuous three months.

Profits fell by 70% to $574m (£404m) from the same quarter in 2014.

“All banks are adjusting to lower levels of client activity”, said Stephen Biggar, an analyst at Argus Research.

Its latest results were hit by a $1.95bn in legal fees stemming from the financial crisis.

Revenue dropped about 5 per cent to $US7.27 billion from $US7.69 billion, but beat analysts’ estimates.

Part of that bill was charged to the latest quarterly results.

Fourth quarter earnings were dented by Goldman’s provisions, announced last week, for the settlement with the US Justice Department and other law-enforcement agencies for residential mortgage-backed securities it sold between 2005 and 2007.

The bank missed in the third quarter, adjusted earnings per share of $2.64 ($3.00 expected) on revenue of $6.86 billion ($7.12 billion expected).

Excluding litigation and regulatory costs, Goldman reduced non-compensation costs by about 7.2 percent, according to Reuters calculations.

The company said its bottom line totaled $574 million, or $1.27 per share.

Trading revenue fell 9 per cent to $US2.88 billion from $US3.15 billion in the same quarter a year earlier.

Investment Banking revenues of $1.55B up 7% Y/Y. The bank, which competes with Morgan Stanley in stock trading, reported lower equities revenue for full-year 2015 than its rival. The firm earned $7.27 billion during the quarter, compared to analysts’ expectations of $7.04 billion.

Fixed income, currency and commodity trading, a key division at the Wall Street firm, fell 8 per cent to $US1.12 billion from $US1.22 billion a year earlier due mostly to weakness in commodities. Morgan Stanley said Tuesday that it brought in $1.82 billion from stock trading in the fourth quarter and $8.13 billion for all of 2015, cementing its status as the biggest in that business.

Return on equity, a measure of how profitably Goldman uses shareholder’s money, was 7.4 percent for 2015, well below the 30 percent or so the bank achieved before the financial crisis. The Company is a global investment banking, securities and investment management company that provides a range of financial services to a diversified client base that include corporations, financial institutions, Governments and individuals.

The settlement reduced earnings by $3.41 a share.