16 Jan 2020
Eight years ago, Goldman Sachs Group Inc. bankers sold bonds on behalf of a little-known Malaysian investment fund.
On Wednesday, the fallout from that deal wiped out about 13% of the bank’s 2019 profits and darkened otherwise strong results. Goldman socked away an extra $1.1 billion late last year to help pay for an expected settlement with regulators, who allege the bank overlooked signs of corruption at the Malaysian fund, known as 1MDB, in pursuit of fees.
The Wall Street Journal previously reported that Goldman is negotiating to pay the U.S. Justice Department a fine of about $2 billion and plead guilty to violating antibribery laws.
The legal reserves pushed Goldman’s return on equity—a closely watched measure of shareholder value—to 10% for the year, the worst among big banks that have reported financial results so far. Costs also rose as Goldman spends heavily on new initiatives, such as consumer banking and wealth management.
The result: Goldman’s annual profit fell 19% even as revenue held steady.
The bank hasn’t gotten the boost from consumer spending and borrowing seen by JPMorgan Chase & Co. and other big Main Street banks. It remains more dependent on traditional Wall Street operations of deal making and securities trading, which held up well in the quarter but where growth is harder to come by.
In the fourth quarter, Goldman’s investment bankers posted their second-best quarter ever and its struggling bond-trading arm showed signs of life. But both were overshadowed by the 1MDB legal charge and higher expenses. Goldman fourth-quarter profit fell 24% to $1.92 billion, even as revenue rose to $9.96 billion.
The results provide a creaky dais for Goldman’s coming investor day on Jan. 29, when Chief Executive David Solomon will lay out his plans to get the firm growing again. He has promised new financial targets that investors will be able to judge his administration by.
By Liz Hoffman, The Wall Street Journal, 15 January 2020
Read more at The Wall Street Journal
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