Back to top

Image: Bigstock

Goldman (GS) Q4 Earnings Beat Estimates, Revenues Climb

Read MoreHide Full Article

Aided by revenue strength, Goldman Sachs (GS - Free Report) reported fourth-quarter 2020 earnings per share of $12.08, significantly surpassing the Zacks Consensus Estimate of $6.99. Also, the bottom-line figure compares favorably with the earnings of $4.69 per share recorded in the year-earlier quarter.

The stock rallied more than 2% during pre-market trading, reflecting investors’ optimism with the results. Notably, the full-day trading session will display a clearer picture.

The bank’s results were aided by higher Fixed Income, Currency and Commodities Client Execution (FICC) revenues during the reported quarter. Also, the underwriting business displayed strength, supported by equity underwriting. In addition, wealth management and consumer banking business witnessed an upswing, reflecting rise in credit card loans.

Additionally, elevated financial advisory revenues, owing to the rise in industry-wide completed mergers and acquisitions transactions, acted as a tailwind. Moreover, fall in provisions and expenses remain favorable factors.

The investment bank, nevertheless, disappointed with the corporate lending and debt underwriting revenues.

For full-year 2020, net income per share of $24.74 came in higher than the year-ago earnings of $21.03. This reflects the second highest annual earnings per share reported by Goldman. Earnings also outpaced the Zacks Consensus Estimate of $20.53. Results included the impact of $9.51 related to net provisions for litigation and regulatory proceedings during the year.

Revenues Climb, Expenses Down

For full-year 2020, the company reported revenues of $44.6 billion, up 22% year over year. Further, revenues beat the Zacks Consensus Estimate of $42.5 billion.

Goldman’s net revenues were up 18% year over year to $11.74 billion in the October-December quarter. The revenue figure also beat the Zacks Consensus Estimate of $9.65 billion.

Quarterly revenues, as per business segments, are as follows:

The Investment Banking division generated revenues of $2.61 billion, up 27% year on year. Results reflect higher underwriting revenues (up 68%), supported by improved equity underwriting, partly offset by lower debt underwriting revenues. Yet, corporate lending reported negative revenues. Further, increased financial advisory revenues (up 28%) were on the upside owing to rise in industry-wide completed merger and acquisition transactions.

The Global Markets division recorded revenues of $4.27 billion, up 23% year over year. This uptick indicates record net revenues in Fixed Income, Currency and Commodities Client Execution (up 6%), fueled by solid revenues from credit products, currencies and commodities, partly offset by lower revenues in interest rate products and mortgages. However, FICC financing was on the downside.

Furthermore, higher equities revenues (up 40%) were recorded, aided by elevated equities intermediation.

The Consumer and Wealth Management division’s revenues of $1.65 billion came in 17% higher year over year during the December-end quarter. Increased revenues from wealth management (up 11%) and consumer banking (up 52%) resulted in this upsurge.

The Asset Management division recorded revenues of $3.21 billion, up 7% year on year. This upside mainly resulted from higher net revenues in lending and debt investments, along with elevated incentive and management and other fees.

Assets under supervision were $2.15 billion, up 15.6% year over year.

Total operating expenses dropped 19% year over year to $5.91 billion. Fall in compensation and benefits, travel and entertainment, and occupancy associated costs, partly negated by higher charitable contributions, transaction-based and technology expenses chiefly resulted in this decline.

Notably, net provisions for litigation and regulatory proceedings of $24 million were recorded compared with the prior-year quarter’s $1.09 billion.

Provision for credit losses was $293 million during the fourth quarter, down 13% from the prior-year quarter figure of $336 million due to reduced reserves on wholesale loans as the broader economic environment stabilized post COVID-19 pandemic impact earlier in 2020, partially negated by elevated provisions from growth in credit card loans.

Strong Capital Position

Goldman displayed a robust capital position in the reported quarter. As of Dec 31, 2020, the company’s Common Equity Tier 1 ratio was 14.7% under the Basel III Advanced Approach, highlighting valid transitional provisions. The figure was up from the prior-year quarter’s 13.3%.

The company’s supplementary leverage ratio, on a fully phased-in basis, was 7% at the end of the October-December quarter, up from the prior-year quarter figure of 6.2%.

Return on average common shareholders’ equity, on an annualized basis, was 21.1% in the quarter and 11.1% for the year 2020.

Capital Deployment Update

During 2020, Goldman repurchased 8.2 million shares of its common stock at an average price per share of $236.35 and a total cost of $1.93 billion and paid $1.8 billion of common stock dividends. Remarkably, share repurchases were made in first quarter of 2020.

The fourth-quarter 2020 includes around $448 million of common stock dividends.


Goldman’s results highlight an impressive quarter. A solid underwriting business, financial advisory and fixed income revenues are driving factors. In addition, the company’s well-diversified business, apart from its core investment banking operations, continues to ensure earnings stability.

The bank’s focus to capitalize on new growth opportunities through several strategic investments, including the digital consumer deposit platform, will likely bolster overall business growth. Nonetheless, costs rising from technology investments and market development, though controlled, remain near- to medium-term headwinds. Downtrend in corporate lending revenues is also likely to impede top-line growth.

Currently, Goldman sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.


Performance of Mega Banks

Successful cost-saving initiatives and unexpected release of reserves supported Wells Fargo’s (WFC - Free Report) fourth-quarter 2020 earnings of 64 cents per share, which surpassed the Zacks Consensus Estimate of 59 cents. Also, the bottom line compared favorably with the prior-year quarter figure of 60 cents.

Increased gains on equity securities and higher mortgage banking revenues supported the bank. Moreover, the company reflects prudent expense management. Further, a net benefit to provision of credit losses was reported during the quarter. Nonetheless, reduced net interest income on lower rates negatively impacted its results.

Citigroup (C - Free Report) delivered an earnings surprise of 53.3% in the fourth quarter on reserve releases. Income from continuing operations per share of $2.07 for the quarter handily outpaced the Zacks Consensus Estimate of $1.35. Results were, however, down 3.7% from the prior-year quarter.

Citigroup recorded higher market revenues during the reported quarter. Remarkably, the equity market revenues impressed on favorable market conditions and strong client volumes, driven by stellar derivatives, cash equities and prime finance performance. Furthermore, fixed income revenues were on an upswing, reflecting strength in products and commodities, partly offset by lower revenues in rates and currencies.

At the same time, investment banking revenues decreased on disappointing debt underwriting business and reduced advisory revenues, partly muted by higher equity underwriting. Corporate lending was also on the downside. Though reserve releases supported results, rise in expenses was a major drag.

Unexpected large reserve releases, along with solid capital markets performance, drove JPMorgan’s (JPM - Free Report) fourth-quarter 2020 earnings of $3.79 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $2.72.

Results included credit reserve releases. Excluding these, earnings amounted to $3.07 per share. The company had earned $2.57 in the prior-year quarter.

During the quarter, the company reported credit reserve releases, which led to net benefit of $1.9 billion. In a statement, the CEO Jamie Dimon said, “While positive vaccine and stimulus developments contributed to these reserve releases this quarter, our credit reserves of over $30 billion continue to reflect significant near-term economic uncertainty and will allow us to withstand an economic environment far worse than the current base forecasts by most economists.”

As expected, fixed income markets revenues increased 15% on strong performance across products. Likewise, equity markets revenues jumped 32% on the back of solid client activities. Also, historically lower rates drove mortgage fees and related income to $767 million, up 62%.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

Published in