Goldman shares drop after earnings miss estimates on surging expenses, equites trading slowdown – CNBC

David M. Solomon, Chairman and CEO of Goldman Sachs, speaks during the Milken Institute’s 22nd annual Global Conference in Beverly Hills, April 29, 2019

Mike Blake | Reuters

Goldman Sachs on Tuesday posted fourth-quarter profit below analysts’ expectations as the bank’s operating expenses surged 23% on higher pay for Wall Street workers and increased litigation reserves.    

Here are the numbers:

  • Earnings: $10.81 a share vs. $11.76 estimate, according to Refinitiv
  • Revenue: $12.64 billion vs. $12.08 billion estimate.

The bank said quarterly profit fell 13% from a year earlier to $3.94 billion, or $10.81 a share, below the $11.76 estimate of analysts surveyed by Refinitiv. While analysts had anticipated that a slowdown in trading would impact the quarter, equities desks posted revenue that was $300 million below the $2.43 billion estimate.

Still, companywide revenue in the quarter jumped 8% from a year earlier to $12.64 billion, more than $500 million above the consensus estimate, on gains in investment banking and wealth management.

Just as at rivals JPMorgan Chase and Citigroup, Goldman Sachs saw expenses rise in the quarter as the firm had to pay employees more after another year of outperformance.

Goldman said operating expenses in the quarter jumped 23% to $7.27 billion, exceeding the $6.77 billion estimate of analysts surveyed by FactSet. The bank cited “significantly higher” pay and benefits for its employees, technology expenses and $182 million set aside for litigation and regulatory costs, compared with $24 million in the year-earlier period.

Shares of the bank dropped 4.1% in premarket trading.

Goldman Sachs has thrived during the past two years — a booming period in capital markets that suited the bank’s Wall Street-centric business model.

Now, how will CEO David Solomon’s bank navigate the next phase?

The question is timely because the red-hot trading markets of the past year are expected to cool down in 2022. Fixed income trading in particular is expected to decline in the fourth quarter.

That’s expected to be offset by robust investment banking revenue amid a high rate of mergers and SPAC deals. Analysts will be keen to ask Solomon how the transaction pipeline looks in early 2022.

While trading revenue is expected to normalize from a record period, retail banks have gained favor with investors lately. That’s because big bank peers like Wells Fargo and Bank of America are expected to prosper as interest rates rise.

Goldman’s nascent retail banking business is still a relatively small contributor to its bottom line, but analysts will want to know how management expects to capture emerging opportunities in fintech.

Besides its Marcus consumer banking division, with loans, savings and a personal finance app, that includes a new corporate cash management offering and Goldman’s foray into cloud computing for hedge fund clients.

Shares of Goldman have fallen less than 1% this month before Tuesday after jumping 45% last year.

Last week, JPMorgan Chase, Citigroup and Wells Fargo all posted fourth-quarter results that topped estimates, but shares of JPMorgan and Citigroup sold off on higher-than-expected expenses. Bank of America and Morgan Stanley close out big bank earnings on Wednesday.  

This story is developing. Please check back for updates.

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Goldman shares drop after earnings miss estimates on surging expenses, equites trading slowdown – CNBC

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