By Peter Rudegeair 

Goldman Sachs Group Inc. reported sharply higher profit for the fourth quarter, punctuating a turbulent year in which the Wall Street firm benefited from the markets' quick recovery from the worst of the pandemic-induced recession.

Goldman on Tuesday reported quarterly profit of $4.51 billion, or $12.08 a share, more than double its level from the same quarter a year ago. Revenue of $11.74 billion was 18% above 2019's fourth-quarter level. Both measures were much better than the expectations of analysts polled by FactSet, who forecast profit of $7.39 a share on revenue of $9.99 billion.

Full-year revenue at Goldman of $44.56 billion was the most since 2009, while annual trading revenue reached a 10-year high.

For the U.S. banking industry, 2020 was a roller coaster year. Markets plunged and economic activity declined in the spring as coronavirus spread across the country. With many businesses closed and many consumers out of work, banks girded themselves for widespread defaults. A robust federal spending program helped forestall the worst-case economic scenario, and in earnings reports last week, bank executives signaled the economy has held up better than expected.

On Friday, JPMorgan Chase & Co. said fourth-quarter profit soared 42% to a record $12.14 billion after the bank released $2.9 billion from its stockpile of funds previously set aside to cover soured loans. On Tuesday, Bank of America Corp. said profit fell 22% but topped analysts' expectations after it released $828 million from its loan-loss reserves.

With its relatively small loan book and heavy exposure to underwriting and trading securities, Goldman was better placed than peers for the environment of the past several months. Initial public offerings, corporate borrowing and major stock indexes hit new records in 2020, all trends that Goldman capitalized on.

Trading revenue rose 23% from a year earlier to $4.27 billion. The firm's investment bankers brought in $1.64 billion in fees from helping to arrange corporate stock and bond offerings, up 68% from a year earlier, as well as $1.1 billion in merger fees.

Quarterly revenue in the bank's asset-management division, which includes funds and investments Goldman manages for itself and for clients, rose 7% to $3.21 billion. Revenue in Goldman's consumer and wealth-management division, which includes its Marcus consumer bank as well as its team serving high-net-worth clients, rose 17% to $1.65 billion for the quarter.

Goldman's profit has been less impacted by large provisions for future expected charge-offs, given the nascency of its corporate-banking and consumer-finance offerings. Still, the bank set aside $293 million for loan losses in the fourth quarter, in part on higher expected charge-offs in its new credit-card business.

Shares in Goldman rose some 60% since the end of October to hit an all-time high of $307.87 last week, vaulting the bank's market value above $100 billion. The rally in Goldman's stock followed news that the firm reached a $2.9 billion settlement with the Justice Department over a yearslong investigation into its role assisting a corrupt Malaysian government fund known as 1MDB.

Operating expenses in the fourth quarter were $5.91 billion, down 19% from the same period in 2019. At the company's January 2020 investor day, Goldman executives said they were looking to cut $1.3 billion in annualized expenses over the next three years. Compensation expenses fell 19% to $2.48 billion. For the year, compensation expenses were roughly 30% of revenue.

The bank's return on equity, a measure of how profitably it uses shareholders' money, was 21.1% in the fourth quarter.

Write to Peter Rudegeair at Peter.Rudegeair@wsj.com

 

(END) Dow Jones Newswires

January 19, 2021 08:46 ET (13:46 GMT)

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