The recession pandemic has created obstacles for most of the country’s largest banks. Not so for the Goldman Sachs Group Inc.
GS 5.40%
The Wall Street giant’s stock price closed at a record for the first time in almost three years, a sign of how much the bank profited from last year’s financial chaos. Its shares rose about 19% last month, far more than any of its five major competing banks.
Goldman’s shares have been static for years, a perpetual concern for Chief Executive David Solomon and that led him to break part of the bank’s famous secrecy a year ago. At the time, its trading business was weakening amid efforts to build a consumer bank and expand its wealth management businesses.
The pandemic has pushed many of these challenges aside. This spurred the roller coaster markets that boosted their traditional sales and trading businesses. Then, as markets recovered, their bankers made money by helping corporate clients sell debt and stocks.
The investment banking business has probably remained strong for the last three months of the year. Jefferies Financial Group Inc.
said on Monday that its investment bank revenue reached a record high in the fourth quarter, which analysts see as a favorable signal for larger competitors, such as Goldman.
Shares in the bank, which reports earnings at the end of the month, rose 5.4%, or $ 14.62, on Wednesday, beating the 2018 high. The prospect of rising interest rates after the second round of Georgia’s Senate election has largely raised bank stocks. Bank of America Corp.
jumped 6.3% and Wells Fargo & Co. rose 7.1%. Morgan Stanley added 6% and JPMorgan Chase & Co. rose 4.7%.
Unlike JPMorgan and Bank of America, Goldman does not have a large consumer bank. This held back the stock price during a 2019 high in bank stocks, when healthy U.S. consumers helped propel mega-banks to big profits.
But the coronavirus recession has made consumer exposure a liability, forcing banks to set aside tens of billions of dollars to prepare for potential loan losses. JPMorgan, the largest US bank in assets, was about 6.8% below its record at the close of Tuesday’s market. Goldman’s shares, in turn, outperformed most of its competitors in 2020 and 2021.
Other factors also raised Goldman’s stock price: the bank entered into a multi-billion dollar deal with the Department of Justice in October, closing the door to a lengthy investigation into its work for a corrupt Malaysian government fund known as 1MDB.
Billions of dollars that disappeared from Malaysia’s 1MDB have become one of the biggest financial scandals of all time, with Goldman Sachs agreeing to pay the US government more for its involvement than after the 2008 crisis. See how the alleged fraud happened and then it fell apart. Composite photo: Adam Falk (originally published on October 20, 2020)
In December, the Federal Reserve relaxed its pandemic restrictions on share buybacks. Repurchases can drive up a company’s stock price, withdrawing shares from the market and making earnings appear stronger per share.
Banks will be able to return capital in the first quarter, but it cannot exceed their average quarterly profit last year. This can benefit Goldman, in particular, because of its strong profitability.
Write to Ben Eisen at [email protected]
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