The epidemic recession has increased the odds for most of the country’s largest banks. Not so for Goldman Sachs Group Inc.
GS 5.37%
The Wall Street giant’s share price is on the verge of breaking records for the first time in nearly three years, a sign of how much profit the bank has made from the financial chaos of the previous year. Its stock has risen nearly 19% over the past month, far more than its five big-bank peers.
Goldman’s shares were stable over the years, a continuing concern for chief executive David Solomon and one that prompted him to peel back some of the bank’s well-known secrecy a year ago. At the time, its trading business was declining amidst efforts to build a consumer bank and grow its wealth-management business.
The epidemic pushed those challenges aside. This inspired roller-coaster markets that lifted their traditional sales-and-merchandise business. Then, as the markets bounced back, its bankers made money to help sell debt and equity to corporate customers.
Investment-banking business was probably strong in the last three months of the year. Jefferies Financial Group Inc.
Its investment-banking revenue broke records in the fourth quarter late Monday, which analysts saw as a favorable sign for larger competitors such as Goldman.
The bank’s shares, which report earnings later in the month, rose 5.4% on Wednesday morning, on pace to close the stock above its 2018 high. The prospect of an increase in interest rates after Georgia’s Senate runoff elections raised bank shares broadly. Bank of america Corp.
Wells & Fargo & Company jumped over 7%. Morgan Stanley climbed 6.4% and JPMorgan Chase & Co. climbed 4.8%.
Unlike JP Morgan and Bank of America, Goldman does not have a large consumer bank. Its share price rebounded during a bank stock rally in 2019, when healthy American consumers helped push Megabank into big profits.
But the coronova recession made that heavy consumer risk a liability, forcing banks to set aside tens of billions of dollars to prepare for a possible debt deficit. In terms of assets, America’s largest bank JP Morgan was down nearly 11% from its record in Tuesday’s market. Meanwhile, Goldman’s stock overtook most of its peers in 2020 and in 2021.
Other factors have also boosted Goldman’s stock price: The bank entered into a multibillion-dollar settlement with the Justice Department in October, long in its work for a corrupt Malaysian government fund known as 1MDB The door closed on the ongoing investigation.
With billions of dollars missing from Malaysia’s 1MDB becoming one of the biggest financial scandals ever, Goldman Sachs agreed to pay the US government more for its involvement after the 2008 crisis. Here’s how the alleged fraud happened and then fell apart. Photo Composite: Adam Falk (originally published October 20, 2020)
In December, the Federal Reserve loosened its pandemic restrictions on share repurchases. Buybacks can increase the company’s share price by pulling in shares from the market and consolidating earnings on a per share basis.
Banks will be able to return capital in the first quarter, but this may not exceed their average quarterly profit over the previous year. Goldman could benefit, particularly due to its strong profitability.
Write [email protected] on Ben Eisen
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