Higher interest rates enabled Bank of America to more than triple its fourth-quarter earnings (SPENCER PLATT)
New York (AFP) – Goldman Sachs reported better-than-expected profits on Wednesday despite higher legal costs as it works through the 1MDB scandal, while Bank of America’s earnings were lifted by higher interest rates.
Goldman reported mixed operational performance across its trading, investing and lending businesses, while Bank of America enjoyed a lift from higher interest rates.
Shares of both banks surged more than seven percent after the results, which were stronger than earnings earlier this week from some rival banks.
Goldman Chief Executive David Solomon described conditions in the real economy as “quite robust,” echoing other bank executives this week that have described economic worries that have roiled markets as exaggerated.
“There has been quite a disconnect between the weak market sentiment and the optimism we continue to see in corporate board rooms,” Solomon told an analyst conference call.
The investment bank notched fourth-quarter profits of $2.3 billion, after posting a $2.1 billion in the same period of the prior year due to one-time costs associated with US tax reform.
Revenues were about flat compared to a year earlier at $8.1 billion.
Goldman joined other large banks in reporting a drop in US Treasury trading amid heavy volatility at the end of 2018. But the overall trading division still notched a modest revenue gain because of higher equity trading.
The firm also had higher revenues in financial advisory services but lower sales in debt and equity underwriting.
Goldman increased the funds it set aside for litigation and regulatory proceedings to $516 million from $9 million in the year-ago period.
– Apologizes to Malaysia –
The investment bank has been embroiled in a scandal involving Malaysian fund 1MDB that is the subject of numerous government probes but the company’s news release did not say what the funds were earmarked for.
Goldman helped 1MDB to issue $6.5 billion in bonds but Kuala Lumpur accuses the bank and its former employees of misappropriating $2.7 billion during the process.
In November, the Justice Department announced that former senior banker Tim Leissner had pleaded guilty to violating US anti-bribery and money laundering laws and agreed to pay $43.7 million in restitution.
Solomon apologized for Leissner’s role in the debacle but reiterated that Goldman had undertaken extensive due diligence on the transactions and said the firm had been misled by Leissner and senior officials in the Malaysian government about the role of a key intermediary in the scandal, Low Taek Jho.
“It’s very clear that the people of Malaysia were defrauded by many individuals including the highest members of the prior government,” Solomon said. “Per Leissner’s role in that fraud, we apologize for the Malaysian people.”
Solomon said employees at Goldman were “extremely angry” about Leissner’s role but that morale was good due to the bank’s strong financial performance.
Goldman has suffered a “reputation dent” tied to the scandal, Solomon acknowledged, but added that the effect on clients had been “de minimus.”
– Bank of America soars –
Bank of America, meanwhile, reported fourth-quarter profits of $7.2 billion, more than triple the year-ago level. As with Goldman, the year-ago period was hit with a hefty one-time charge tied to US tax reform.
Revenues jumped 11.3 percent to $22.7 billion.
A key driver across consumer, wealth management and corporate banking divisions was higher net interest income following recent Federal Reserve interest rate hikes. The bank also scored higher overall loans compared with the year-ago period.
“Through the trillions of dollars of consumer transactions we process and from the steady confidence and activity of our small business and commercial clients, we see a healthy consumer and business climate driving a solid economy,” said Chief Executive Brian Moynihan.
Near midday, Goldman Sachs shares were up 8.4 percent at $194.96, while Bank of America had gained 7.6 percent to $28.56.
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