Key Takeaways:
- Goldman Sachs reported decreased revenue this quarter but, on the bright side, an increase in overall profits per share.
- The stock price fell by 4% after the earnings report.
- Goldman Sachs has three main plans to rehabilitate the company’s fine reputation.
WISCONSIN (CoinChapter.com) — The top investment bank, Goldman Sachs, decreased revenue this quarter, falling short of analysts’ projections. The bank reported a $3.23 billion profit, or $8.79 per share, down 18% from the prior year.
However, selling Goldman’s consumer loans allowed the bank to release $440 million in loan loss reserves and increased earnings by about $1.20 per share. The deal-making slowness and the sale of a portion of its Marcus personal loan business were factors in the quarterly revenue projection being below target.
As a result, following the results, the stock fell by about 4%.
The Decrease in Earnings and Sales
Due to several issues, Goldman Sachs has been experiencing a fall in revenue and earnings.
The prolonged pandemic has affected the bank’s consumer and investment banking departments and slowed global economic activity. As a result, revenue from investment banking at Goldman Sachs decreased 26% from the prior year to $1.58 billion.
This is a considerable reduction in commercial activities even though it was better than the $1.44 billion expectation. In addition, the bank’s trading-related revenue decreased by 9% to $3.77 billion, less than the $3.87 billion analysts had projected.
The Effect on Shares of Goldman Sachs
GS stock dropped 4% on decreased revenue this quarter. Credit: Google Finance
The decrease in revenue and earnings has affected Goldman Sachs’ shares. Following the results, the stock fell by almost 4%, indicating investor dissatisfaction with the bank’s performance.
Although the sale of consumer loans contributed to the bank’s higher EPS, this was insufficient to compensate for the drop in revenue from investment and trading activities. Before Tuesday, the bank’s shares had fallen 1.1% for the year, suggesting persistent worries about the pandemic’s effects on the world economy and financial markets.
Additionally, Goldman Sachs’ rivals have been outperforming them lately.
For instance, JPMorgan & Chase increased their profit from $8.5 billion in 2019 to $14.3 billion in 2020. Moreover, in 2020, the bank’s revenue from investment banking increased by 37% to $9.4 billion, demonstrating a great performance in a difficult environment.
In contrast, the revenue from investment banking at Goldman Sachs decreased by 22% to $7.6 billion in 2020.
The Rehabilitation Plan of Goldman Sachs
To combat the fall in revenue and earnings, Goldman Sachs has been developing a recovery strategy. With Marcus, the bank’s online lending platform, as part of it, it has been concentrating on growing its consumer banking segment.
The bank will make a digital wealth management tool available so that users can manage their investments online.
In addition, Goldman Sachs has been spending money on innovation and technology to enhance its business processes and client relationships. As a result, the bank has been creating new goods and services to draw in a larger clientele.
For instance, the bank and Apple recently unveiled a credit card that gives cash back credits for purchases of Apple goods.
Additionally, Goldman Sachs has been attempting to enhance its ESG (environmental, social, and governance) and sustainability standards. By 2025, the bank hopes to have invested $150 billion in sustainable investment and financing activities.
By 2050, the bank wants net-zero carbon emissions from all its lending activities. The bank’s long-term success in a continually changing economic environment will depend on these initiatives.
