Goldman Sachs earnings climb as trading outpaces expectations

Fourth-quarter earnings more than tripled as the fixed-income business got a boost from speculation economic growth will accelerate.

Goldman Sachs, the Wall Street firm most reliant on trading stocks and bonds, said fourth-quarter earnings more than tripled as the fixed-income business got a boost from speculation economic growth will accelerate.

Net income rose to US$2.35 billion, or US$5.08 a share, from US$765 million, or US$1.27 a year earlier, when the lender set aside funds to pay a mortgage settlement, the New York-based company said in a statement Wednesday.

Chief Executive Officer Lloyd Blankfein, 62, has been cutting costs and firing workers to weather a trading slump blamed on stricter regulations after the financial crisis. Investors and analysts are speculating that Goldman Sachs's trading operations could be one of the biggest beneficiaries of Donald Trump's surprise U.S. election victory.

"After a challenging first half, the firm performed well for the remainder of the year as the operating environment improved," Blankfein said in the statement.

Shares of the company have surged 30 per cent since the election, the best performance of the 30 companies in the Dow Jones Industrial Average.

Fixed-income trading revenue rose 78 per cent to US$2b, exceeding the US$1.59b estimate of analysts surveyed by Bloomberg. Equity-trading revenue fell 9.2 per cent to US$1.59b. That compares with the US$1.62b average analyst estimate. The sales-and-trading division is overseen by Isabelle Ealet, Ashok Varadhan and Pablo Salame, who added the title of vice chairman last month.

Net revenue in the quarter increased 12 per cent to US$8.17b, compared with the US$7.76b estimate. Expenses dropped 23 per cent to US$4.77b, exceeding the US$4.48b estimate of eight analysts surveyed by Bloomberg.

Bond-trading revenue also helped Morgan Stanley's results. The firm said Tuesday that revenue from the business more than doubled and that net income surged 83 per cent. JPMorgan Chase, the biggest U.S. bank, said last week that fourth-quarter profit rose 24 per cent on fixed-income gains.

The fourth quarter was the last at Goldman Sachs for Gary Cohn, who served as Blankfein's No. 2 for a decade before deciding in December to join Trump's administration as the president-elect's top economic adviser. Blankfein named Chief Financial Officer Harvey Schwartz and investment banker David Solomon to replace Cohn as co-presidents.

Cohn is just one of several alumni slated for a job in the administration. Steven Mnuchin, nominated to run the Treasury Department, spent 17 years at the investment bank, and Steve Bannon, chief strategist, also worked at Goldman Sachs. Dina Powell, head of the firm's philanthropic arm, was named an assistant to the president, while Jim Donovan, a wealth manager, may also join the administration.