The pandemic recession has created roadblocks for most of the country’s largest banks. This does not apply to Goldman Sachs Group Inc.
GS 5.40%
The Wall Street giant’s share price closed at an all-time high for the first time in nearly three years, a sign of how much the bank has benefited from last year’s financial chaos. The stock is up about 19% in the past month, far more than all five major banks.
Goldman stock had been static for years, a constant concern for Chief Executive David Solomon and a reason that led him to take some of the bank’s famous secret a year ago. At the time, trading activity languished in the midst of efforts to build a consumer bank and expand its asset management business.
The pandemic has pushed many of those challenges aside. It spurred roller coaster markets that boosted traditional sales and trading activities. As the markets recovered, the bankers made money by helping corporate clients sell debt and stocks.
Investment banking is likely to remain strong in the last three months of the year. Jefferies Financial Group Inc.
said late Monday that his investment banking revenues hit a record fourth quarter, which analysts see as a favorable sign for bigger competitors like Goldman.
Shares of the bank, which reports gains later in the month, rose 5.4%, or $ 14.62, above its 2018 high on Wednesday. The prospect of rising interest rates after the Senate elections in Georgia helped the bank shares are rising broadly. bank of America Corp.
jumped 6.3% and Wells Fargo & Co. rose 7.1%. Morgan Stanley added 6% and JPMorgan Chase & Co. climbed 4.7%.
Unlike JPMorgan and Bank of America, Goldman does not have a large consumer bank. That held back its stock price during a bank stock rally in 2019, as healthy US consumers helped push mega-banks toward big profits.
But the coronavirus recession made that heavy consumer exposure a liability, forcing banks to set aside tens of billions of dollars in preparation for potential credit losses. JPMorgan, the largest US bank by asset basis, was about 6.8% below its record at the close of Tuesday’s market. Goldman’s stock, meanwhile, outperformed most of its competitors in 2020 and 2021.
Other factors have also pushed Goldman’s stock price: the bank closed a multi-billion dollar settlement with the Justice Department in October, closing the door on a long-term investigation into its work for a corrupt Malaysian government fund known as 1MDB.
Billions of dollars disappeared from Malaysia’s 1MDB have turned into one of the biggest financial scandals ever, with Goldman Sachs agreeing to pay the US government more for its involvement than 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 eased its pandemic restrictions on share buybacks. Buybacks can increase a company’s stock price by taking stock from the market and making earnings per share appear stronger.
Banks will be able to return capital in the first quarter, but it must not exceed their average quarterly profit for the past year. This can particularly benefit Goldman because of its strong profitability.
Write to Ben Eisen at [email protected]
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