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Jan 15, 2020

Goldman's US$1-billion legal hit mars fixed-income trading rebound

Bank of America beats, Goldman Sachs misses


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Goldman Sachs Group Inc.’s comeback quarter for trading was marred by a US$1.09-billion legal charge as the firm gets closer to a settlement of the 1MDB scandal.

Profit dropped 24 per cent and fell short of analysts’ estimates as the firm bolstered its litigation reserves by the most in four years. That offset a strong showing by its fixed-income traders, who posted a 63-per-cent jump in revenue, according to a statement Wednesday that debuted the firm’s new reporting structure.

The 1MDB affair has been hanging over the New York-based bank since at least 2016. The global scandal involves claims of embezzlement and money laundering that triggered investigations in the U.S., Singapore, Switzerland and beyond. Goldman Sachs has been under scrutiny for years over its role in raising money for state-owned investment fund 1Malaysia Development Bhd and for the money it made on the deals — about US$600 million.

The trading division, Goldman’s biggest, beat some analysts’ estimates on the strength of gains in fixed-income. The figures included derivatives related to advisory and underwriting businesses that used to be recorded in the investment-banking unit.

JPMorgan Chase & Co. set a high bar on Tuesday after walloping estimates for its trading division by US$1 billion. Bank of America Corp. joined in Wednesday, with a 13-per-cent gain in trading revenue that topped estimates. Investors had been expecting the industry’s biggest trading desks to rebound from 2018’s disastrous finish, and the big banks have so far more than lived up to the hype.

Goldman revamped its reporting structure to inject more visibility into how the firm makes money, responding to some investors who said more clarity could boost the stock price. The firm nixed its so-called investing & lending reporting line, often its most profitable segment in periods of rising markets but one that also drew complaints about transparency.

Shares of Goldman Sachs had their best showing in six years in 2019 and are already up 6.8 per cent this year. They rose 0.2 per cent to US$246.25 in early New York trading at 7:38 a.m.