Goldman Sachs Group Inc. has Wall Street’s biggest investment portfolio, a boast that became a liability in the first quarter as fallout from the coronavirus weighed on the firm’s holdings.
The business took an almost $900 million hit that contributed to a 46% decline in profit, even as it included gains from pending private equity sales. A strong showing in the trading operations, the firm’s biggest division, helped counter the damage as market volatility boosted demand for trading services.
Goldman’s large investing operation has helped drive some of its most profitable quarters. But it also leaves the firm more exposed to market gyrations, and executives have said they’re moving away from taking stakes with the firm’s own money to focus on raising more client funds. The company said it had “significant net losses” in debt securities and mark-to-market hits on the stock portfolio.
“Our quarterly profitability was inevitably affected by the economic dislocation,” Chief Executive Officer David Solomon said in a statement Wednesday. “As public policy measures to stem the pandemic take root, I am firmly convinced that our firm will emerge well-positioned to help our clients and communities recover.”
Equity and debt holdings slashed $890 million from revenue, after generating almost $2.3 billion of gains in the fourth quarter. The firm estimated in its annual 10-K filing in February that a 10% decline in the value of those holdings would cut $4.2 billion from net revenue.
The company didn’t disclose which pending sales helped offset losses in its investing division. In February, Goldman announced the largest-ever private real estate transaction in the U.K. — the sale of a student-housing business to Blackstone Group Inc. That along with the sale of AirTrunk, a data-storage business in Australia, are two deals that helped counter the quarter’s losses, a person familiar with the matter said.
The quarter’s wild market swings led to big gains for the trading operation, which posted a 28% surge in revenue on the best fixed-income performance in five years. Stocks that had climbed to record highs in January followed up with the steepest decline since the 1987 crash as the worst of the pandemic started to unfold.
It’s unclear if the trading boost will be sustainable, and a prolonged period of economic upheaval could knock the company off its strategy of boosting returns through expense cuts and improvements to its cost of funds.
Goldman’s investment bankers turned in their second-best quarterly performance on record, bringing in $2.2 billion for the quarter, comfortably above analysts’ estimates.
The ups and downs at Goldman Sachs mirror the performance at JPMorgan Chase & Co., which on Tuesday said trading revenue soared along with provisions for loan losses. Bank of America Corp. said Wednesday that it allocated $4.76 billion for loan losses, the most since 2010.
Goldman has been making a bigger foray into consumer banking in the past few years. Its credit-loss provision more than quadrupled to $937 million from $224 million. The firm cited “pressure in the energy sector,” the impact of Covid-19 and new accounting standards.