Goldman Sachs (GS – Free Goldman Sachs Stock Report), a global leader in investment banking and securities, has reported mixed results for the fourth-quarter of 2015. On a GAAP basis, share net was down dramatically, year over year, from $4.38 in the prior-year period to $1.27 in the most recent quarter. However, this decline was due to the company recording provisions for a settlement with RMBS Working Group of $1.54 billion after tax, which reduced earnings per share by $3.41. The settlement stemmed from claims that Goldman had misled mortgage bond investors during the recession of 2007-2009. Meanwhile, net revenues (excluding interest expense) of $8.721 billion were slightly below the prior-year figure of $8.861 billion. All told, investors took the report in stride, as the stock was down marginally in a dramatically lower market.
The Investment Banking segment was a source of strength for the company in 2015, with full-year revenues 9% higher than in 2014. The financial advisory portion of the Investment Banking unit was particularly strong, rising 40% year over year. This reflected strong client activity, particularly in the United States, led by merger and acquisition activity. Meanwhile, the Institutional Client Services segment saw a year-over-year revenue decline in the fourth quarter, largely due to lower revenues from the hard-hit commodities markets. The Investing & Lending unit saw a revenue decline as well, primarily due to softness in the equity markets amid global economic concern. The Investment Management segment was flat in the fourth quarter, as the impact of higher assets under supervision was offset by changes in the mix of assets overseen.
We believe that Goldman will earn about $19.50 a share in 2016, in line with our previous estimate. However, we have lowered our 2016 revenue forecast from $45.5 billion to $42.0 billion, due to the effects of global economic weakness as well as the strong U.S. dollar. We foresee slow, but steady, earnings growth out to 2018-2020, and Goldman shares have worthwhile appreciation potential, especially on a risk-adjusted basis, due to their conservative price-to-earnings ratio.
About The Company: The Goldman Sachs Group is a global investment banking and securities firm. It operates in four business segments: Investment Banking (19% of 2014 revenues); Institutional Client Services (44%); Investing & Lending (20%); and Investment Management (17%). In 2014, 42% of the company’s revenues came from outside of the Americas.