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Goldman Sachs’ third-quarter earnings are growing

Goldman Sachs Group Inc. GS -1.55%


third-quarter profits nearly doubled, the latest confirmation that even in a pandemic and recession, Wall Street can still make money.

Goldman reported quarterly earnings of $ 3.62 billion, or $ 9.68 per share, on revenue of $ 10.78 billion. Both measures were better than expected by stock analysts, who forecast earnings of $ 1.94 billion, or $ 5.54 per share, with revenue of $ 9.38 billion. Goldman reported earnings of $ 1.88 billion, or $ 4.79 per share, in the third quarter of 2019.

Concerns that the coronavirus will compete in 2008 as a threat to the US financial system are fading. Banks’ trading fees have risen. The appetite of bond investors has allowed companies that have borrowed billions from banks on emergency loans this spring to repay them. Major corporate bankruptcies have leveled off.

The pain may still lie ahead, especially if unemployment remains high and the virus is reviving, causing new or stricter blockages. But unlike the 2008 crisis, when banks reported multibillion-dollar losses, today̵

7;s lenders are still in the black. And they are not facing the same investor panic that caused fatal banks last year.

The profit in JPMorgan Chase & Co. has doubled since the second quarter and was 4% higher than a year earlier, when the US economy was booming. After absorbing about $ 19 billion earlier this year as a cushion for expected loan defaults, the bank added only moderately to that number during the quarter. Bank of America Corp.

and Citigroup Inc.

they were also profitable, though less than a year ago.

So far, Goldman has had a relatively easy crisis. The Federal Reserve’s efforts to support the markets have allowed the company to borrow from its books and reap fees by buying and selling securities. And with a smaller lending book – about $ 112 billion as of Sept. 30 to nearly $ 1 trillion at JPMorgan – it’s less exposed to default.

Revenue from trade rose 29 percent from a year ago to $ 4.55 billion. The company’s investment bankers paid $ 1.43 billion in takeover fees, up 60 percent from a year ago thanks to an increase in public companies, offsetting a drop in merger fees. And Goldman’s own stock portfolio came together with the stock market.

Goldman has set aside $ 278 million in loan losses, in part for higher expected repayments in its new credit card business. But that was less than a fifth of what was set aside in the second quarter.

The bank’s return on equity, a measure of how profitable it uses shareholders’ money, was the highest since 2010. And it received a breathing room with regulators, raising its capital levels above the new minimum introduced this month.

The results in the big commercial banks were higher because they set aside less money for potential loan losses, as they had earlier in the year, reflecting either a more rosy outlook or an abundance of prudence in the spring.

However, without renewed incentives, including expanding unemployment benefits, executives warned that losses could rise. JPMorgan’s James Dimon said on Tuesday that the country was still at risk of a double recession, which could cost his bank an additional $ 20 billion in loan losses.

The coronavirus recession is creating a troubling backdrop for what would already be Goldman’s most important act. The Wall Street firm is at the beginning of a long-standing pivot that CEO David Solomon hopes will increase revenue, make it less vulnerable to market fluctuations and push the price of its shares away from years of drift.

Some of these moves are likely to be undisturbed by the recession – and may even be helped by it, such as a plan to raise $ 100 billion in new equity funds by 2025. Investment deals will emerge from the economic remnants. And with interest rates likely to remain close to zero for years, investors are flocking to complex and opaque investments that offer higher returns.

However, others seem more risky with the funk economy. Goldman’s new consumer bank specializes in unsecured loans and credit cards, such accounts that often remain unpaid during financial difficulties and are not secured by collateral. This business looks good so far: revenue has increased by 50% from a year ago to 326 million dollars.

One cloud that still hangs over the company is the decision of a long-term investigation into its relationship with a Malaysian investment fund. Earlier this year, it agreed to pay up to $ 3.9 billion to the Malaysian government and is in talks with the US Department of Justice for a fine that The Wall Street Journal reports could exceed $ 2 billion.

The company has set aside $ 3.15 billion to cover all expected judicial and regulatory issues, a number it did not add in substance in the third quarter.

Write to Liz Hoffman at liz.hoffman@wsj.com

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