Goldman profit slumps after huge mortgage-backed bond settlement

Goldman Sachs Group Inc's profit slumped for the third straight quarter as a US$5 billion settlement of crisis-era legal claims ate into earnings in a tumultuous three months. 

PHOTO: REUTERS

JAN 20, 20169:13 PM

[NEW YORK] Goldman Sachs Group Inc's profit slumped for the third straight quarter as a US$5 billion settlement of crisis-era legal claims ate into earnings in a tumultuous three months.

Goldman, the last of the big US banks to release fourth-quarter earnings, reported a 71.8 per cent fall in net income applicable to common shareholders to US$574 million, or $1.27 per share, from US$2.03 billion, or $4.38 per share, a year earlier.

Analysts on average had expected earnings of $3.53 per share, according to Thomson Reuters I/B/E/S. It was not immediately clear if the reported figures were comparable.

The bank said last week that the settlement would reduce earnings in the quarter by US$1.5 billion after taxes.

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Goldman, like other banks, had a tough year as oil prices plummeted, concerns about China's economy intensified, and nervousness about the timing and pace of US interest rate increases weighed on credit markets.

The new year has also started on a grim note, with oil prices falling to their lowest in 13 years and stock prices dropping sharply around the world.

REUTERS

Nasdaq COO Friedman says IPOs delayed amid global market turmoil

JAN 20, 201611:50 PM

[NEW YORK] Nasdaq Inc's chief operating officer said several companies seeking to access public markets this month have delayed their plans as plunging stock prices have brought global equities close to a bear market.

"We are seeing them pushed back," Nasdaq COO Adena Friedman said in a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland. "They know that there's investor demand in a normal market environment. The question is whether there's demand in this type of market." No companies have held initial public offerings in the US so far this year, according to data compiled by Bloomberg.

China's economy just recorded its weakest annual growth since 1990 at the same time that oil has tumbled. Global equities have slumped 10 percent since the start of the year. The causes of the turmoil are more related to global economics than to market structure, Friedman said.

"There's been fundamentally a repricing, and I think there's a fair amount of emotion in markets right now," she said. Friedman is also Nasdaq's president and widely considered the front-runner to replace Robert Greifeld as chief executive officer.

Market stability has been questioned in the past year. Concerns were driven home when a wild Aug 24 trading session roiled hundreds of securities, leaving exchange-traded funds' prices out of sync with the values of their assets. Paul Singer, the billionaire founder of US$27 billion hedge fund firm Elliott Management, said in November that stock and bond markets are structurally "unsound."

"We've done an enormous amount to examine the market- structure elements of Aug 24," Friedman said. Losses were especially intense during the opening minutes of trading that day. The event "definitely exposed certain issues related to how the markets open."

"We're still working through a lot of the really foundational issues around opening of the market and making sure it's on time," she said. "We've already made some recommendations, we've already looked at some ways that we can do some minor enhancements."

Nasdaq and NYSE said last month that they are forming a trade group to weigh in on market-structure issues in Washington.

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IMF vouches for virtual currencies while rift threatens bitcoin

JAN 20, 201611:45 PM

[TOKYO] The International Monetary Fund extolled the potential benefits of virtual currencies and said they warrant a more nuanced regulatory approach, at a time when the future of bitcoin, the most well-known example, is in doubt.

"Virtual currencies and their underlying technologies can provide faster and cheaper financial services, and can become a powerful tool for deepening financial inclusion in the developing world," IMF Managing Director Christine Lagarde said in a statement Wednesday to accompany the report. "The challenge will be how to reap all these benefits and at the same time prevent illegal uses, such as money laundering, terror financing, fraud and even circumvention of capital controls."

While Japan and Hong Kong have taken a more hands-off approach, Russia is weighing criminal penalties for trading in cryptocurrencies and may consider a complete ban. The call for more enlightened regulation and increasing mainstream acceptance comes as a split among the core developers of bitcoin threatens the world's most popular virtual currency.

"I will no longer be taking part in bitcoin development and have sold all my coins," Mike Hearn, a high-profile developer, wrote in a post on Medium last week. Bitcoin "has failed because the community has failed." The disagreement revolves around transaction size limits and has divided the community into several camps such as Bitcoin XT, Bitcoin Core and Bitcoin Classic, each representing a different way to structure its decentralized public ledger. The price of bitcoin dropped more than 10 percent after Hearn's post, according to research from CoinDesk. It traded at about $379 on Jan. 20, about a third of its peak in 2013.

Regardless of whether bitcoin survives the crisis, the IMF concluded in its report that virtual currencies are here to stay. They will come in many shapes and flavors, ranging from smartphone coins for in-game purchases tightly controlled by publishers to pseudo-anonymous cryptography-driven currencies with no central authority.

The ability to securely carry out transactions without central oversight, known as blockchain technology, could reduce costs of international transfers, shorten wait times and enable smart contracts, according to the report, which was presenting to a panel at the World Economic Forum in Davos, Switzerland. That same quality poses a unique challenge to authorities seeking to monitor and regulate virtual currencies with transnational reach and no one in charge.

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China's central bank plans to launch its own digital currencies

China's central bank wants to launch its own digital currencies to cut the costs of circulating traditional paper money and boost policymakers'control of money supply, the People's Bank of China (PBOC) said on Wednesday. 

PHOTO: BLOOMBERG

JAN 20, 20169:39 PM

[BEIJING] China's central bank wants to launch its own digital currencies to cut the costs of circulating traditional paper money and boost policymakers'control of money supply, the People's Bank of China (PBOC) said on Wednesday.

A PBOC research team set up in 2014 to look into digital currencies should make preparations for launches, according to a central bank statement.

"The team ... should set up a clearer strategic target for launching digital currencies, overcome the key technological barriers ... and aim for an early launch of the central bank's digital currencies," the PBOC said.

Virtual currencies can also help boost transparency of economic activities and curb money laundering and tax evasions, it added.

One of the most popular digital currencies is bitcoin, which is created through a 'mining' process where a computer's resources are used to perform millions of calculations.

But the rise of bitcoin, which is unregulated in many countries, has stoked concerns it can be used as a vehicle to launder money and finance extremist groups.

REUTERS

      

IBM beats expectations, stock drops anyway

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IBMIBM CEO Ginni Rometty

IBM  $121.94

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IBM

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IBM just reported its fourth quarter earnings for 2015.

It's a beat across the board, but IBM shares are down roughly 3.5% in after hours. 

Here are the most important numbers:

EPS (Operating, non-GAAP): $4.84 a share vs $4.81 a share expected

Revenue: $22.06 bln vs $22.04 bln expected

Quarterly revenue was down 9% year-over-year. IBM has reported declining year-over-year revenue for the last 15 quarters in a row.

The adjusted EPS was down 17% from the same period of last year. Part of the EPS growth had to do with a lowered tax rate, which went down 7.1 percentage points to 14.7%, compared to the year-ago period.

Shares were trading roughly flat following the earnings report. But it dropped more than 3.5% during the earnings call after it gave EPS guidance of "at least" $13.50 per share, down from the $15.00 per share street consensus.

For the full year 2015, IBM reported $81.7 billion in revenue, right in-line with expectations

Full year non-GAAP operating EPS was $14.92 per share, which was within the guidance range it provided last quarter, but slightly lower than the $14.93 per share the street was expecting.

That's already a big cut from the $20 EPS goal IBM had planned to reach by 2015. IBM CEO Ginny Rometty officially abandoned the plan called "Roadmap 2015" in the third quarter of 2014.

Instead, Rometty has acquired nearly 40 companies during her three years at IBM in order to nurture growth. IBM has been shifting its investment to what it calls "strategic imperatives," including growth areas like cloud computing, big data, and mobile apps. 

In fact, IBM said that its strategic imperatives business has grown 26% from last year, to $29 billion, which represents 35% of the company's total revenue.

"We continue to make significant progress in our transformation to higher value," Rometty said in a statement.

SEE ALSO: IBM still leads the tech world in one major area

If you ignore a bunch of stuff, Goldman Sachs had a great quarter

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Goldman SachsGoldman Sachs CEO Lloyd Blankfein.

Goldman Sachs Group  $154.41

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GS

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See Also

Goldman just made a big hire to its prized technology division

JPMorgan just set a high bar for the rest of Wall Street

Goldman just got wiped out

Goldman Sachs on Wednesday reported fourth-quarter earnings that were a beat if you exclude a big one-off settlement.

The firm reported diluted earnings per share of $1.27 on revenue of $7.27 billion.

It paid a settlement related to mortgage-backed securities sold between 2005 and 2007 that reduced diluted earnings by $3.41 per share. Adjusted earnings per share, then, were $4.68.

Analysts were expecting adjusted earnings per share of $3.62 on revenue of $7.11 billion, according to Bloomberg.

"We are pleased that our diversified business mix allowed us to deliver solid results in a year characterized by uneven global economic activity," CEO Lloyd Blankfein said in a statement.

"Looking ahead, we believe our strong global client franchise leaves us well positioned to generate superior returns over the long term."

For the full year, diluted earnings per share came in at $12.14, down from $17.07 for 2014. The mortgage-backed-securities settlement reduced full-year diluted earnings per share by $6.53, the firm said.

In the fourth quarter, the firm beat on total trading, equities trading, and investment banking, and it missed in the fixed income, currency, and commodities trading division.

Here's the breakdown for the quarter by division:

• Institutional Client Services, or total trading, revenue came in at $2.88 billion ($2.87 billion expected), down 9% year-on-year and down 10% quarter-on-quarter.
• Fixed income, currency, and commodities revenues were $1.12 billion ($1.19 billion expected), 8% lower than the same quarter a year ago, which the firm attributed to "significantly lower net revenues in commodities" and lower mortgages and currencies revenues.
• Equities revenue came in at $1.76 billion ($1.68 billion expected), down 9% year-on-year. The firm said that reflected "significantly lower net revenues in equities client execution, due to significantly lower net revenues in cash products and lower net revenues in derivatives."
• Investment-banking revenues were $1.55 billion ($1.42 billion expected), up 7% year-on-year and in line with the previous quarter. Financial advisory revenues were up 27% year-on-year, thanks to increased activity in the US, while underwriting revenues were down 11%.
• Investing and Lending revenue came in at $1.30 billion for the fourth quarter, down 15% from the same quarter last year but up 93% from a disastrous third quarter.
• Investment management revenues were $1.55 billion, in line with the year-ago quarter and up 9% quarter-on-quarter.

In the same quarter last year, Goldman beat expectations, reporting adjusted earnings per share of $4.38 ($4.32 expected) on revenue of $7.69 billion ($7.64 billion expected).

The bank missed in the third quarter, reporting adjusted earnings per share of $2.64 ($3.00 expected) on revenue of $6.86 billion ($7.12 billion expected).

JPMorgan, Citigroup, Wells Fargo, Bank of America, and Morgan Stanley have already reported fourth-quarter earnings, and all of them beat expectations.

SEE ALSO: Senior bankers are doing something unheard of with their bonuses to hold on to junior staff

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