Top banks in the US saw profits plunge in 2020 due to the pandemic recession. Goldman Sachs, however, went against the grain with blowout quarterly earnings.
According to the research data analyzed and published by Finaria, the bank is expected to post a 43% increase in Q4 2020 profits. According to Zacks Investment Research data from eight analysts’ forecasts, the consensus earnings per share forecast for the period is $6.99. For Q4 2019, the EPS was $4.69.
In Q1 2020, it sank to $3.11, more than doubling to $6.26 in Q2 2020 and then rising further to $9.68 in Q3 2020.
During Q2 2020, the bank’s performance got a boost from trading and investment banking, which accounted for 75% of its revenue. Trading revenue during the period shot up by 93%, equity trading revenue by 46% and bond trading revenue by 150%. Its investment banking segment had a 36% revenue increase.
In Q3 2020, the bank’s profits nearly doubled compared to the previous year period, outperforming analyst expectations. Net income for the period amounted to $3.5 billion. Revenue surged 30% to $10.8 billion, led by a 71% increase in the asset management segment.
Unlike Bank of America and JP Morgan Chase, Goldman Sachs’ consumer bank is relatively small. During the 2019 bank stock rally, this held back the bank as its peers surged to big profits.
In 2020, the pandemic has turned consumer exposure into a liability in the form of potential loan losses. Trading and investment banking, on the other hand, stayed strong.
Its long-term outlook is positive according to Zacks analyst estimates. Goldman Sachs’ EPS is predicted to increase to $26.02 by the end of 2021 and further to $29.4 in 2022.
Top US Banks Profit to Fall from $120 Billion in 2019 to $73 Billion in 2020
In Q4 2020, JP Morgan Chase is expected to post a modest 5% decline. For Bank of America, analysts estimate a 33% drop in profit during the quarter.
Analysts offer similarly dim forecasts for Wells Fargo and Citigroup, with expected declines at 39% and 42% respectively.
Part of the reason for the losses suffered by banks in 2020 is the huge drop in interest rates. As a result of this plunge, the margin between what these lenders pay for money and what they charge was significantly reduced. Furthermore, the banks had to set aside huge sums for expected loan losses. In total, big US banks set aside $65 billion during the year.
According to Bloomberg analyst estimates, the top six US banks could collectively post a 12% decline in Q4 2020 profits, totaling about $24 billion.
The group, which includes the aforementioned five banks and Morgan Stanley, would thus have a combined profit of $73 billion. Comparatively, the six generated a record $120 billion in profit in 2019.
For the top five US banks (excluding Wells Fargo), Bloomberg forecasts a cumulative $20 billion in trading revenue in Q4 2020.
Meanwhile, based on Refinitiv IBES data, the first and second quarters of 2021 could see the US banking giants double their profits.
Deposits at Top 25 US Banks Surge 24% in 2020
In response to the pandemic, there was a massive inflow of deposits into US banks in 2020, with gains concentrated at the top of the industry.
Overall, the top 25 banks in the US increased their deposits by 24% in 2020. However, their loans to businesses increased by a mere 1% and to households, lending fell by 4%. As a result, their cash holdings piled as did investments into Treasuries as well as other securities.
By the end of the year, total holdings of super safe assets accounted for 38% of their balance sheets. Furthermore, loans accounted for less than half of total assets for the first time since records began in 1985.
During the first half of 2021, they will still have to contend with lower demand for loans and lower-for-longer interest rates. These conditions are expected to keep pressuring top-line revenues according to Fitch Ratings.
However, Fitch revised its outlook for the US banking sector as a whole from Negative to Stable. The revision is a reflection of an expected improvement in overall economic conditions during the year.