If you were going to own only one Wall Street bank in your portfolio, Goldman Sachs may be the one you should own. Jim Cramer owns it for his charitable trust (but remember Jim worked there), however the real reason is Goldman Sachs reported a 17.5% quarterly return on equity, its highest since 2010.
Many of Goldman’s clients are institutions and governments around the world, that is good for consistent earnings. The bank has a very strong trading desk and equally has very little exposure to vulnerable consumers and businesses suffering from unemployment and pandemic lockdowns. Goldman has some exposure to consumers through Apple pay, but it is relatively tiny.
In an article by Anirban Sen and Matt Scuffman of Reuters, trading revenue jumped 29% to $4.6 billion in the quarter. This business accounted for 42% of Goldman’s overall revenue.
The really good news is the bank set aside $278 million to cover loan losses bringing the number up to $2.8 billion as compared to JPMorgan Chase, Bank of America and Citigroup where the numbers are $10 to $20 billion.
Analysts had expected a profit of $5.57 a share, Goldman reported $9.68 a share.
Linking to dividend paying stocks, when a company has more institutions than individual consumers as customers they tend to have more consistent earnings. If consumers are active in markets, institutions will also be doing the same thing. As much as we sometimes think institutions can be more rational, they see the big jump in stock prices, the pressure is to have some exposure to active stocks to produce higher returns. Hopefully they examine the risk profile more to have fewer losses.
There are more questions than answers, till the next time – to raising questions.