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Goldman (GS) Reinstates Q2 Earnings on Higher Legal Provisions

Following the resolution of the long-awaited, multibillion-dollar 1Malaysia Development Berhad (1MDB) scandal, in which Goldman Sachs GS had been engulfed, the bank restated its second-quarter 2020 earnings, giving effect to the $3.9-BILLION settlement with the Malaysian government.

The settlement agreement includes the payment of $2.5 billion as penalties to the Government of Malaysia. Also, Goldman has guaranteed that the Malaysian government would receive $1.4 billion from the proceeds of assets, which have been seized globally as those were related to the 1MDB scandal. Notably, the guarantee on these assets does not expose Goldman to any significant risks.

Nevertheless, other pending governmental and regulatory investigations, including the U.S. government, related to the 1MDB scandal continue for Goldman.

Restated Results

Goldman lowered the net income for second-quarter 2020 to $373 million or 53 cents per share from the $2.4 billion or $6.26 per share reported last month. The bank increased its litigation reserve to $2.96 billion from the existing $945 million for legal expenses. Moreover, net earnings applicable to common shareholders have been reduced to $197 million from $2.25 billion.

Bottom Line

Although Goldman has resolved quite a few litigation issues, it still faces probes and queries from a number of federal agencies, and a few foreign governments for the bank’s businesses conducted during the pre-crisis period. As a result, the company’s legal expenses are expected to keep flaring up, which might partially impede its bottom-line growth in the near term.

Nevertheless, lawsuit settlements by banks stress on their efforts to resolve all legal issues, and thereby, reduce costs in the upcoming period. Furthermore, such agreements will likely help revive the economy, and bode well for the company.

Goldman currently carries a Zacks Rank #3 (Hold). You can see You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of the company have gained 13.7% in the past three months compared with 13.4% growth registered by the industry.

Stocks to Consider

TD Ameritrade Holding Corporation AMTD has witnessed upward earnings estimate revisions for fiscal 2020 over the past 60 days. In addition, this Zacks #1 Ranked stock has lost 0.3% over the past three months.

ETRADE Financial ETFC current-year earnings estimate moved north in 60 days’ time. Further, the company’s shares have rallied 27.9% over the past six months. At present, it holds a Zacks Rank of 2 (Buy).

Interactive Brokers Group, Inc. IBKR has witnessed upward earnings estimate revision for the ongoing year in the past 60 days. This Zacks #2 Ranked stock has gained 27.3% in three months’ time.

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Interactive Brokers Group, Inc. (IBKR): Free Stock Analysis Report
 
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