Goldman anticipates more losses from legal battles of $2.3 billion

According to a regulatory statement by the investment bank on Friday, Goldman Sachs Group Inc. expects to face potential damages from legal actions of $2.3 billion more than the reserves it had set aside for similar concerns last year. This was more than the $2 billion loss the bank expected for 2021, but it was in line with its estimates at the end of its third quarter in September.

From its involvement in Malaysia’s 1MDB sovereign wealth fund crisis to the demise of Archegos Capital Management in 2021, Goldman has been the focus of lawsuits. Later this year, a trial is also anticipated in a long-running complaint alleging widespread discrimination against women in salary and promotions at the Wall Street bank.

In addition, Goldman Sachs stated that it assists the Consumer Financial Protection Bureau (CFPB) and other governmental agencies with their investigations and enquiries into the bank’s management of U.S. credit card accounts. The CFPB investigation was highlighted in the most recent regulatory filing, but the most recent filing showed that other governmental authorities were also looking into the matter. The business omitted to identify the other bodies.

Goldman expects $2.3 billion more in potential losses from legal disputes
Credits: Yahoo Finance

Goldman also authorized a $30 billion stock buyback programme

According to the document, Goldman also authorised a $30 billion stock buyback programme in February. In the second half of 2023, as the Federal Reserve eases off its rate-hike cycle, investment banks are hopeful that dealmaking will pick up again following a difficult year in which financing dried up, and businesses postponed plans for mergers and acquisitions.

To reduce expenses, Goldman announced last month that it was eliminating about 3,200 jobs or 6% of its staff. In line with other significant U.S. banks, Goldman’s shares fell to 0.5% in Friday premarket trade. In the previous year, they had risen by almost 11%. David Solomon, the chief executive of Goldman Sachs Group Inc (GS.N), will receive a reality check from investors on Tuesday as he discusses strategies for achieving important financial objectives.
Shareholders will assemble in midtown Manhattan for just the second investor day in Goldman’s 154-year existence to evaluate the Wall Street behemoth’s future after the high-profile failure of its consumer subsidiary, Marcus.

The corporation must have a “credible plan”

According to Michael Cronin, investment director at fund manager abrdn, which holds a stake in the bank, “It’s a pretty important investor day.”
While Cronin believed the bank’s management could handle the situation, she added, “there’s definitely some debate about the path forward here, just given some of the missteps” and the discrepancy between Goldman’s promises and what it has delivered.

Its ROTE decreased to 11% last year, behind rivals and falling short of analysts’ projections. It contrasts with a record-breaking 24.3% in 2021, demonstrating the erratic nature of Goldman’s earnings. According to Cronin, the corporation must have a “credible plan” to hit the 15% to 17% medium-term goal.

The effectiveness of Solomon will also be evaluated. The consumer firm he supported lost $3 billion over three years, and regulators are currently looking into its activities. Marcus’s problems also impacted fourth-quarter earnings, which were much below analyst forecasts.