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Goldman’s 4Q skewed by massive mortgage settlement

NEW YORK (AP) — Goldman Sachs fourth-quarter profits fell by 65 percent following last week’s $5 billion settlement with state and federal regulators over its role in the sale of troubled mortgages that led to the financial crisis.

Goldman’s investment banking business was strong, but it was the third consecutive quarter of declining profits. Goldman’s trading operations, considered some of the best on Wall Street, struggled in difficult market conditions.

Goldman reported earnings of $574 million, when preferred stock dividends are removed, or $1.27 per share. That is down from the $2.03 billion, or $4.38 a share, the bank earned in the same period a year earlier.

The Wall Street bank took a $1.54 billion after-tax charge, amounting to $3.41 per share, to settle with regulators its actions leading up to the housing crises. Goldman is the last of the major Wall Street banks to settle with a task force of state and federal regulators and the fine was by far its largest. Goldman Sachs Chief Financial Officer Harvey Schwartz said the settlement had been “the most significant outstanding legal matter” for the firm. Legal costs are expected to decline significantly in the upcoming year.

It was a strong end to the year for investment banking in what was an extraordinarily turbulent year.

The investment wing’s net revenues rose 7 percent to $1.55 billion. While underwriting activity slowed, the decline was more than offset by the firm’s financial advisory business. For the full year, Goldman’s investment bank had a blockbuster year, earning net revenues of $3.47 billion, up 40 percent from a year earlier as it continues to be a highly sought after adviser for the largest and most complicated deals.

Yet trading revenue fell to $2.88 billion, down 9 percent from the same period a year ago. The bank’s fixed income, currencies and commodities desks, as well as its equity trading desk, had lower quarterly revenues due to “low levels of client activity and difficult market-making conditions.”

“It has been clearly a challenging environment for the entire industry,” Schwartz said, in a conference call with investors.

Goldman set aside $12.68 billion for 2015 for banker salaries and bonuses, effectively unchanged from a year ago. Unlike most of its competitors, Goldman’s headcount grew 8 percent to 36,800 from a year earlier. The bank said hires were largely linked to regulatory and back-office staff.

Goldman said so far it has not felt any impact on its balance sheet regarding the drop of energy prices, a contrast to JPMorgan Chase, Citigroup, Bank of America and other banks who have written down some their loans to oil and gas companies. Schwartz said Goldman has $10 billion in overall exposure to the energy industry, with its exposure to non-investment grade oil and gas companies being $1.5 billion of that amount.

On Wednesday, U.S. oil prices plunge to levels not seen since late 2003, close to $28 per barrel.

Goldman shares fell $1.93, or 1.2 percent, to $154.71, amid a broad market decline.

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