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Goldman Sachs earnings dented by RMBS settlement

CEO positive on bank's future

Goldman Sachs recorded net revenues of $33.82 billion and net earnings of $6.08 billion for the year ended Dec. 31, 2015, with diluted earnings per common share dropping to $12.14 compared with $17.07 last year.

The recent $5 billion settlement billion between Goldman Sachs and the federal government over claims related to toxic mortgage bonds sold to investors in the run up to the financial crisis managed to put a dent in the banks earnings, according to the earnings release.

However, this doesn’t come as too much of a surprise since a briefing.com note said that the bank announced it would take a $1.5 billion charge in the Q4 following its settlement.

The note added that while the impact will chop earnings down by $1.5 billion, it does remove a massive over hang in terms of legal expenses.

The settlement agreement, which would still need to be finalized, would resolve actual and potential civil claims by the U.S. Department of Justice; the New York and Illinois Attorneys General; the National Credit Union Administrationacting as conservator for several failed credit unions; and the Federal Home Loan Banks of Chicago and Seattle, relating to the firm’s securitization, underwriting and sale of residential mortgage-backed securities from 2005 to 2007.

Under the terms of the settlement, Goldman Sachs will pay $2.385 billion civil monetary penalty, make $875 million in cash payments and provide $1.8 billion in consumer relief.

Return on average common shareholders’ equity for the full year was 7.4%. During 2015, the firm recorded provisions for the settlement with the RMBS Working Group of $3.37 billion, which reduced diluted earnings per common share by $6.53 and ROE by 3.8 percentage points.

For the fourth quarter, Goldman Sachs said net revenues came in at $7.27 billion and net earnings were $765 million, with diluted earnings per common share falling to $1.27 compared with $4.38 for the fourth quarter of 2014 and $2.90 for the third quarter of 2015.

This beat revenue expectations by $200 million.

During the fourth quarter of 2015, the firm recorded provisions for the settlement with the RMBS Working Group of $1.80 billion, which reduced diluted earnings per common share by $3.41 and annualized ROE by 8.1 percentage points.

“We are pleased that our diversified business mix allowed us to deliver solid results in a year characterized by uneven global economic activity,” said Lloyd Blankfein, Chairman and CEO. “Looking ahead, we believe our strong global client franchise leaves us well positioned to generate superior returns over the long term.”

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