Goldman Sachs profit falls 13% in fourth quarter

Goldman Sachs on Tuesday reported a record $21.6 billion profit last year, but its fourth-quarter earnings fell as it bumped up pay, repeating a pattern experienced by some of the country’s other big banks.

In the final three months of 2021, Goldman’s profit dropped 13 per cent from the previous year to $3.94 billion, or $10.81 a share, falling short of analysts’ expectations. Two other giants — JPMorgan Chase and Citigroup — reported fourth-quarter results Friday that also took some of the shine off 2021.

For the year, deal-making by Goldman’s investment bankers drove record revenue of $59.3 billion. The company’s chief executive, David M Solomon, said he expected the market for mergers and other deals to remain strong — a point borne out by the announcement Tuesday that Microsoft was spending nearly $70 billion to buy video game company Activision Blizzard, a deal in which Goldman advised the software giant.

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“You’ve still got a lot of volatility around the pandemic; you’ve got big changes in the supply chain; you’ve got changes in interest rates — there’s a lot going on, and so we still see clients being relatively active,” Solomon told analysts on a conference call.

The work of Goldman’s investment-banking arm, as well as the stock and bond traders who generated their highest yearly revenue in a dozen years despite a fourth-quarter slump, comes at a cost. The bank reported “significantly higher compensation” expenses, which rose 33 per cent in 2021 compared with a year earlier. The bank increased staffing to 43,900 employees, up 8 per cent, as it added workers in technology and its consumer division.

“On compensation, our philosophy remains to pay for performance,” said Denis P Coleman III, the bank’s new chief financial officer. “And we are committed to rewarding top talent in a competitive labour environment.” About 90 per cent of the new hires were made in strategic locations beyond the company’s hubs in New York, London and Hong Kong, he said.

The bank’s lacklustre trading performance and higher-than-expected expenses soured investor response, David Konrad, an analyst at Keefe, Bruyette & Woods, wrote in a note. The bank’s shares opened sharply lower and ended the day down about 7 per cent on Tuesday.

While Wall Street employees can expect to receive bonuses in the coming weeks, bankers are not alone in securing higher incomes. Pay is rising across the nation — in December, average hourly earnings were up 4.7 per cent from a year earlier — and employers are struggling to fill positions.

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“There is real wage inflation everywhere in the economy — everywhere,” Solomon said.

Even as they’re having to pay more for talent, banking executives have maintained an upbeat view despite the pandemic. Solomon said he was encouraged by public health data indicating that the omicron variant of the coronavirus was less severe than previous waves, which would mean less of a dent to the economy.

However, Solomon said, the next few months — during which the Federal Reserve and other central banks around the world are expected to raise interest rates — could be turbulent. The central banks’ responses to rising prices could mean more volatility, which could affect economic growth, asset prices and client activity, he said.

“Inflation may be above trend for some time, and in the near term, inflationary pressures may continue to intensify before they start to decrease,” he said.

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