Goldman’s big bonus payouts weigh on quarterly profit

Goldman Sachs’s net profit fell 13 per cent year-on-year in the last three months of 2021, as the Wall Street bank paid out bigger bonuses than analysts had forecast.

In fourth-quarter earnings on Tuesday, Goldman reported net income of $3.8bn, or $10.81 per share, compared with $4.36bn, or $12.08 per share, in the same period last year.

This was a bigger drop than analysts had predicted, with the average forecast for net income of around $4.1bn, according to consensus data compiled by Bloomberg.

Concerns around operating costs following JPMorgan’s earnings on Friday had weighed on bank stocks.

Goldman reported operating expenses of $7.3bn for the fourth quarter, up 23 per cent from a year earlier and more than the $6.4bn analysts had expected.

Compensation costs including bonuses were up 31 per cent year-on-year in the fourth quarter at $3.2bn, more than the $2.9bn analysts had forecast. Overall, compensation expenses were up 33 per cent at $17.7bn in 2021, mirroring the bank’s revenue growth for the year.

Full-year net profit for 2021 came in at $21.2bn, more than double what it was in 2020 and easily the bank’s biggest-ever year.

Goldman shares were down more than 4 per cent in pre-market trading in New York.

The results underscored that Goldman’s profit engine remains trading and investment banking two years after David Solomon, Goldman’s chief executive, outlined plans to focus on newer businesses like consumer and transaction banking.

Revenue earned in investment banking from advising on mergers and acquisitions, initial public offerings and debt deals was up 45 per cent at $3.8bn, amid a global boom in dealmaking activity. Analysts had forecast $3.2bn in revenue for the division.

Rival JPMorgan Chase last week reported investment banking revenue rose 28 per cent year on year to $3.2bn. 

It was the eight consecutive quarter of year-on-year revenue growth for Goldman’s investment bank. Analysts expect this streak will end at the start of 2022 following the high bar set by the bank in 2021.

But revenue at Goldman’s stock and bond trading unit, which had a bumper year in 2020 due to heavy trading volume during market swings, was down 7 per cent at $3.98bn year on year, missing analysts’ forecasts for $4.3bn. 

Revenue in the consumer and wealth management unit, which includes its online bank Marcus and Apple credit card, rose 19 per cent to $1.97bn, in line with analysts’ forecasts.

Annualised return on equity for the quarter was 15.6 per cent and 23 per cent for 2021, ahead of the 14 per cent medium-term target Goldman laid out in 2020.