Goldman Sachs

Goldman Sachs Q4 net profit falls 21pc on softer bond market

Wall Street giant cuts pay ratio as it posts21 per cent drop in fourth-quarter profit

PUBLISHED : Friday, 17 January, 2014, 1:10am
UPDATED : Friday, 17 January, 2014, 4:41am

Goldman Sachs reported a 21 per cent drop in quarterly profit as revenue from fixed-income trading fell on a day the Wall Street bank announced it has cut its pay ratio to the second-lowest as a public company.

Net income applicable to common shareholders fell to US$2.25 billion, or US$4.60 per share, in the fourth quarter from US$2.83 billion, or US$5.60 per share, in the same quarter of 2012, the Wall Street bank said yesterday. Analysts had expected earnings of US$4.22 per share.

The bank was stung by its heavy reliance on the bond market, which historically has been a source of great profit.

The bond market began to soften in the fourth quarter as investors prepared for higher interest rates, a shift that affected trading, underwriting and investment income for Wall Street banks.

Goldman's revenue from client trading in fixed income, currencies and commodities (FICC) dropped 15 per cent in the period to US$1.72 billion.

Revenue from bond underwriting dropped 14 per cent to US$511 million, while revenue from Goldman's own loans and debt investments fell 13 per cent to US$423 million.

FICC trading had arguably been Goldman's strongest business in the decade leading up to the financial crisis, with the bank raking in billions of dollars from the credit boom and bust.

But it has come under increasing pressure due to new regulations that restrict activities such as proprietary trading and others that make it more expensive for banks to trade or hold securities on their balance sheets.

The fifth-biggest US bank by assets also cut the portion of revenue it pays employees to the second-lowest level as a public firm, it said.

Compensation for last year, which includes salaries, benefits, bonuses and the expense of deferred pay awarded in prior years, fell 2.6 per cent from 2012 to US$12.6 billion. Revenue in the same period was little changed at US$34.2 billion.

Chief executive Lloyd Blankfein allocated 37 per cent of revenue for pay, compared with 38 per cent in 2012. While the average ratio has dropped by more than six percentage points since 2008, Blankfein has said he is wary of cutting too much and losing top performers.

The compensation expense is enough to pay each of Goldman's 32,900 employees US$383,374 for the year.

Reuters, Bloomberg