Goldman Sachs fourth-quarter profits fall 13% as compensation costs soar

Goldman Sachs said its fourth-quarter profits fell 13% from a year earlier, largely because the bank prepared to pay hefty payouts to its well-paid employees.

This is the latest sign that wages are rising sharply, especially on Wall Street. Most of the big banks that have released their results so far have indicated their intention to pay their employees more in the coming year.

The New York-based investment bank made a profit of $3.94bn (£2.90bn) or $10.81 a share. This is down from $4.51bn (£3.32bn), or $12.08 per share, in the same period a year earlier.

The results exceeded analysts’ expectations, which on average were looking for earnings of $11.80 per share, according to FactSet.

While Goldman was able to boost revenue in the quarter, the gains were more than wiped out by the company’s compensation spending. The bank set aside $3.25bn (£2.39bn) to cover pay and benefits in the quarter, up 31% from a year earlier.

Goldman typically has high compensation expenses, particularly in the last quarter of the year as the bank prepares to pay out its annual bonuses to employees.

These bonuses can often be several times an employee’s salary, especially the highest paid traders and investment bankers in the company.

But rising inflation, along with growing competition for employees among investment banks, has pushed salaries considerably higher at banks. Bloomberg News reported late last week that the company was preparing to pay special one-time bonuses to keep its most valuable employees.

“It’s clear that employees are in a position to demand significantly higher compensation without necessarily having to justify the increase with greater productivity,” said Octavio Marenzi, chief executive of consulting firm Opimas LLC.

Company pay is directly tied to overall company performance over the year, and this has been an incredibly good year for Goldman. The company made $21.64bn (£15.91bn) in profit last year, more than double what it earned in 2020.

Dealing and trading remained mostly strong last quarter for the company, which helped drive earnings. Investment banking revenue grew 45% year over year. Trading revenue declined a modest 7%.

The company’s return on equity – a measure of a bank’s performance with the assets it owns – was 23% last year, more than double what it was a year earlier. . Banks like Goldman aim for a return on equity above 10%.

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