Weak trading activity weighs on US bank’s results.
(Photo: Reuters)
new York Despite booming mergers and acquisitions, US investment bank Goldman Sachs’ profits shrank in the fourth quarter. Weak trading activity caused net income in the final quarter of 2021 to fall 13 percent year-on-year to $3.81 billion, the Wall Street Bank said on Tuesday.
Earnings per share were $10.81, up from $12.08 a year earlier. The institute thus missed the expectations on the stock exchange. Analysts had expected an average of $11.76 per share. The stock fell by more than eight percent at times on the New York Stock Exchange on Tuesday.
Business in 2021 as a whole was actually excellent, with profits increasing by 129 percent to $21.6 billion. It was the bank’s most profitable year ever. Total earnings climbed nearly a third to $59.3 billion.
Investment banking was once again the main source of income in the final quarter. Divisional earnings climbed 45 percent to $3.8 billion. Strong revenues from the M&A advisory business drove divisional earnings.
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Investors don’t like the fact that Goldman has to pay significantly more to pay bankers. Personnel expenses rose 31 percent to $3.3 billion.
Employees can ask for significantly more money
A war for talent is raging on Wall Street. The investment bankers, who currently bring in the majority of the business, are particularly competitive. “The disappointing figures are an important reminder that the banks are suffering greatly from wage inflation,” says Octavio Marenzi of the capital market consultancy Opimas. “Revenues have only increased by eight percent, but the payment by more than 30 percent. It is clear that employees can charge significantly more money without having to justify it with higher productivity.”
All major Wall Street houses will have significantly higher personnel costs this year as well. Jamie Dimon, CEO of America’s largest bank JP Morgan Chase, made it clear on Friday that he definitely wants to win the fierce competition for talent on Wall Street.
“We’ve always said that we want to be very competitive when it comes to pay,” says Dimon. “Our top bankers and traders did an exceptionally good job” and would be rewarded accordingly. “If that puts pressure on shareholders’ margins, then so be it.”
Depending on the trade
Goldman’s consumer and wealth management division, which also includes online bank Marcus and Apple’s credit card, grew revenues 19 percent to nearly $2 billion – a major achievement for Goldman CEO David Solomon, who has been with the company for years Make the bank less dependent on the profitable but volatile trading business. Nevertheless, the quarterly results show how dependent the bank still is on the trading business.
The equity ratio was 15.6 percent in the fourth quarter and 23 percent for the full year 2021 – well above the 14 percent that the bank is aiming for in the medium term.
The major banks JP Morgan, Citigroup and Wells Fargo had already presented their business figures for the final quarter on Friday. The quarterly reports from Morgan Stanley and Bank of America are expected on Wednesday.
With agency material.
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