Monday 24 July 2017

Fall in revenue shows Goldman feeling slowdown

Michael J Moore and Christine Harper

Goldman Sachs's fourth-quarter earnings report yesterday showed the company isn't immune from the market slowdown and generally weak demand for investment banking and other Wall Street activities.

In previous quarters, the Wall Street titan has handily exceeded expectations. But this time it only narrowly beat earnings estimates, as it posted weaker-than-expected revenue from fixed income and equity trading and from investment banking.

Revenue fell 10pc year over year to $8.64bn (€6.4bn), while profits fell 52pc to $2.39bn, or $3.79 a share. For the full year, revenue declined 13pc to $39bn, and profits fell 38pc to $8.3bn.

The fourth quarter of the year was particularly tough, with profits falling by 52pc to $2.4bn.

While the bank's $15.38bn pay and bonus pool was 5pc lower than in 2009, it's likely to fuel the debate raging in Britain over the role the City should play in the country's economic recovery. The compensation is the equivalent of Goldman paying its 35,700 staff the equivalent of $430,700.

Goldman has been working to counter a barrage of public criticism in the two years since the financial crisis.

Last week, the bank announced an overhaul of how it reports results, alongside what it said would be a greater focus on its clients.

Like its New York rival JPMorgan Chase, Goldman took a significant revenue hit in its trading unit. Goldman reported a 48pc revenue drop in its fixed income, currency and commodities unit to $1.6bn from $3.1bn in the same quarter a year ago.

There are a lot of eyes on what they're going to do from a compensation perspective," said Jason Tyler, senior vice-president of portfolio management at Chicago-based Ariel Investments.

Bonuses

Investment banks set aside a portion of revenue throughout the year to pay employees and typically decide bonuses at the end of the year based on full-year results. Average compensation figures, derived by dividing the compensation pool by the number of employees, don't represent any individual worker's actual pay.

Bonuses vary widely depending on an employee's seniority, job title and performance.

Goldman Sachs's compensation figures don't include costs tied to the UK bonus tax, for which the firm recorded a $465m expense in 2010. In October, it said the cost would be $600m.

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