Goldman shares surge despite slump in fourth-quarter profits
Published 19/01/2012 | 05:00
SHARES in Goldman Sachs surged yesterday after the Wall Street giant beat market expectations, despite fourth-quarter profits falling by more than 50pc.
Earnings slumped to $978m (€760m), down from $2.2bn a year earlier, as revenue from investment banking and trading -- the traditional strengths of the firm -- plunged.
Despite the drop in profit, Goldman jumped more than 6pc in New York on the news. Earnings per share of $1.84 were well ahead of forecasts, which averaged around the $1.24 mark.
On the full year, Goldman's $2.5bn profit was its lowest since the crisis began.
Business is well down in the industry as Wall Street endures the toughest year in investment banking since 2008. The eurozone crisis and ongoing problems in the economy domestically have stopped many businesses investing or launching initial public offerings. The volatile markets also hit profits in the trading arms of most investment banks, while proprietary trading desks -- which drove profits over the last decade -- are being wound down to comply with US banking legislation.
On Tuesday, Citibank reported lacklustre results while JP Morgan and their smaller rival Jeffries have both seen weakening in the capital markets business. The banking industry has cut thousands of jobs worldwide as it "right sizes" to an industry that is much more highly regulated and smaller than before the financial crisis hit.
Goldman's payroll fell 2,400 during the year, reflecting job cuts across trading, banking and back-office operations. The bank slashed compensation 21pc to $12.2bn or $367,057 per employee, from $15.4bn or $430,700 per employee in 2010.
On a conference call yesterday, Goldman chief financial officer David Viniar said Goldman is targeting $1.4bn in annual cost savings, up from an earlier goal of $1.2bn, and has a "small amount" left to do in 2012.
Mr Viniar added profit growth must come from higher revenue and not cost cuts. (Additional reporting by Reuters)