Goldman Profit Beats Expectations ; Gains from Investments and Lower Compensation Costs Bolster Results

By Craig, Susanne | International Herald Tribune, January 17, 2013 | Go to article overview

Goldman Profit Beats Expectations ; Gains from Investments and Lower Compensation Costs Bolster Results


Craig, Susanne, International Herald Tribune


The firm's results were buoyed by strong trading and investment banking results and lower compensation costs.

Goldman Sachs on Wednesday reported a profit of $2.89 billion, or $5.60 a share, for the fourth quarter, a significant jump from a year earlier.

The per-share figure is after the company paid preferred dividends, and came in well ahead of analysts' expectations of $3.78 a share, according to Thomson Reuters.

Analysts had been anticipating a fairly decent quarter for Goldman, and its results were buoyed by strong trading and investment banking results and lower compensation costs. In the fourth quarter of 2011, the bank had profit of $1.01 billion, or $1.84 a share.

The results reflect a continued focus on cutting expenses as well as a number of investing gains, including $485 million from debt and security loans, the bank said.

"While economic conditions remained challenging for much of last year, the strengths of our business model and client franchise, coupled with our focus on disciplined management, delivered solid performance for our shareholders," Goldman's chairman and chief executive, Lloyd C. Blankfein, said in a statement.

Over all, the firm produced $9.24 billion in revenue in the quarter ended Dec. 31, up 53 percent from a year earlier. That also beat analysts' estimates of quarterly revenue of $7.91 billion.

Goldman also revealed how much it had set aside for compensation, paying out $12.9 billion in 2012, an average of $399,506 to each of its 32,400 employees. This represented 37.9 percent of Goldman's revenue for the year.

Over the past year, Goldman has reduced its payroll by 900 people. In 2011, the bank set aside $12.22 billion, or 42.4 percent, of its net revenue to pay compensation and benefits for its employees.

Goldman partners, a small group of top managers at the firm, learned their 2012 compensation packages Wednesday. Most employees, however, will be told what their bonuses will be on Thursday in what is known at Goldman as compensation communication day. These bonuses are on top of annual salaries, which can range from roughly $100,000 to $2 million for executives like Mr. Blankfein.

Bonuses on Wall Street -- both their size and how they are paid - - always draw scrutiny. Goldman Sachs decided this week not to delay the payment of bonuses to its staff members in Britain, a move that would have helped investment bankers and other highly paid employees benefit from a lower income tax rate.

Goldman Sachs was already drawing attention in the United States after it distributed $65 million in stock to 10 senior executives in December instead of January, when the firm typically makes such awards. That helped the executives avoid the higher tax rates that will now be imposed on income of $450,000 or more.

The firm's annual return on equity was 10.7 percent, up from 5.8 percent in 2011. While this is far below its performance in boom years like 2006, when its return on equity was 41. …

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