By Saabira Chaudhuri
Goldman Sachs Group Inc.'s fourth-quarter net income fell 7.1%
as revenue from trading and investment banking slid.
Shares fell about 2% in recent premarket trading as Goldman
turned in a sharper-than-expected drop in fixed income, currencies
and commodities trading.
Still, Goldman's results were better than analysts expected,
something other big banks couldn't claim with their results earlier
in the week. Goldman reported net income of $2.17 billion, or $4.38
a share, down from $2.33 billion, or $4.60 a share, a year earlier.
Analysts polled by Thomson Reuters expected $4.32 a share.
Net revenue fell 12% to $7.69 billion but topped the $7.64
billion expected by analysts.
Goldman's results, more heavily dependent on trading than most
big banks, come after rivals turned in disappointing earnings
reports, largely due a steeper-than-expected falloff in trading
revenue.
On Friday, Goldman reported a 29% fall from a year earlier in
revenue from its large fixed income, currencies and commodities, or
"FICC," trading arm, to $1.22 billion amid what it characterized as
difficult market making conditions in credit products, interest
rate products and mortgages. The firm said the drop was 19% from a
year ago, when stripping out a gain of $21 million on the sale of a
stake in its European insurance business in the year-ago
quarter.
Earlier this week, Citigroup Inc. and Bank of America Corp.
reported their own FICC revenue fell 16% and 30%, respectively.
J.P. Morgan Chase & Co.'s FICC revenue dropped 23%, or 14%
after adjusting for the sale of certain businesses and other
items.
Through much of 2014, FICC trading revenue at the nation's
biggest banks was dampened by quiet markets, but in the last few
months of the year, some bank executives said they have been
grappling with unexpected bouts of sudden volatility, which also
can make it hard to turn a profit.
Goldman's stock trading by comparison was an area of strength in
the fourth quarter. Goldman's total equities revenue--which
includes stock trading and the prime-brokerage services it provides
to hedge funds--was up 15% from a year earlier to $1.93 billion as
the firm benefited from stronger revenue in executing client
trades.
Merger advisory revenue of $692 million was a bright spot,
rising 18% from a year earlier. Underwriting revenue, however,
pulled results lower, with debt underwriting coming in 21% weaker
than the year-earlier quarter at $406 million, and stock
underwriting falling 45% to $342 million.
Overall, investment banking revenue sank 16% from a year earlier
and edged down 1.6% from the third quarter to $1.44 billion.
In Goldman's investing and lending segment--which is made up of
the firm's portfolio of public and private equities and
debt--revenue tumbled 26% from a year ago to $1.53 billion.
Goldman showed progress in controlling expenses in the fourth
quarter, slashing overall operating expenses by 14% from a year
earlier and 12% from the prior quarter to $4.48 billion. The firm
pointed to lower provisions for litigation and regulatory
proceedings, and a decrease in depreciation and amortization
expenses as driving the decline.
For the quarter, Goldman's compensation and benefits fell 11% to
$1.96 billion. The figure was down 30% from the third quarter.
Compensation costs are Goldman's biggest operating expense, and
a sharp decline in any quarter will drop to the bottom line. The
firm typically sets side less for employee pay and other benefits
during the fourth quarter, bringing its full-year costs in line
with past years.
The firm's compensation ratio--or the proportion of revenue it
pays out to employees--was 36.8% for the year, roughly flat with a
year earlier.
As of the quarter's end, Goldman had a total of 34,000
employees, up from 32,900 a year ago and 33,500 in the previous
quarter.
Investors have been paying close attention to the returns
offered by investment banks as being indicative of a broader
upswing in the operating environment. Goldman reported Friday that
its annualized return on equity for the year was 11.2% versus 11%
for 2013.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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