Goldman Sachs Profit Beats Estimates on Cuts to Compensation
By Christine Harper
Jan. 21 (Bloomberg) -- Goldman Sachs Group Inc., the most profitable securities firm in Wall Street history, reported earnings that beat analysts’ estimates as the company slashed the percentage of revenue allocated to compensation.
Net income of $4.95 billion, or $8.20 per share, for the three months ended Dec. 31 compared with a loss of $2.12 billion, or $4.97 per share, a year earlier, when the fiscal year ended in November, the New York-based company said today in a statement. The average estimate of 21 analysts surveyed by Bloomberg was for $5.18 a share.
Goldman Sachs, under Chairman and Chief Executive Officer Lloyd Blankfein, relied on gains from trading and investments with the firm’s own money to help it recover last year from the worst financial crisis since the Great Depression. Earnings reports from Morgan Stanley and JPMorgan Chase & Co. showed that trading slowed in the last three months of 2009 as clients pulled back and credit spreads narrowed.
“There’s a lot of leverage to control expenses or if bonus accruals come in a little bit lower,” Jon Fisher, a portfolio manager at Fifth Third Asset Management in Minneapolis, which has $18.3 billion under management, said before earnings were released.
While last year’s profits helped Goldman Sachs’s stock double, the firm also became the target of outrage from politicians and pundits who blamed company executives for profiting from taxpayer support.
Labor unions led a protest demanding bonus payments be canceled, a Rolling Stone magazine writer labeled the firm a “great vampire squid wrapped around the face of humanity” and the bank was lampooned on the television comedy show Saturday Night Live.
On the first day of hearings of the Financial Crisis Inquiry Commission earlier this month, Blankfein, 55, was the target of questions about the firm’s products and its relationship with American International Group Inc., whose bailout by the Federal Reserve in 2008 funneled more cash to Goldman Sachs than to any of AIG’s other trading counterparties.
Goldman Sachs’s business model, which includes deposit- taking as well as trading for its own account and managing hedge funds and private-equity funds, may be affected by a proposal expected today from U.S. President Barack Obama. Obama is planning to announce new rules after meeting with former Federal Reserve Chairman Paul Volcker, who has advocated separating deposit-taking from proprietary trading and other risky investing, an administration official said.
Last month Goldman Sachs said its top 30 executives, including Blankfein, Chief Financial Officer David Viniar and President Gary Cohn, wouldn’t receive any cash bonuses for 2009. Instead, their bonuses will consist entirely of restricted stock that they can’t sell for five years.