GOLDMAN SACHS has revealed a series of dramatic cost cuts and a 58 per cent drop in fourth-quarter earnings after grappling with tumultuous trading conditions in the latter part of the year.
Like many of its investment banking competitors, Goldman was hit by euro zone turmoil and a slowdown in market activity in the last three months of 2011.
The results follow disappointing earnings at rivals JPMorgan and Citigroup after customers withdrew from trading.
Goldman responded to market conditions and client retrenchment, cutting its operating expenses by 14 per cent during the year to $22.64 billion. That includes a 2,400 cut in headcount and a 21 per cent reduction in employee pay, including bonuses to its bankers.
“This past year was dominated by global macroeconomic concerns, which significantly affected our clients’ risk tolerance and willingness to transact,” Lloyd Blankfein, chairman and chief executive, said in a statement.
“As economies and markets improve – and we see encouraging signs of this – Goldman Sachs is very well positioned to perform for our clients and our shareholders.”
With the cost-cutting Goldman managed to partially offset a 26 per cent slump in fourth-quarter net revenue and surprise analysts with net income of $1.1 billion. That equates to earnings of $1.84 a share, outstripping consensus expectations of $1.23 a share.
The bank’s ratio of total pay to revenue for 2011 was 42.4 per cent – up from 39.3 per cent in 2010 – and likely to fuel some arguments that Wall Street still needs to drastically slim down.
Shareholders have to contend with a 3.7 per cent return on equity for the full year, although Goldman shares jumped more than 6 per cent to $103.93 in afternoon trading in New York.
The bank launched an “internal initiative” in the second quarter, aiming to save $1.4 billion, or around 6 per cent of its costs in 2010.
In addition to volatile markets, Goldman has been grappling with a plethora of incoming financial regulations. – Copyright The Financial Times Limited 2012
