New York - Goldman Sachs, the Wall Street bank with the highest return on equity, reported earnings that fell less than analysts expected yesterday as equity underwriting revenue doubled and the firm reduced compensation costs.
Fourth-quarter net income dropped 19 percent to $2.33 billion (R25.3bn), or $4.60 a share, the New York-based company said yesterday. That surpassed the $4.18 average estimate of 25 analysts surveyed.
Chief executive Lloyd Blankfein has said the bank did not need a major strategy change to boost return on equity amid new capital regulations that limit banks’ ability to trade for their own accounts. While its stock jumped 39 percent last year, it was the fourth consecutive year that returns fell below the level achieved in the decade before the financial crisis.
The bank climbed 1.2 percent to $178.75 in New York trading on Wednesday. While the shares have doubled since December 2011, they are still below their pre-crisis peak of $247.92 on October 31, 2007.
The firm has sought to entice investors through buybacks and dividends, returning $11bn to shareholders in 2012 and the first nine months of last year, more than double the combined total of Citigroup, Bank of America and Morgan Stanley.
JPMorgan Chase, the biggest US bank, reported on Tuesday a 21 percent drop in revenue at its investment banking division, driven by the implementation of accounting practices known as funding valuation adjustments. Goldman Sachs said in a filing in November that it already used these practices.
Goldman Sachs posted the biggest decline in trading revenue among Wall Street banks in the third quarter, driven by a 47 percent drop in fixed income. Larger banks have surpassed the firm in bond-trading revenue, where Goldman Sachs set a Wall Street record in 2009 as competitors struggled to recover from the financial crisis.
Analysts have said that Goldman Sachs’s trading revenue would suffer as rates rise this year. The yield on the 10-year US treasury bond has climbed in each of the past five quarters after hitting a record low in 2012.
More pressure could come from restrictions on commodities businesses. The Federal Reserve said this week that it was considering new restrictions on banks’ trading and warehousing of physical commodities. Policymakers are seeking comment on ways to curb ownership and trading of goods such as oil, gas and aluminium by deposit-taking banks. – Michael Moore from Bloomberg