Goldman Sachs, the largest and most profitable independent investment bank on Wall Street, had profits of $2.33 billion in the fourth quarter and revenues of $8.78 billion. The bank earned $4.60 per share, handedly beating analyst expectations of $4.18.
That’s a substantial 19% drop in profits from a year ago, when the bank earned $2.89 billion and had a 5% drop in revenue.
Once again, the bank’s revenue and earnings from trading and selling bonds, derivatives, commodities, and currencies (FICC) fell substantially over the year, with $1.72 billion in net revenues, a 15% drop.
The bank attributed the fall to lower revenues in mortgage products, as well as an uncertain economy and generally low levels of trading by clients. Overall, the bank’s institutional client services division, which does sales and trading of financial products, had revenues of $3.41 billion, a 22% drop from last year but a 19% gain from the third quarter.
Last quarter, despite profits of $1.4 billion, Goldman’s revenue dropped 20% over the year thanks to a huge fall in FICC and was only able to eke out a gain thanks to substantial cuts in compensation and other expenses.
This quarter, however, the bank’s disappointing sales and trading results were more than made up for by strong results in investment banking, with revenues of $1.72 billion, a 22% gain from a year before and a 47% gain from last quarter. The biggest gain was in underwriting stocks, especially IPOs, which Goldman said more than doubled to $622 million in the fourth quarter. Goldman’s most prominent IPO this year was Twitter, which sold $1.82 billion worth of shares on its first day of trading in November.
“Our work in advancing our client franchise and in ensuring continued cost discipline has allowed us to provide solid returns even in a somewhat challenging environment,” Goldman CEO Lloyd Blankfein said in a statement. “We believe that we are well positioned to generate solid returns as the economy continues to heal and provide considerable upside for our shareholders as conditions materially improve.”
The bank’s litigation expense, like many of its Wall Street peers, dragged down earnings, up to $561 million from $142 million last quarter. Overall, the bank’s additional legal expenses in 2013 were $962 million, more than double the 2012 total of $448 million.
While many banks are attempting to reduce head count and employee pay to deal with what might be persistently lower earnings thanks to increased regulation, Goldman’s head count increased 2% over the year to 32,900. Its total compensation and benefits, however, stood at $12.61 billion, or 36.9% of its 2013 revenues of $34.21 billion, down from 37.9% of revenues in 2012. According to data compiled by Bloomberg, Goldman’s pay as a percentage of its revenues is now at the second lowest level ever in its history as a public company.