The report and the bank's shares
Goldman Sachs (GS) shares are falling following a fourth-quarter earnings report worse than forecast by Wall Street analysts. Goldman Sachs, like JPMorgan earlier, reported a drop in financial market trading revenue.
Although 2021 was a phenomenal year overall in terms of revenues and profits, Goldman's quarterly report disappointed investors.
Goldman Sachs (GS) shares, up 26.55% over the past 12 months, were down 4.17% last week.
Volatile trading in the markets as well as record bond purchases by the Fed have been generating high trading profits for investment banks. However, as the central bank moves to "normalise" policy and prepares to raise rates, financial market liquidity is expected to decline. Investment firms' profits could suffer, but lenders' profits could rise.
As global market trading income accounts for about a third of Goldman Sachs' total revenues, its decline is significantly affecting the bank's profits.
Financial results for Goldman Sachs in 2021
Goldman Sachs' total revenues for 2021 are up 33% to $59.34 billion. (compared to 2020), with investment banking ($14.87 billion up 58%) and asset management ($14.9 billion up 87%) making the largest contribution, while revenue from the consumer banking segment rose 25% to $7.47 billion.
Net income for the year rose 129% to $21.6 billion, with annual earnings per share up 140% to a record $59.45.
Goldman Sachs delivered an incredible return on equity of 23% in 2021 and a solid 15.6% in the fourth quarter.
Q4 2021 report
Goldman Sachs earned $10.81 earnings per share in the last three months of 2021, down 11% from $12.08 in the fourth quarter of 2020 and below the market analysts' average forecast of $11.76. By comparison, Goldman's earnings per share for Q1 2021 was a record $18.6.
Q4 total revenues rose 8% to $12.64 billion, while Wall Street analysts were expecting figures of $12.08 billion.
While Goldman's investment banking revenues jumped 45% and consumer banking revenues jumped 19%, global trading and asset management revenues declined 7% and 10% respectively from Q4 2020.
Earlier, JPMorgan Chase (JPM), the largest US bank, reported a drop in trading revenues, following which shares of many large banks declined.
Like JPMorgan, Goldman reported that its operating expenses jumped due to higher payroll costs (23% to $7.27bn for the quarter), exceeding analysts' estimates.