Goldman Sachs Earns $4.79B in 4th Quarter

Goldman Sachs Group Inc. said Thursday it earned $4.79 billion in the fourth quarter as the bank cut back on compensation and its trading business again outdistanced the rest of the financial industry.

The company rewarded its employees with $16.2 billion in salaries and bonuses for 2009, up 47 percent from the previous year but still lower than many had expected.

Goldman said Wednesday it earned $8.20 a share in the last three months of the year as fixed income, commodities and currency trading buoyed its profits for the third straight quarter. Analysts surveyed by Thomson Reuters predicted Goldman would earn $5.20 a share.

Goldman also reported sharply higher fees from underwriting stock and debt offerings. Its shares initially rose but pulled back in midmorning trading, falling $1.27, or 0.6 percent, to $166.52.

Goldman, which has outperformed other financial companies for years, has been the strongest bank throughout the financial crisis. It had less exposure to toxic mortgage-backed securities than other companies and also has been more aggressive in its trading.

For the full year, Goldman earned $13.4 billion, almost as much as the $15 billion earned by the five other big national banks combined. 2009 was a difficult year for the banking industry, as companies with big lending operations lost money in those businesses.

JPMorgan Chase & Co., earned $11.73 billion for the year on the strength of its investment banking business, and Wells Fargo & Co. turned a $7.99 billion profit. But Citigroup Inc. and Bank of America Corp. lost a combined $3.81 billion. And Morgan Stanley, whose problems have been attributed in part to a lack of aggressiveness in its trading business, lost $907 million.

Despite its big profit, Goldman's compensation costs came in well below the record $20.2 billion the bank paid to employees in 2007. Goldman said reduced its compensation pool by $500 million in the fourth quarter and put the money in the bank's two-year-old charity, Goldman Sachs Gives, a move apparently aimed at blunting criticism of Goldman's outsized pay packages.

Bonuses in the overall banking industry have come under attack by lawmakers and the public after the companies lost billions of dollars in bad debts on mortgages, contributed heavily to the credit crisis and recession and then had to be bailed out by the government.

Goldman Sachs received $10 billion in bailout funds, and was one of the first to repay the money last year.

David Viniar, Goldman's chief financial officer, said the bank sought to strike a balance on compensation. He said Goldman employees performed "quite well" in 2009 and that the risk of losing top talent to other firms factored into the pay calculations.

"What we attempted to do was be fair to our people ... but show restraint," Viniar said during a conference call with reporters. "It's hard for me to judge how people are going to react."

Once again, aggressive trading drove Goldman's earnings. The bank had $6.41 billion in revenue from its trading and principal investments unit, down from $10.3 billion in the third quarter of 2009. That's in line with earnings reports from Morgan Stanley and JPMorgan Chase, which also saw a slowdown in trading in the fourth quarter.

Investment banking revenue, considered the foundation of the company's business, rose to $1.64 billion, up 58 percent from the fourth quarter of 2008 during the height of the financial crisis and 82 percent higher than the third quarter.

Goldman, like other Wall Street banks, makes much of its money in investment banking by charging fees to underwrite, or raise money for, bond and stock offerings. It also profits from managing mergers and acquisitions. Analysts like to see strength in investment banking because it is usually the most stable source of money for a Wall Street bank when the economy is strong.

Goldman's underwriting business had $962 million in revenue, more than double the same period a year ago. The bank attributed the increase in equity underwriting to higher revenues from initial public offerings in the quarter.