Goldman shares drop after earnings miss estimates on surging expenses, equities trading slowdown

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Goldman Sachs on Tuesday posted fourth-quarter profit below analysts' expectations as the bank's operating expenses surged 23% on higher pay for Wall Street workers and increased litigation reserves.    

Here are the numbers:

The bank said quarterly profit fell 13% from a year earlier to $3.94 billion, or $10.81 a share, below the $11.76 estimate of analysts surveyed by Refinitiv. While analysts had anticipated that a slowdown in trading would impact the quarter, equities desks posted revenue that was $300 million below the $2.43 billion estimate.

Shares of the bank dropped 4.2% in premarket trading.

Still, companywide revenue in the quarter jumped 8% from a year earlier to $12.64 billion, more than $500 million above the consensus estimate, on gains in investment banking and wealth management.

Just as at rivals JPMorgan Chase and Citigroup, Goldman Sachs saw expenses rise in the quarter as the firm had to pay employees more after another year of outperformance. Both trading and investment banking operations have thrived during the coronavirus pandemic, thanks to a booming period in capital markets that suited Goldman's Wall Street-centric business model.

Goldman said operating expenses jumped 23% to $7.27 billion in the quarter, exceeding the $6.77 billion estimate of analysts surveyed by FactSet. The bank cited "significantly higher" pay and benefits for its employees, technology expenses and $182 million set aside for litigation and regulatory costs, compared with $24 million in the year-earlier period.

«Goldman Sachs' disappointing Q4 earnings are a stark reminder that wage inflation is hitting the banking sector hard,» Octavio Marenzi, CEO of bank consultancy Opimas, said in an emailed statement. «It