Higher payouts mar record year at Goldman Sachs

Goldman Sachs Group Inc. announced record revenues in its wealth management segment Tuesday, but still fell well short of overall estimates for the quarter.

Companywide revenue jumped 8% from a year earlier, to $12.64 billion, in large part due to gains in its investment banking and wealth management divisions. However, rising expenses, including significant increases in pay for its employees, ate into overall profits.

Operating expenses jumped 23%, largely because of higher compensation and benefits costs, according to the company. The investment bank shelled out an additional $4.4 billion in compensation alone last year, topping $17.7 billion for the year and sending the bank to its only quarterly profit decline of 2021.

“Our asset management and wealth management business both had record years,” CEO David Solomon said during an earnings call Tuesday. “We are keenly focused on growing this business, and we'll be updating our long-term goals.”

Shares of the Wall Street bank fell more than 8% in early trading Tuesday.

In November, Goldman Sachs boosted its perks and compensation for employees to help attract top talent and fight burnout caused by the pandemic, including increased 401(k) matches for most employees, more paid leave and a six-week unpaid sabbatical for long-term employees.

“On compensation, our philosophy remains to pay for performance, and we are committed to rewarding top talent in a competitive labor environment,” Goldman CFO Denis Coleman said on the call.

Competing Wall Street wealth managers, like Wells Fargo & Co., are also boosting benefits for advisers. Wells Fargo's 2022 compensation plan, rolled out last month, reduced the number of compensation hurdles advisers in its private client group will face each month, and comes with an additional $5,000 in deferred comp for qualified employees.

Goldman's earnings were buoyed by an excellent quarter for its wealth management segment, however.

Its revenues totaled a record $5.98 billion last year, marking an increase of 25% from 2020. Higher management fees on increased assets under management pushed up revenues, according to the company. 

“We have these areas of the firm, in particular, asset management, wealth management and digital consumer banking platform, where we see real opportunity to expand and grow Goldman Sachs franchise, real opportunity to ultimately diversify the earnings mix and make the firm more durable, more diversified and drive higher returns,” Solomon said during the earnings call.

Goldman's consumer division also performed well, with Marcus growing 8%, driven by higher credit card and deposit balances. Taken together, consumer and wealth management generated record net revenue of $7.47 billion.

“In that context, if there are opportunities to accelerate that plan and add on to that business, or accelerate the growth of those businesses, we'll certainly consider them,” Solomon said.