Goldman Sachs Post Soaring Profits

January 21,2010

CNNMoney

By David Ellis

Goldman Sachs delivered some of its best results in the firm’s history on Thursday, after it drastically reined in pay for thousands of employees.

Hoping to defuse a potential backlash over year-end bonuses, the Wall Street powerhouse said it trimmed its compensation pool to $16.2 billion during the quarter.

That helped boost its fourth-quarter results to $4.9 billion, or $8.20 a share, eclipsing analysts’ estimates for a profit of $5.20 a share, according to Thomson Reuters. Profits for 2009 also soared, hitting a new record of $13.4 billion.

Robust activity in Goldman’s massive trading division earlier in the year helped juice the firm’s full-year results, even as trading dramatically slowed down in the final months of the year.

And while revenue within Goldman’s traditional investment banking and asset management businesses fell from a year ago, that decline was easily offset by the reduction in employee expenses.

Money spent on salaries, benefits and bonuses in 2009 ended at 38.5% of the firm’s total revenue, the lowest level for that ratio since the firm went public in 1999.

David Viniar, Goldman Sachs’ chief financial officer, indicated that the move was done largely in response to the recent outcry about compensation from the American public, who helped prop up the firm with taxpayer dollars a little more than a year ago.

There has certainly been much frustration on Capitol Hill as well, with politicians incredulous that financial firms like Goldman Sachs would dare pay outsized bonuses, particularly at a time when millions remain out of work.

“We are not deaf to the calls for restraint and we heard them,” Viniar said during a conference call with the media.

Hoping to defuse a potential backlash, the company has taken aggressive action on several fronts in recent months. In December it revoked cash bonuses for its 30-member management committee, as well as contributing $620 million to two charitable organizations the firm oversees.

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