Goldman Sachs' Profits are Weighed Down by Big Bonuses and Subpar Trading

"It was the best of times, it was the worst of times."

On Tuesday, Goldman Sachs revealed 2021 was easily the most profitable year in its history, for which executives are swimming in record bonus payouts. But the world's most famous investment bank also reported earnings fell a worrisome 13% in the last three months of the year, dragged down by a lackluster performance by its trading team. Meanwhile, 2022 is already looking the worse for wear.

Mo Money Mo Problems

Goldman Sachs' record profit of $21.2 billion in 2021 was boosted by a global deal making surge that lined the pockets of investment banks. Called upon to advise record numbers of mergers and acquisitions, IPOs, and debt deals, Goldman's advisory revenue rose 45% to $3.8 billion last year, beating Wall Street's $3.2 billion projection.

But late last week, executives at rivals JPMorgan — which also made record profits in 2021 — and Citigroup set the stage for Goldman by lowering expectations for banks in 2022. Both reported bigger-than-expected declines in trading for the final three months of 2021. Goldman followed suit:

• Goldman's $3.8 billion profit in the fourth quarter missed analyst estimates of $4.1 billion and failed to match last year's $4.36 billion total.
• Revenue at the bank's stock and bond trading unit, which made a killer off market swings in 2020, fell 7% year over year to $4 billion, missing analysts' $4.3 billion forecast — of note, equities trading earnings fell 11%.

Unlucky Number 18: On top of a weaker trading environment, generous compensation — the most costly expense at Goldman and other banks — has raised the ire of investors. Goldman's compensation costs rose a whopping 33% to $17.7 billion in 2021, signaling big bonuses for a record year. But concerns about rising operating costs helped push JPMorgan shares down 6.2% on Friday, their most in over 18 months. Goldman didn't fare any better, falling 8% on Tuesday, also the most in 18 months.