Jan. 16 (Bloomberg) — Goldman Sachs Group Inc. (GS) reported the highest annual earnings in three years as underwriting revenue surged to a record and the firm's reliance on trading fell to the lowest level in more than a decade.
Net income climbed 8% in 2013 to $8.04 billion, the New York-based company said Thursday in a statement. In the fourth- quarter, profit dropped 19% to $2.33 billion, or $4.60 a share, from $2.89 billion, or $5.60, a year earlier. That surpassed the $4.18 average estimate of 25 analysts in a Bloomberg survey.
CEO Lloyd C. Blankfein, 59, is keeping a lid on compensation costs and relying on investment-banking revenue amid a slowdown in trading, the business he helped run until becoming president in 2004. The firm cut the percentage of revenue set aside for pay to the second-lowest level since it became a public company in 1999.
"The beat came both on the revenue and the expense side," Chris Kotowski, a bank analyst at Oppenheimer & Co., said in a note to clients. "Goldman is clearly managing its cost side to the newer, more muted revenue environment."
Goldman Sachs fell 0.5% to $177.81 in New York trading at 9:34 a.m. While the shares have doubled since December 2011, they are still below their precrisis peak of $247.92 on Oct. 31, 2007.
Revenue Decline
Fourth-quarter revenue fell 5% to $8.78 billion. Compensation, the firm's biggest expense, was $2.19 billion as the bank lowered its full-year ratio of compensation to revenue to 37% from 38% for 2012. That was the lowest since 36% in 2009. Return on equity, a gauge of profitability, was 11% for the year, up from 10.7% a year earlier.
Full-year trading revenue fell 13% and accounted for 46% of the total, the lowest since 2002.
"Our work in advancing our client franchise and in ensuring continued cost discipline has allowed us to provide solid returns even in a somewhat challenging environment," Blankfein said in the statement. "We are well positioned to generate solid returns as the economy continues to heal."
Fourth-quarter revenue from investment banking, the business run globally by Richard J. Gnodde, David M. Solomon and John S. Weinberg, climbed 22% to $1.72 billion. That compared with JPMorgan Chase & Co.'s $1.67 billion in investment-banking revenue and Bank of America Corp.'s $1.8 billion.
Merger Advice
The figure included $585 million of financial-advisory revenue, including fees for takeover advice, an increase of 15%. Revenue from underwriting, a business led by Stephen M. Scherr, climbed to $1.13 billion in the quarter, including $511 million from debt underwriting and $622 million for equity offerings.
For the full year, investment banking produced $6 billion of revenue, the second highest ever. That was driven by record underwriting revenue of $4.03 billion. The firm said its transaction backlog increased "significantly" compared with the end of 2012.
Keith Horowitz, an analyst at Citigroup Inc., called the fourth-quarter investment-banking results a "big beat."
Goldman Sachs held the top spot among arrangers of global equity, equity-linked and rights offerings in 2013, according to data compiled by Bloomberg. It ranked first in advising on announced mergers and acquisitions and fifth in underwriting U.S. bonds, the data show.
Trading Revenue
