Goldman Sachs reports higher-than-expected earnings
NEW YORK — America’s best-known banker is getting a big pay cut.
JPMorgan Chase said Wednesday that it will dock the pay of CEO Jamie Dimon by more than half, to $11.5 million from $23 million.
It’s the latest fallout from an embarrassing trading loss at the bank last year, one that eventually ballooned to $6 billion. Its ripple effects have already been numerous, forcing Dimon to appear contritely before Congress and putting the bank squarely in the crosshairs of regulators and lawmakers.
The pay cut didn’t come as a surprise on Wall Street. What set it apart was that it amounted to a reprimand from the bank against a CEO who remains popular and well-regarded, despite the stain of a trading loss that Dimon once dismissed as a “tempest in a teapot.”
And even as it cuts his pay, the board of directors praised Dimon for responding “forcefully” to the trading loss, presiding over an overhaul of the bank’s risk management and booting out responsible executives. A report from a bank task force placed most of the blame on other executives and traders who have since left.
Compensation consultant James F. Reda was underwhelmed. He called Dimon’s pay cut “ceremonial,” a way for the bank to show that it is paying penance.
“He doesn’t need the money,” Reda said. “He was probably very proactive in accepting this to keep people off his back. To get punished, if you will, so he can then point to that and say, ‘Look, I was punished. Isn’t that enough? Leave me alone. Let me run my business.’”
Dimon’s job was never seriously in danger, even with the trading loss, and the pay cut hasn’t changed that perception. Wall Street saw it less as an indictment of Dimon and more as a sign of the board’s commitment to taking the trading loss seriously.
“It’s bitter medicine, but he swallowed it and is moving on,” said James Post, an expert on corporate governance who teaches at Boston University. “I think that still leaves him in a very strong leadership position in both the bank and the industry.”
JPMorgan and Dimon are essential players in U.S. banking. JPMorgan emerged from the financial crisis as one of the strongest banks in the country, a winner in a meltdown that forced other banks to their knees. Its blockbuster fourth-quarter earnings, which were released Wednesday, will almost certainly cement it as the most profitable U.S. bank of 2012.
Earnings shot up 55 percent over the same period a year ago to $5.3 billion after paying preferred dividends, up from $3.4 billion.
Per share, those earnings amounted to $1.40, blowing away the $1.16 expected by analysts polled by financial data provider FactSet. The bank’s stock rose 47 cents to $46.82, up 1 percent.
Revenue also beat Wall Street’s forecasts, rising 10 percent to $24.4 billion, after stripping out an accounting charge. Mortgage originations jumped 33 percent.
Also on Wednesday, Goldman Sachs went some way to restoring its reputation as a Wall Street powerhouse after its earnings almost tripled in the fourth quarter, handily beating analysts’ estimates, as investment banking revenues surged.
The investment bank earned $2.83 billion after paying preferred dividends, compared with $978 million a year earlier in the period, which ended Dec. 31.
The bank’s debt underwriting business profited from a rally in bonds and a surge in demand for debt securities. Goldman’s debt underwriting business earned $1.96 billion in revenues for the year, its second-best annual performance and the highest since 2007. An increase in stock underwriting also helped boost revenues.
“The fourth quarter reminds us a little of the old days and should give investors confidence in Goldman’s future earnings power,” Glenn Schorr, an analyst at Nomura, wrote in note to clients.
Goldman’s stock jumped $5.50 to $141.09, its biggest one-day advance in ten months. The bank’s stock has returned 45 percent in the past 12 months.
Analysts were encouraged that revenue growth of 53 percent for the year outpaced a small increase in employee compensation, helping the bank boost its profit margins. Paying employees is Goldman’s biggest single cost, accounting for more than half of its total operating expenses.
The bank’s employee compensation costs rose 6 percent to $12.94 billion for 2012. The bank also reduced its headcount by 3 percent to 32,400. That means that the average employee at the bank earns almost $400,000 a year.
Goldman differs from other big U.S. banks because it deals almost exclusively with institutions, rather than consumers. Its clients are usually mutual funds, international corporations, other banks and similar firms.
Revenue for the fourth quarter rose to $9.24 billion, 53 percent higher than in the same period a year ago, beating analysts’ estimates of $7.97 billion.
Goldman earned $5.60 on a per-share basis, compared with the average analysts forecast of $3.71, according to data provider FactSet.
The Federal Reserve announced that Goldman has agreed to pay $330 million to settle federal complaints that it wrongfully foreclosed on homeowners who should have been allowed to stay in their homes.
The agreement was similar to deals struck earlier this month with 10 other major banks and mortgage lenders. The money will be used to pay compensation to homeowners, to reduce mortgage balances and to forgive outstanding principal on home sales that generated less than borrowers owed on their mortgages.