Goldman Sachs shares slide 8% on Wall Street

After Wall Street missed quarterly profit expectations, the Goldman Sachs Group GS.N fell by as much as 8% Tuesday due to weaker trading revenues and rising expenses.

The market value was down 6.5% towards the close, but the share decline put Goldman on course for its worst single-day showing since June 2020, shedding $10 billion off its market value since Friday's close.

The Federal Reserve slowed its pace of asset purchases after 18 months of pumping liquidity into capital markets to help the impact of the COVID -- 19 pandemic, as bank earnings in the fourth quarter have taken a hit due to lower trading volumes.

The Fed had intervened in the market as clients bought and sold more stocks and bonds, repositioning their portfolios to match the changing economic environment. The market backdrop returned to normal levels after the fourth quarter earnings from large U.S. banks showed the market backdrop returning to normal levels. Since March 2020, Goldman had been one of the main beneficiaries of market volatility, enabling its fixed income and equities traders to enjoy their best period since the 2007 -- 09 financial crisis.

Revenue from global markets fell by 7% in the fourth quarter to nearly $4 billion, due to declines in equities and fixed income trading revenues compared to a year ago.

Goldman Sachs had an impressive record year but a thud of a quarter, said Viola Risk Advisers analyst David Hendler.

Since taking over the reins from Lloyd Blankfein in 2018, Goldman's Chief Executive David Solomon has tried to diversify the bank's revenue with an aim to focus more on predictable revenue streams like consumer banking, wealth and asset management. The strategy aims to reduce the bank's reliance on unpredictable capital markets-focused businesses.

The bank's global markets division, which houses its trading businesses, accounted for more than a third of its revenues last year.

A 23% increase in operating expenses in Goldman was a result of the trading slowdown, which was mainly due to higher compensation and benefits costs.

As top Wall Street banks have raised salaries for junior bankers over the past year to attract and retain top talent, the wages of the bank have slowed as a result of wage inflation.

Oppenheimer analyst Chris Kotowski expressed surprise that Goldman's compensation ratio, which measures the proportion of revenues set aside to pay staff, had gone up during the quarter.

He said this is the first time we've covered the stock where the ratio has gone from 3 Q to 4 Q.

Goldman has always been one of the best-paying banks.

Chief Financial Officer Denis Coleman told analysts on a conference call that our philosophy is to pay for performance, and we are committed to rewarding top talent in a competitive labor environment.

Goldman's compensation ratio was lower by 200 basis points as of the year, at 30%, than it was the year before.

In the last week, top executives at JPMorgan Chase JPM.N, the country's largest bank, flagged similarly high fourth quarter expenses and saw its shares fall 6%. Like its rivals, Goldman's trading slowdown overshadowed a 45% jump in investment banking revenue to $3.8 billion as its top rainmakers raked in record fees from advising on some of the largest mergers and initial public offerings.

Solomon acknowledged last year was exceptional in terms of client trading activity, but he said he anticipates more market volatility than usual in 2022.

Activity levels, given we're in a very unusual macro environment, are going to be reasonable as we start this year, he told analysts. There's still a lot of volatility around the pandemic. The bank expects to hold onto market share gains made by its trading business even as the market environment returns to normal, according to executives.

Goldman's profit fell to $3.8 billion in the quarter, which was $4.4 billion a year ago.

Earnings per share fell to $10.81 from $12.08 a year ago. According to Refinitiv data, analysts on average had expected a profit of $11.76 per share.