Main Street banks outshine Goldman

©AFP

The diverging fortunes of Main Street and Wall Street were highlighted as a trading slump hit Goldman Sachs’ fourth-quarter results, while Wells Fargo and US Bancorp benefited from the gradually healing fortunes of US consumers.

Goldman surprised investors by reporting lower-than-expected revenues in the last three months of the year as a sharp fall in income from fixed income trading was only partially offset by a rise in investment banking activity.

Shares in Goldman had fallen more than 2 per cent by early afternoon in New York on Wednesday after it reported fourth-quarter earnings per share of $3.79, down 54 per cent from a year ago but in line with analysts’ forecasts. Its $8.6bn in revenues for the quarter, however, fell shy of Wall Street expectations.

The lacklustre quarter capped a difficult 2010 for Goldman, marked by a $550m settlement with US regulators over fraud allegations and a public backlash against its pay and business practices.

With an influential US Senate report that will delve into Goldman’s behaviour during the financial crisis expected soon, the bank cut its total bonus and salary pool by 5 per cent, leaving its 35,700 employees to share $15.4bn or about $431,000 each, some 13 per cent less than in 2009. Goldman set aside about 40 per cent of its revenues to pay employees in 2010, more than the last year but below the 45-46 per cent seen before the crisis.

Both Wells and US Bancorp reported strong increases in earnings as losses on consumers and corporate loans abated during the quarter. However, executives were cautious on future prospects because low interest rates are squeezing profits and unemployment remains high.

John Stumpf, Wells’ chairman and chief executive, told analysts that while a recovery in the US economy was under way, the mood remained “tepid”.

“Things are better than they were a year ago but not as good as they need to be,” Mr Stumpf said. “Jobs are still a big issue. But there is a little more spring in the step of our consumer.”