Amid disappointing quarterly earnings, Goldman wealth business thrives

Despite a profit decline in the fourth quarter leading Goldman Sachs to fall short of analysts’ earnings expectations, the bank is seeing ongoing success in its fledgling wealth management business.

Goldman Sachs’ consumer and wealth management business produced $2 billion in revenue in Q4, contributing to full-year revenue of $7.5 billion — a 25% increase over the previous year and a new record for the bank. In wealth management, quarterly fees rose to a firm-record $1.3 billion, up 5% from Q3 and 24% year-over-year.

In a call discussing the results, Goldman chief financial officer Denis Coleman attributed the success to “strong client inflows.”

An area of growth: Wealth management is an area where Goldman Sachs CEO David Solomon sees an opportunity to expand, grow and diversify the bank’s earnings mix.

“In that context, if there are opportunities to accelerate that plant and add on to those businesses or accelerate the growth of those businesses, we’ll certainly consider them,” Solomon said when asked about future M&A. “But we always consider them with discipline. The lens through which we never think about doing something that was significant or transformative would be extremely high.”

Alternative investments: In its asset management business, Goldman,like several other firms serving financial advisors, wants to expand its third-party platform for alternative investments. In the last two years, the bank has raised more than $100 billion in commitments against a five-year goal of $150 billion. “We are keenly focused on growing this business, and we’ll be updating on our long-term goals,” Solomon said.

Private banking and lending: Goldman’s private banking and lending business increased penetration with ultra-high net worth clients. The business brought in $293 million for the quarter, contributing to record full-year revenues of $1.1 billion.

Disappointing quarter: Several questions on the earnings call focused on the impact of increased compensation on the bank’s profits. Beyond increasing pay, the banks also added new employee benefits, such as higher retirement contributions, to address worker burnout. Goldman spent $4.4 billion more in compensation in 2021 than the previous year, weighing down Q4 results despite record annual revenues. Quarterly profit declined 13% to $3.94 billion, or $10.81 per share, missing forecasts and ending a streak of big gains, according to the Wall Street Journal.