Right strategy: Office workers walk near the Goldman Sachs Group headquarters in New York. The bank has lifted returns on equity the most among peers by holding back pay growth for bankers while revenues jumped. — Bloomberg
A GROWING split between the haves and have-nots in US banking was laid bare in four lenders’ full-year earnings on Wednesday.
Goldman Sachs Group Inc lifted returns on equity the most among peers by holding back pay growth for bankers while revenues jumped.
At the other end of the scale, Citigroup Inc cut its 2026 profitability target, which chief executive officer (CEO) Jane Fraser made the key measure of her turnaround plan.
The contrast between these two starkly illustrates how Goldman CEO David Solomon has escaped the turmoil of recent years and refocused the bank on its core skills, while Fraser is still struggling with the long, hard slog of getting Citigroup into shape after years of wayward leadership.
Goldman boosted its return on tangible equity by 5.4 percentage points to 13.5% in 2024 compared with the prior year.
Citigroup’s was half that at 7% and just 2.1 percentage points better than the year before.
Fraser has a long way to go to improve Citigroup’s performance. She had previously targeted returns of 11% to 12% in 2026 but lowered that goal on Wednesday to 10% to 11%.
Ahead of the earnings, the consensus forecast from analysts was just 9% for 2026, according to data collected by Bloomberg.
Still, Citigroup stock rallied nearly 7% in early trading after it said it would buy back US$20bil of shares over the next few years.
Citigroup’s profitability drops
Staff costs are under scrutiny across the industry, especially in investment banking, where employees traditionally take a big share of revenue and some banks overpaid top people during the past couple of fallow years to stop them from leaving.
Goldman reported its lowest ratio of compensation costs to revenue in recent years at 31%. That was because total income grew 16% for the full year, which was double its nearly 8% rise in pay costs and the best top-line growth of the banks reporting Wednesday.
The bank has promised investors it will ensure that more fee growth goes into profits than into the pockets of its bankers during good years as it aims to produce average returns in the mid-teens through market cycles.
Citigroup did manage to cut staff costs last year by almost 2.5%, although that was less than analysts had predicted.
Its compensation ratio was 35.2%, an improvement on 2023 but still much higher than levels of less than 30% before it embarked on its restructuring.
The bank expects to keep cutting staff costs by limiting contributions to the 401(k) funds of higher earners and laying off people linked to businesses it is selling and in its middle-management ranks.
For comparison, JPMorgan Chase & Co, which also reported Wednesday, had a compensation ratio of 28.9%, its lowest level in recent years, which helped it lift its return on tangible equity to 22% from 21% in 2023.
Higher staff costs
It did this in spite of staff costs that were up more than rivals, rising 10.5% in 2024 as it increased employee numbers by 2.4% to 317,000 people.
JPMorgan has added an eye-opening 62,000 people since 2020 – that puts a different light on forecasts that artificial intelligence will eliminate 200,000 banking jobs in future.
This is according to a recent survey by Bloomberg Intelligence.
JPMorgan’s profitability and pay growth potentially give it a stronger hand in stricter demands for office attendance.
It plans to make five-day weeks mandatory for most staff.
Some are unhappy with the policy, according to reports.
However, the bank isn’t expecting to shed workers as part of its plan, chief financial officer Jeremy Barnum told reporters on a call Wednesday.
Struggles under the regulatory cap
The fourth bank to report, Wells Fargo & Co, still struggles under the regulatory cap on its growth, although that could finally be lifted this year.
Its total revenue shrank by a slim 0.4%, and it cut costs by an even slimmer 0.3%. Its compensation ratio worsened marginally as a result.
Bank investors are expecting a big year in 2025 with the incoming Trump administration forecast to fire up animal spirits in markets and dealmaking.
Revenue from lending should improve, too, as stronger demand offsets reductions in interest rates.
The fly in this ointment remains inflation.
Markets were lifted by a slightly lower reading for underlying consumer inflation in December released on Wednesday, but JPMorgan CEO Jamie Dimon said he expects price growth to persist at higher rates for some time.
That would be bad news for banks’ costs and for the confidence meant to drive deals, trading and borrowing by their clients.
It could still be a rocky year ahead. —Bloomberg
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. The views expressed here are the writer’s own.