Goldman's results suggest costs are becoming a big drain on pay

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Goldman's first quarter results are with us.

They're ok. Much is being made of the fact that earnings per share beat analyst expectations.

Revenues were down 7% year on year, which is impressive compared to Citigroup (down 25% in the investment bank) and BAML.

But although the top line results look good, the bottom line was a lot less impressive.

Discounting a charge relating to repaying Warren Buffet, Q1 net profits at Goldman fell 17% year on year, reducing the margin from 26% to 23%.

Notably, this was despite a 5% reduction in total compensation and an 11% reduction in compensation per head, which stood at $148k in the first quarter.

If headcount isn't pushing up costs at Goldman, what is?

Everything except compensation is on the rise. These include:

- Brokerage, clearing and distribution fees: up 10% year on year

- Market development costs: up 63% year on year

- Communications and technology costs: up 13% year on year

- Depreciation and amortization: up 39% year on year

- Occupancy costs: up 4% year on year

- Professional fees: up 28% year on year

- Other expenses: up 15% year on year

It could be concluded that Goldman is suffering serious cost inflation and that compensation is being squeezed to compensate for this.

There's already evidence of headcount trimming: employee numbers are down 300 since December. However, headcount is up 2,300 on last year. If non-compensation costs continue rising Goldman will have a choice: pare some more of this people back, pay them all less, or tolerate a lower margin. This year could be interesting.