Goldman loses shine as assets profits nosedive

Pay per employee at Wall Street’s top investment bank fell by 14 per cent in 2010 compared to the previous year, figures showed yesterday. The decline in pay at Goldman Sachs comes amid a fresh row about bonuses, despite compensation tracking the bank’s performance.

The bank announced a 13 per cent decline in revenues to match the fall in its pay costs. However, the ratio of pay to revenues grew to 39.3 per cent this year, up from an all-time low of 35 per cent in 2009.

Although the bank spent just four per cent less in total on staff pay, it hired an extra 3,200 people to bring its headcount to 35,700. A third of the additional hires were in “growth markets” as opposed to mature markets like the US and UK, with the focus particularly on wealth management.

The extra hires mean that average pay per head fell to $430,000 or £269,000 last year. It is not clear what proportion of the pay-outs is made up of base salaries, benefits and stock options versus bonuses, but fixed pay is understood to have risen in response to a raft of regulations targeting bonuses.

The decline in pay was on the back of plunging earnings overall at the bank, with pre-tax profits dropping 35 per cent year-on-year. Although first-half earnings held up, the last six months have seen clients scale down their trading due to mounting uncertainty about sovereign debt.

The fourth quarter of 2010 saw revenues from executing fixed income, currency and commodities trades for institutions drop 37 per cent to $13.71bn. The bank put the fall down to “lower client activity levels, which reflected broad market concerns including European sovereign debt risk”.

The market turmoil also hit corporate finance activity as companies put off floats and M&A, so that investment banking revenues dropped 10 per cent.

The drop in traditional investment banking activities has been a theme for Goldman’s rivals as well, with JP Morgan reporting a 21 per cent drop and Citigroup seeing a 19 per cent fall in investment banking net income.

Goldman’s shift towards hiring for its asset management business in less developed markets will add to a growing debate as to whether the traditional investment banking model is undergoing fundamental changes in the wake of the financial crisis and expanding regulatory costs.

FOURTH-QUARTER US BANK EARNINGS

Goldman Sachs
Revenues $8.6bn
Earnings per share $3.79
EPS change on 2009 -53%

JP Morgan Chase
Revenues $6.2bn
Earnings per share (EPS) $1.12
EPS change on 2009 +51%

Citigroup
Revenues $18.4bn
Earnings per share (EPS) $0.04
EPS change on 2009 +112%


BNY Mellon
Revenues $3.8bn
Earnings per share $0.55
EPS change on 2009 -7%

Wells Fargo
Revenues $21.5bn
Earnings per share $0.61
EPS change on 2009 +663%

Northern Trust
Revenues $906m
Earnings per share $0.64
EPS change on 2009 -22%