Goldman Sachs earns $13 billion in 2009
Friday, January 22, 2010
NEW YORK -- Goldman Sachs reported blockbuster earnings of $13.39 billion for 2009 and said on Thursday that it kept compensation below the levels of its pre-crisis heydays.
The investment bank said it would spend $16.2 billion on compensation expenses, which includes salary and benefits but is largely for year-end bonuses. That works out to an average payout of $498,000 per employee, although rainmaker traders and bankers will earn millions of dollars. The average pay amount is up 37 percent from 2008, though it's 25 percent less than record 2007 levels.
Mindful of the public scrutiny on year-end bonuses, Goldman took the unusual step of highlighting its pay practices in its earnings report, saying that the 2009 compensation pool represented 36 percent of its revenue, the lowest ratio since it became a public company in 1999. Last year, Goldman set aside 49 percent of its revenue for compensation and benefits, which is typical for the industry. In 2007, it set aside 44 percent.
During the first three quarters of the year, Goldman accrued $16.7 billion in its compensation pool, putting it on track to pay out bonuses that would have topped the payouts of 2007. But in the final three months of the year, it cut its pool of compensation funds by $519 million.
On Wall Street, the move was widely seen as Goldman's boldest effort yet to deal with public anger over big bonuses. One analyst asked Chief Financial Officer David Viniar in a conference call whether the company was preparing for higher turnover in light of the reduced compensation.
"We certainly hope not," Viniar said.
"We have spent an enormous amount of time on this," he added later. "We tried to strike the right balance, and we think the message that we'll be able to send to our people with the compensation is that they had a great year and they're being paid well and fairly but within the context of what's going on in the world."
In Washington, though, Goldman got little credit for its effort.
President Obama, in a televised news conference announcing new restrictions on big financial firms, criticized industry leaders for a "return to old practices" and for sending out an "army of industry lobbyists" to fight his efforts to reshape the banking industry.
"I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low and cannot refund taxpayers for the bailout," said Obama, who was flanked by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee. "It is exactly this kind of irresponsibility that makes clear reform necessary."
Several lawmakers dismissed Goldman's move as a public-relations gimmick.
"They just need to move the decimal point to the right a couple of digits -- that's a reduction that might sell on Main Street," said Rep. Dennis J. Kucinich (D-Ohio), who has proposed legislation to tax Wall Street bonuses.
It is unclear, however, whether Goldman's compensation trend will continue. When asked if Goldman's compensation expenses would be determined by a smaller portion of revenue going forward, Viniar said simply, "We will know more as the quarter and the year unfolds."
Compensation at large banks has been under intense public scrutiny as the country struggles with a double-digit unemployment rate in the wake of an economic crisis that many lawmakers contend was fanned by excessive risk-taking on Wall Street.
In December, as public criticism mounted over expected payouts, Goldman said it would contribute $500 million to charitable and small-business initiatives. Goldman also said its top 30 executives would be paid 2009 bonuses fully in restricted shares, not cash.
"Throughout the year, particularly during the most difficult conditions, Goldman Sachs was an active advisor, market maker and asset manager for our clients," Lloyd Blankfein, Goldman's chairman and chief executive, said in a statement. "That performance, as well as a recognition of the broader environment, resulted in our lowest ever compensation to net revenues ratio."
Goldman's earnings far exceeded Wall Street estimates. For the fourth quarter ended Dec. 31, the investment bank reported earnings of $4.95 billion ($8.20 a share), compared with a loss of $2.29 billion ($4.97) for the three-month period ended Nov. 28, 2008. Analysts had expected earnings of about $5.20 a share. For the full year, Goldman made a profit of $13.4 billion ($22.13), compared with $2.32 billion ($4.47) in 2008.