Goldman Sachs Group Inc., which set Wall Street pay records when stocks surged and cheap credit abounded in 2007, is again leading the industry as markets boom anew: putting aside less money for staff and more for investors.
Goldman Sachs, along with the investment-banking divisions of six of its biggest U.S. and European rivals, allocated a collective 39% of revenue for compensation in the first nine months, down from 42% a year earlier and the 50% some firms earmarked before the financial crisis. Goldman Sachs’s 41% ratio so far this year is its lowest nine-month figure as a public company.
Rising revenue at many banks is stoking employees’ hopes for larger bonuses, after year-end payouts were cut in the wake of the financial crisis and packed with restricted stock, which vests over time. Firms instead are preparing to shrink compensation for individuals amid investor pressure to improve return on equity. The measure of profitability stands at 10% or lower at each of the five biggest Wall Street banks - - less than half the levels that preceded the credit crisis.
“Someone’s going to be disappointed,” said Joe Jolson, co-founder and chief executive officer of JMP Group Inc., the San Francisco-based investment bank. It will be “bankers that haven’t really been paid any real cash bonuses for five years, or the shareholders of these companies.”
Bonus Optimism
Goldman Sachs has boosted its quarterly dividend to 55 cents a share from 35 cents, a 57% increase, since the beginning of 2012. Before last year, the New York-based firm’s dividend hadn’t been raised since 2006.
Average compensation cost per employee at Goldman Sachs fell 5% to $319,755 in the first nine months of 2013. At JPMorgan Chase & Co.’s investment bank, it dropped 4.8% to $165,774. The figure plummeted 16% at Zurich-based Credit Suisse Group AG to $204,000.
Each of the seven investment banks cut the absolute amount allocated for pay, even as five posted higher revenue.
More than half of bank employees expect bigger awards this year than last, according to a survey conducted by eFinancialCareers.com. The September poll drew 4,642 respondents in the U.S., U.K., Germany, Singapore, Hong Kong, Australia and the Middle East.
Rewarding Stars
As banks divide up compensation pools, pay will diverge more than usual among businesses and workers, said Robert Dicks, a principal at New York-based Deloitte Consulting LLP who focuses on compensation and benefits at financial-services firms. Companies seeking to shrink their pools can reward star bankers only by taking from other staff, he said.
“Banks continue to play this balancing act between telling shareholders and the public that overall pay is moderating, and it is, while maintaining a focus for employees who are highly successful or in highly profitable areas,” Dicks said. “The mathematics of that is somebody is getting squeezed.”
Investment banking revenue at the five biggest U.S. firms - - Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America Corp. and Citigroup Inc. -- rose 16% in the first nine months, while equity trading revenue climbed 9%, according to data compiled by Bloomberg. Fixed-income trading fell 11%.
Firms benefited from a 16% jump in the value of initial public offerings globally and a 34% surge in offerings of high-yield bonds during the year’s first nine months. U.S. stocks surged, with the Standard & Poor’s 500 Index climbing 18% and reaching record highs.
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