GOLDMINE $ACHS
STAFF at Goldman Sachs are in line for an average pay packet of $1m (£612,000) each this year, after the bank reported second quarter net income that smashed expectations.
The Wall Street giant booked a profit of $3.44bn, or $4.93 per share, for the three months to 26 June, up 64 per cent from $2.1bn, or $4.58 per share, during the equivalent quarter of 2008. The performance was well ahead of a consensus forecast of $3.42 per share.
Excluding a one-off dividend of $426m paid to the US government to redeem preferred stock taken as part of the Troubled Asset Relief Programme (Tarp), earnings would have hit $5.71 per share.
The firm’s stellar performance heralds the prospect of a return to the height of the banking bonus bonanza in 2007.
Goldman’s compensation-to-revenue ratio rose to 49 per cent in the first half of the year, signalling that the total pay pool for employees this year could top $20bn, rivalling any previous year.
Total staff compensation for the second quarter of the year rose by 75 per cent to reach $6.65bn, or an average $226,156 per employee. If the quarterly figure is annualised, it comes to $904,624 per employee.
Speaking on a conference call, chief financial officer David Viniar said criticism of the bank’s pay policy was “misguided”, adding that conservative risk management “remains a cornerstone of our strategy”.
The bank benefited from an explosion of stock offerings from firms trying to raise capital, driving its equity underwriting business to record revenues of $736m.
Fixed Income, Currency and Commodities (FICC) also generated record quarterly revenues of $6.8bn, partly on the back of a strong performance in credit products.
Revenues in investment banking soared to $1.44bn, a 75 per cent increase on the first quarter of 2009, but 15 per cent down on the same quarter last year.
The firm’s tier 1 capital ratio under Basel II measurements reached 16.1 per cent as of 26 June, up from 16 per cent in the first quarter.
Chairman and chief executive officer Lloyd C Blankfein said: “While markets remain fragile and we recognise the challenges the broader economy faces, our second quarter results reflected the combination of improving financial market conditions and a deep and diverse client franchise.”
Viniar added that Goldman had benefited from competitors withdrawing from the market.
“There’s definitely less risk capital in the markets…there’s less competition out there,” he said.
Goldman was the first of the major Wall Street banks to report second quarter results, with JPMorgan Chase set to follow suit tomorrow and Citigroup and Bank of America due to report on Friday.
Total pay and benefits
$6.65bn
(up 75%)
DIVISIONAL REVENUES
Equity underwriting revenues
$736m
(record)
Equities
$3.18bn
(record)
Fixed Income, Currency and Commodities
$6.8bn
(record)
Investment banking
$1.44bn