Good morning from Washington DC. The global banking giant and "vampire squid" Goldman Sachs this morning announces its earnings figures for the fourth quarter of 2010 – and will reveal the pay and bonus details that it plans to lavish upon its staff.
There may also be more details on the recent Facebook fiasco that saw Goldman Sachs buying a chunk of the social network site and then annoying its US clients.
Here we go then. My colleagues Jill Treanor and Dominic Rushe will be covering the results for the Guardian and we will be rounding up all the analysis and reaction elsewhere on the web, from the US and around the world.
The numbers are out – and Goldmans's profits are down, as expected. Bloomberg reports:
Goldman Sachs Group Inc's earnings dropped 52%, matching analysts' estimates, as revenue from trading and investment banking declined. The results capped the fourth-best year for profits in the firm's history.
Fourth-quarter net income fell to $2.39bn, or $3.79 a share, in the three months ended Dec. 31, from $4.95bn, or $8.20, a year earlier, the New York-based company said today in a statement. Estimates of 22 analysts surveyed by Bloomberg averaged $3.79 per share, and ranged from $3 to $4.31.
If you want to read a PDF of the bank's fourth quarter statement, it's right here.
If you are really keen, you – as in, members of the public – can listen into the Goldman Sachs conference call later today:
A conference call to discuss the firm's results, outlook and related matters, will be held at 9:30am (ET), Wednesday, January 19, 2011. The call will be open to the public.
Members of the public who would like to listen to the conference call should dial 1-888-281-7154 (US domestic) or 1-706-679-5627 (international). The number should be dialed at least 10 minutes prior to the start of the conference call. The conference call will also be accessible as an audio webcast through the Investor Relations section of our web site, www.gs.com/shareholders/. There is no charge to access the call. For those unable to listen to the live broadcast, a replay will be available on our web site or by dialing 1-800-642-1687 (U.S. domestic) or 1-706-645-9291 (international) passcode number 32157723 beginning approximately two hours after the event.
The New York Times's Dealbook blog (which broke the GS-Facebook story) says the 53% fall in profits is a "stark reminder of how challenging the markets have been for firms like Goldman over the past year":
Revenue in its powerful fixed income, currency and commodities unit, known also as FICC, fell 48% in the quarter over year ago levels to $1.64 billion. Investment revenue, which includes equity and debt underwriting, fell 10% $1.51 billion in the same period.
Overall, net revenue in the quarter was $8.6 billion, down 10% from the year ago period. For the year net revenue, revenue minus interest expense, was $39 billion, down 13% from 2009. Full year earnings were $8.35 million, down 38% from 2009.
Here's a statement on the earnings figures from Goldman Sachs chief executive and chairman Lloyd Blankfein:
"Market and economic conditions for much of 2010 were difficult, but the firm's performance benefited from the strength of our global client franchise and the focus and commitment of our people.
"Looking ahead, we are seeing signs of growth and more economic activity and we are well-positioned to help our clients expand their businesses, manage their risks and invest in the future."
That's a cut-and-paste chief executive's statement if ever there was one.
No word on the bonuses yet.
The Financial Times has some detail on the level of bonuses and pay being handed out by Goldmans this year – still well down on the golden years but more than than the dark days of 2009:
Goldman paid $15.38bn in total compensation expenses in 2010, a 5% decline from the prior year. The ratio of compensation and benefits to net revenues was 39.3%.
That would be the second lowest percentage in the bank's history, the lowest being 2009 and the midst of the financial crisis when "employee compensation" fell to 36% of revenue.
My colleague Jill Treanor, deputy City editor on the Guardian's business desk, is casting her expert eye over the Goldmans earnings figures, and here's her first take:
Goldman Sachs has set aside $15.3bn to pay its staff in 2010 - an average of $430,000 each – in a move that re-ignited the controversy over City pay and bonuses.
Reaction to the Goldman Sachs bonus bonanza is rolling in. Brendan Barber, head of the UK's TUC (the British counterpart of the AFL-CIO) said:
"Goldman Sachs has stuck two fingers up to austerity Britain by shelling out mega bonuses again. These earnings would make Gordon Gekko blush."
That's an indication of how much more controversial these bonuses are in the UK compared with the US, at least in the mainstream media.
Jill Treanor's analysis will be up on the Guardian's site shortly – but she emails this thought:
"There is no attempt to show the restraint of last year when it reduced the amount being paid into its bonus pool in the fourth quarter of 2009 to make a $500m donation a charitable foundation, Goldman Sachs Gives. While the $15.3bn set aside for bonuses and salaries was down 5% on the $16bn for the previous year it did not fall as fast as revenues which fell 13% to $39.1bn. The compensation ratio is also up - from the record low of 35.8% in 2009 when the bank was trying to show restraint - to 40% in 2010."
Jill Treanor's analysis is now live right here, including this:
The bank set aside $2.2bn in the fourth quarter alone even though revenue halved to $2.4bn during this period. Goldman has used 40% of its revenue to pay staff, some 5,500 of whom work in the City and will begin to learn in the coming days about the size of their 2010 bonuses.
...
The bank now employs 3,200 more staff that it did a year ago, an increase of 10%, which might explain why the compensation pool has not fallen as much. Per head, the average payout has fallen from $498,000.
The Goldman Sachs conference call is about to start. If you are interested anyone can call in and listen by dialling 1-888-281-7154 (US domestic) or +1-706-679-5627 (international).
So far the conference call is David Viniar, the bank's finance director, droning on reading out a prepared statement about "macroeconomic uncertainty" and "client execution revenues".
[Earlier I mistook Viniar's monotone for Lloyd Blankfein's monotone. D'oh.]
Interesting. My colleague Dominic Rushe reports that Goldman aren't taking media calls after the earnings report, as is generally the case. "Perhaps they'll chat via Facebook?" he wonders. LOL.
Viniar addresses "compensation" - pay and bonuses. he says the pay of 39.3% of revenue is "600 basis points lower" than average compensation between 2000-2009. Adjusted for the increase in the bank's workforce, Viniar says the 5% fall in compensation is "in line with the revenue decline". Hmm.
If nothing else this conference call proves that the finance director of Goldman Sachs doesn't understand how to use the term "basis point", which can only refer to interest rates. He should have just said 6 percentage points. Fail.
Why? Well, a basis point is a measure of differences between two interest rates. It's not just a clever way of saying "a hundredth of a percentage point" which is how Viniar has used it here.
Still on the conference call, David Viniar, the finance director, says that the bank took $324m out of compensation as a donation to Goldman Sachs Gives, the in-house charity.
He also says that total bank staff employed in 2010 was 35,700 – 10% up on 2009.
Now its questions from financial analysts from other banks, tending towards the inside baseball nature (spot execution facilities! amortization!) of these things. My colleague Jill Treanor is also listening and observes:
So David Viniar, the finance director, is trying to justify the pay and bonus pot by pointing to the extra headcount and he is insisting that the compensation ratio - although so much higher than 2009 - is still down on the average between 2000 and 2009.
Yes and down 600 basis points! Ha.
Treasury bond prices! Market making activity! Cash instruments! Client risk appetites!
Oh now there's someone on from Barclays Capital. An American though. Boo.
Viniar manages to say something interesting about the US economic recovery. In that he thinks there is one. Which is good news.
Someone asks about staff hirings. Viniar says he expects Goldmans to keep "growing its staff" (possibly by feeding them steroids? or does he mean increasing the number of staff?). Viniar says he expects staff growth "in the mid-to-high single digits" – percentages presumably. Or even basis points (ha!).
Facebook! A bank analyst droid asks Viniar if he wants to comment on the unpleasantness.
"I have nothing to add other than the statement I have already made," says Viniar the talking calculator.
"OK, fair enough," says the droid, who is then unplugged and returned to his box for a software upgrade.
For background on the affair, here's the Wall Street Journal's coverage:
It was supposed to be Wall Street's hottest tech deal in years: the private offering of as much as $1.5 billion in shares of Facebook Inc. And it was a coup for the company's adviser, Goldman Sachs Group Inc., the most envied firm on the Street.
Goldman bankers burned up the phone lines in the first week of January, pushing many of their best American clients to invest in the deal. And then, on Sunday and Monday, those same advisers were on the phone with those same clients with some bad news. They wouldn't be getting any Facebook shares after all.
Another question about compensation, from an analyst who kicks off by quipping "How can I get a piece of that Facebook, ha ha ha." Get me a stapler, my sides have split.
More seriously, he asks about the level of pay and the nearly 40% ration to earnings seen this year and what that means for the future. Viniar relies:
"As I've said before, we don't target a rate – we pay our people fairly based on their performance and the firm's performance."
If only every other company in the world paid their people as "fairly".
The conference call is now over: "You may now disconnect," says a voice. An hour long and, unless I missed something, not a single woman's voice was heard throughout, either from Goldmans or asking a question. Another triumph for fairness?
Here's coverage of the Goldmans bonuses from that left-wing rag the Wall Street Journal:
Goldman Sachs said it paid out $15.38 billion in compensation and benefits to its employees for 2010. That's an eye-popping number, of course, for the feverishly watched compensation at old Goldie.
But $15.38 billion is actually a 5% decline compared to the compensation from a year ago. As a percentage of Goldman's revenue, the compensation level was 39.3% (excluding a UK bank payroll tax). That is among the lowest compensation ratios in Goldman's history. The low water mark was 35.8% in 2009.
Our Dow Jones Newswires colleagues report that Goldman's 2010 compensation per employee works out to $498,246, down nearly 14% from the prior year. That's brown bag lunches on the Gulfstream kind of money.
"Brown bag lunches on the Gulfstream kind of money"? No, me neither.
Here's the explanation for the "brown bag lunches on the Gulfstream kind of money" the WSJ mentioned earlier – it's a reference to a piece the paper carried in December headlined "Austerity, Wall Street-Style":
This holiday season, many Wall Streeters are flying commercial, according to jet brokers. Those who are still flying private are jet-pooling with strangers to cut costs. Some are even skipping the catered in-flight meals, which can cost $1,000 or more for four people.
"They're telling me, 'We'll just bring our own lunch,'" said Ricky Sitomer, chief executive of Blue Star Jets, a private-jet charter company. "They still want to travel in luxury, but they want the best value they can get."
Austerity is a relative concept on Wall Street, where year-end bonuses are measured in "bucks" (millions) and flying private is often considered a basic human need. Yet this year, amid the largest decline in bonuses since the onset of the financial crisis, the Street's big spenders are reining in their seasonal shopping spree in favor of more restrained indulgence. Brown-bag lunches aboard the Gulfstream are just the start.
We all have to make sacrifices in these difficult economic times.
The Curious Capitalist blog at Time (yes, it's still going) wonders: "Has Goldman Lost It's Magic?" (And has Time lost "it's" sub-editors?):
While most people focused on the drop in Goldman's profits, the real worry for the firm was the drop in its profitability. Goldman's revenue in the last three months of 2010 was down 10%. But the firm's profits were down far more than that. That means that Goldman is making considerable less money than it used to on the nearly the same amount of revenue.
Update – Laurie Carver tweets somewhat predictably:
@RichardA Re: Time subeds. Glasshouses and stones etc. Look at the standfirst for the Goldman story on the Grauniad. What's a "wall bank"?
So far there is remarkably little reaction on this side of the Atlantic (the left-hand side) to the latest Goldman Sachs bonus bonanza, possibly because the headline figures are lower than some expected and possibly because it's early days.
Even within Goldman Sachs there are winners and then there are the really big winners. Analysis by the New York Times and Footnoted.com shows that a small group of senior partners (out of 35,000 employees) holding vast wealth in Goldman Sachs stock:
The documents illustrate just how much wealth the partnership owns and has cashed out over the years. Goldman has almost 860 current and former partners, the documents show. In the last 12 years, they have cashed out more than $20 billion in Goldman shares and currently hold more than $10 billion in Goldman stock.
So $30bn divided by 860 equals ... where's my calculator?
"It is a very Darwinian, survival-of-the-fittest firm," said one former Goldman partner quoted. If by "very Darwinian" you mean "incredibly well paid" rather than "torn limb-from-limb by a pack of Velociraptors".
Just in time, the Robin Hood Tax Campaign sends its reaction:
"Its incredible to think that even in a bad year the average Goldman Sachs pay packet is an eye-popping £269,000 – more than ten times the average UK salary."
Time to wrap things up – a sadly lukewarm reaction to the $15bn pot of pay for Goldman employees, perhaps a sign that the anger towards bankers' bonuses is waning or just an indication that the fall in profits at the bank has taken away some of the sting.
Still, just wait till next year.