The Banking and Strategy Initiative

Chillin' out till it needs to be funded

A look at Goldman Sachs prospects after the ‘Partner bump up’ | Banking Insight

The Goldman Sachs Tower. New Jersey

The Goldman Sachs Tower. New Jersey (Photo credit: luismontanez)

Goldman Sachs continues to reduce ‘Compensation Costs’ before stress tests

However even with just 32,500 staff at Goldman Sachs as of this fall(down 10% in less than a year), the firm has made 70 new partners, the low number breaking records back till 1998 according to new releases. And while we feel remiss for the new PR chief at Goldman Sachs who will not be making the grade, the new crop of partners include another 10 from Asia as investments from the region  grow but returns contract the ongoing fiscal challenges for Goldman Sachs to new heights.

The 70 may seem a small enough number but in any further hit back of the crisis whence the Compensation ratio needs to be readjusted from the now standard 42% , these championship belt winners of 2012 who will take a bigger role at Goldman Sachs from January 01, 2013 will be looking at empty bonus cheques which though considerably reduced in role still represent more than 67% of their compensation.

Financials are down 7% and Energy 6% since the news of the Election came in a couple of weeks back while Goldman Sachs is still an active buyer of its own stock , its smart rally from $116 cut off at $125. The bank was the first to  come out of the glaring spotlight of regulators and investigators in 2011 but recently also suffered another setback with the Commodities regulator for one of its individual traders’ shortcuts to riches. The markets could well start a bullish run next week but even if it does not, the time for churn at Goldman Sachs must be gone for GS to start a steeper sustainable climb.

In 2010 more than 38 ‘Partners’ left the Bank after the promotion cycle but the bank stuck to counting up lower numbers through the ranks, the %age constant at the 1.7% lower end of its historical cycle. Goldman Sachs operates these partner making runs by a vigorous cross ruffing , a process of discovery for designated Partners scouting for “Partner talent” at the firm

266 Managing Directors were announced in the year’s exercise, 58% from Americas and 26% from EMEA, keepin gthe stock of $500K base salary MDs at 7.2% of the firm

Are they missing the Housing recovery?

Goldman Sachs is among the few big Wall Street Banks that may see a further rise in Basel 3 Capital charges in all their glory and may have to restate its unstated high double digits Tier I core ratio data if this lobbying round also goes to the the people on the hill

Leadership changes at their favorite China markets and the non performance of their Asian emerging portfolio is likely to make the bank struggle within its new found love for Asia even as competitors at BofA and Citi struggle with basic mortgage math and State Attorney Generals. Goldman Sachs is not a competitor in the direct mortgages business yet where JP Morgan shares the #1 position with Wells Fargo as a very poor second while BofA builds up a new franchise after helping the government save almost $500 B in mortgages that Countrywide brought  with it. Goldman Sachs has already divested its Mortgage Servicing businesses whihch have been giving BofA a pretty big toothache with $1 B in losses in the latest quarter

Goldman Sachs would be among the worst hit in the new Baasel 3 regime for computation of RWA and inter bank exposure.


Stress Tests criteria to be announced today

Banks would be waiting for the Fed’s announcements after market hours in which they sett he criteria for the second stress tests. This time the Fed will be sharing early warning reports with possible failures so that they can change payouts to get back into the PASS category. Vikram Pandit left earlier last month after Citi failed its ambitious plans to grow dividend as it failed the stress tests. Pandit hass ince been reimmbursed $6.75 M as pay after he survived the crisis with the original $1 paycheck agreemnt in place till he left

The criteria would include distress scenarios for unemployment, Economic growth and others like hit on revenue but banks will not be allowed to compute with the Fed methodology nor does Goldman Sachs get a reprieve from the return of growth to US and Financial markets worldwide as Trading revenues remain downward trending after the big recovery bump in Q1, staid being the most exciting assessment of the market conditions with respect to volume and ratio of profitable trades, with GS performance statistics of 0 days with loss of $100 min a quarter still looking remote and unlikely to come back. Still, GS will pass thru the Stress tests with flying colors having already pared its portfolios and having started with the fewest “bad bank assets” on the street.

Goldman Sachs earlier survived Sandy with its New Jersey towers remaining dry despite being in the center of the Storm

Enhanced by Zemanta


This entry was posted on November 15, 2012 by in Financial Markets and tagged , , , , , , , , .


%d bloggers like this: