Goldman Sachs bonus bonanza
Even on Wall Street, the land of six- and seven-figure incomes, jaws dropped at the news Tuesday: After all that federal aid, a resurgent...
NEW YORK — Even on Wall Street, the land of six- and seven-figure incomes, jaws dropped at the news Tuesday: After all that federal aid, a resurgent Goldman Sachs is on course to distribute bonuses that could rival the record paydays of the heady bull-market years.
Goldman posted the richest quarterly profit in its 140-year history and, to the envy of its rivals, announced it had earmarked $11.4 billion so far this year to compensate its workers.
At that rate, Goldman workers could, on average, earn roughly $770,000 each this year — or nearly what they did at the height of the boom.
Senior Goldman executives and bankers would be paid considerably more. Only three years ago, Goldman paid more than 50 employees above $20 million each. In 2007, CEO Lloyd Blankfein collected one of the biggest bonuses in corporate history.
The latest headline results — $3.44 billion in profit during its second quarter — were powered by earnings from the bank's secretive trading operations and exceeded even the most optimistic predictions.
But Goldman's good fortune, coming only a month after the bank repaid billions of bailout dollars, raises questions for Washington, D.C., policymakers.
The bank holding company, analysts warned, is embracing financial risks that many of its competitors are unable or unwilling to take. While Goldman managed those risks this time, its strategy could backfire if the markets turn against it.
Another concern is that the blowout profit might encourage rivals to try to match Goldman in the markets so they, too, can return to paying hefty bonuses. Wall Street's bonus culture is widely seen as having encouraged the excessive risk-taking that set off the financial crisis.
"I find this disconcerting," said Lucian A. Bebchuk, a Harvard law professor. "My main concern is that it seems to be a return to some of the flawed short-term compensation structures that played an important role in the run-up to the financial crisis."
Even inside Goldman, executives acknowledged that the bank's stunning results, coming during a painful recession, presents something of a PR challenge.
"We are cognizant of it," said David Viniar, Goldman's chief financial officer. "We understand that we are living in a very uncertain world where a lot of people are out of work."
Brad Hintz, an analyst with Sanford C. Bernstein & Co., said Goldman had prospered by being an intermediary as confidence returned to global bond markets and big institutional investors left relatively safe government bonds for corporate and other higher-yielding fixed-income investments.
"You have got a tide slowly coming in," he said, referring to investors' willingness gradually to take greater risk. "Each wave is slightly higher up the shore than the last wave."
Copyright © 2009 The Seattle Times Company
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