Perhaps it has all been just a bad dream.Quicker than you can say “global financial crisis” or “blood on the street”, the big US banks and securities firms have shifted gears and are now preparing to pay their staff a record $140bn in compensation this year.
The figure exceeds even the rewards of 2007, according to the Wall Street Journal, which reports on Wednesday that compensation is rebounding at a robust rate as Wall Street returns rapidly to pre-crisis revenue levels – despite the dramas and scrutiny surrounding Wall Street’s pay culture.
The Journal cites an analysis of securities filings for the first half of 2009 and revenue estimates through the end of the year to conclude that employees at 23 top US investment banks, hedge funds, asset managers and stock and commodities exchanges are likely to earn about 20 per cent more than last year. The firms paid $117bn in compensation and benefits last year, down from the $130bn paid in 2007, the paper said.
Total revenues at the 23 firms, meanwhile, are projected to hit $437bn, surpassing 2007′s high of $345bn, according to the Journal’s analysis.
But encouragingly for the supposed legions of jobless finance industry professionals, the rebound also reflects new confidence among Wall Street firms that “they can again pay top dollar for top talent, especially once they have repaid the taxpayer-funded capital infusions they received at the height of the financial crisis”, notes the Journal.
In addition to banking giants such as BofA and JP Morgan, the Journal’s analysis includes Citigroup and securities firms such as Goldman Sachs and Morgan Stanley; asset managers BlackRock and Franklin Resources; online brokerages Charles Schwab and Ameritrade; and exchange operators CME Group and NYSE Euronext.
So it’s nice to know that the growing largesse is being spread around a good cross-section of the industry – some of it a direct recipient of public bailout funds.
Meanwhile, it seems to be perfect timing for Goldman’s CEO Lloyd Blankfein to come out with his comment piece in Tuesday’s FT calling for more effective systemic regulation, just ahead of his bank’s 3Q earnings announcement on Thursday.
In light of the Journal analysis and other upbeat reports, Goldman’s earnings this year are undoubtedly piling up. So much so, the Daily Telegraph reports on Wednesday, that the bank is even considering donating more than $1bn to charity in an attempt to quell the growing furore over the likely size of its 2009 bonus pot.
But help for poor banks being criticised for daring to earn a profit comes from Andrew Ross Sorkin at DealBook, who cites analysts’ estimates that Goldman’s annual bonus pool will swell to more than $23bn this year. He asks:
So should we be upset about the bonuses? Is this a problem? Viscerally, it can be infuriating to watch Goldman executives gobble up piles of money, especially when the government — an overused euphemism for taxpayers — had helped support the firm. It hasn’t been forgotten that the government gave Goldman $10 billion in bailout cash — which it has since returned and said it never needed. And don’t forget the cheap financing it now gets as a bank holding company.
But, says Sorkin, “we can’t have it both ways, either”:At one moment, many in the nation crossed their fingers hoping Goldman and the rest of Wall Street would be saved to halt the country’s downward spiral. But when the banks finally get up on their feet, we want them to fall flat again. Mr. Blankfein can’t win.
It’s fine for Goldman and other firms with the “Midas touch” to draw up generous compensation schemes, says Sorkin. But the problem, he acknowledges, is that others will try to keep up – and, well, “we’re familiar with how that story goes”.
However, as Felix Salmon responds:
We don’t want Goldman to fail, and neither do we want Goldman to reward success in the way it has of late. What we do want is less excess and less systemic risk. Allowing a super-sized Goldman to pay out untold billions in bonuses every year — even if they’re cleverly structured in the form of slowly-vesting stock — achieves neither of those aims.
Related links:
Mysterious Merdeith Whitney Goldman downgrade, update – FT Alphaville
Rampant alpha – Goldman Sachs edition – FT Alphaville
Goldman’s Smallville bonus mandate – FT Alphaville
Paulson-Blankfein phone-fest fuels more ‘squid’ outrage – FT Alphaville