Analysts were predicting that Goldman would post profits of around $1.7bn for the three months to June – but the actual figure is double that at $3.4bn, earned on net revenues of $13.7bn. Meaning its high-rolling bankers get to share out a juicy compensation pot of over $6bn. Hang on guys, isn’t there supposed to be a recession on?
Goldman CEO Lloyd Blankfein attributes the bank’s success to nifty footwork, using its capital to cash in on the lack of competition created by the global banking crisis. Goldman has done particularly well in what were once regarded as the unfashionable backwaters of banking, posting record revenues in areas like equity underwriting and fixed income, currency and commodities trading. Between them, these divisions accounted for well over half of total Q2 revenues, thus ensuring that they won’t be the industry’s slow-witted country cousins any longer.
It's clearly a positive sign for the state of the economy generally that Goldman seems to be well and truly back on its feet again. Don’t forget, it took a $10bn hand-out from the US government not so long ago – and has already managed to pay it back (indeed, these profits would have been even bigger had it not been for that). Nonetheles, these results have raised at least as many questions as they have answered.
For starters, there’s the thorny issue of bankers' pay, which on both sides of the Atlantic seems to be rocketing back upwards to pre-recessionary levels very quickly indeed. Given the events of the last 18 months, it’s probably only the people who are in line for some of that dosh who really think it’s appropriate that they should receive it. You could argue that if a private sector organisation is out-perfoming the competition, then its staff deserve their rewards. But it's also true that they're partly profiting from a situation they helped to bring about (through bigger credit spreads, for example).
Besides, Goldman’s compensation pot as a result of these figures apparently stands at $6.6bn, which is an eye-watering 49% of revenues. The only other organisations we can think of who spend a larger percentage of their incomes on salaries are big time football clubs. Is that an example bankers really ought to be following?
Yesterday it also emerged that Goldman execs sold $700m of their own shares in the firm in the months following the collapse of Lehman Bros, which is likely to go down badly on Capitol Hill at least.
Maybe we shouldn’t be all that surprised – making money is after all what bankers do, and like it or not they are vital to the economic wellbeing of us all. But that doesn’t mean that, having bailed them out in their hour of need, the taxpayers of the western world are unjustified in making a few demands of their own in return. Banks should exist to serve the needs of the rest of the economy, but they have to be firmly encouraged to do so. If we leave them to their own devices, the cart will start pulling the horse again in no time at all.
It's true that Goldman's profits will boost US tax coffers, and it's true that governments should be looking at its out-performance to work out how other banks can do the same. But it's also the case that these huge pay-outs won't help the public perception of banks in general, and Goldman in particular. To Joe Public, staring down the barrel of another year at least of recession and economic hardship, it looks like Wall Street seems intent on getting back to business as usual as quickly as possible.
In today's bulletin:
Biggest jump in unemployment since records began
Goldman in new bonus row as profits soar to $3.4bn
Sunshine puts fizz in Britvic sales - but melts Thorntons' hopes
Editor's blog: Goldman Sachs and moral revulsion
No more shock treatment for Chinese web addicts