Fresh off a very lucrative year that saw its bonus pool recover, Goldman Sachs employees are looking at smaller checks this year. Barring a massive unforeseen pickup in trading activity, Goldman's third quarter earnings will likely be weak--as will the full year. Assuming the compensation to revenue ratio holds at 43 percent, the bank will have set aside about $392,000 per employee through the first three quarters, suggests Breakingviews. That's only 75 percent of the amount set aside at the same point last year.
Other top banks seem to be faring better. JPMorgan's bonus pool this year is only 14 percent below what it was last year at this time. Morgan Stanley's bonus pool is running ahead of what is was for 2009.
The big question for Goldman Sachs--and other banks--is how to respond. Do you pare staff in your sales and trading units now, essentially making the call that we will be stuck with depressed volumes for at least a year? Or do you maintain staff, driven by the belief that the volume dip is only temporary?
The last year has proven that this decision is consequential. You do not want to be caught short-handed when the markets recover. It's the difference between Goldman Sachs and Morgan Stanley in the aftermath of the financial crisis. Goldman was able to take advantage of the volume surge, while Morgan Stanley ended up playing catch up.
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