Goldman Sachs' sub-prime bet pays off
By James Quinn, Wall Street Correspondent
Last Updated: 3:26pm GMT 18/12/2007
Bankers at Goldman Sachs are set to share a $20.2bn (£10bn) bonus pool on the back of a record year at one of Wall Street's most prestigious names.
Goldman, reporting a bumper 2007 profit of $11.6bn for the year to November, revealed that total bonuses for the 12 month period were $20.19bn, a 23pc rise on 2006's $16.5bn pool.
It employs approximately 29,900 people around the world, which means the average bonus per worker is $675,250 (AtW's comment: this of course does not mean every worker gets that much), compared with around $640,000 last year when there were slightly fewer staff.
The majority of bankers and other staff eligible for bonuses were informed of the payments they will receive last week, however it is only now, with the publication of the fourth-quarter results, that the outside world is given a glimpse into Goldman's highly remunerative culture.
Ironically, however, in spite of the fact that Goldman's bonus pool will be the biggest by far on Wall Street, Goldman paid out just 43.9pc of net revenue, a figure somewhat less than the majority of its competitors.
Goldman's record financial out-turn came on the back of some stunning one-way bets against the sub-prime mortgage sector, which has had a disastrous 12 month period as US homeowners struggle to cope with resetting interest rates.
The bank reported a fourth-quarter profit before tax of $3.22bn on revenues of $10.74bn, up 2pc and 14pc respectively on the same period last year.
Of particular note was the performance achieved in investment banking, with full-year revenues of $7.54bn, up 34pc on 2006, driven by demand for financial advisory, up 98pc in the fourth quarter 2007 against fourth quarter 2006, and equity underwriting work.
The firm's trading and principal investments arm also shone, however, for it was from within this division that the decision to bet against sub-prime mortgages was taken.
Overall, trading and principal investment revenues were up 22pc to $31.23bn.
Chairman and chief executive Lloyd Blankfein, who is expected to pick up a $70m package as a result of the firm's success this year, said: "We are ever mindful of the importance of effective risk management. We continue to see significant growth opportunities across the global economy."
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Ok, so what do we have here: on one hand lots of banks in the world lost money because they put them into subprime carp, on the other hand this bank is very successful.
But did it invest money into new technologies like say those designed to replace fossil fuels and thus they made lots of money? No.
Maybe they invested money into new development of new drugs against cancer, succeeded and now reap the benefits of their smart investment? No.
Perhaps then they invested money into something mundane like say healthy foods, or new movies that make people think? No.
What they did is bet against the market and win. Effectively they made money on other people's misery - frankly those banks that lost money on subprime carp deserve it, however it is a very bad thing that successful bank is not the bank that invested elsewhere, but the bank that made financial bet and won.
Conclusion - windfall tax on such behavior to that no money left to give such bonuses. Perhaps next time they will invest money into something useful for humanity. Thoughts?
By James Quinn, Wall Street Correspondent
Last Updated: 3:26pm GMT 18/12/2007
Bankers at Goldman Sachs are set to share a $20.2bn (£10bn) bonus pool on the back of a record year at one of Wall Street's most prestigious names.
Goldman, reporting a bumper 2007 profit of $11.6bn for the year to November, revealed that total bonuses for the 12 month period were $20.19bn, a 23pc rise on 2006's $16.5bn pool.
It employs approximately 29,900 people around the world, which means the average bonus per worker is $675,250 (AtW's comment: this of course does not mean every worker gets that much), compared with around $640,000 last year when there were slightly fewer staff.
The majority of bankers and other staff eligible for bonuses were informed of the payments they will receive last week, however it is only now, with the publication of the fourth-quarter results, that the outside world is given a glimpse into Goldman's highly remunerative culture.
Ironically, however, in spite of the fact that Goldman's bonus pool will be the biggest by far on Wall Street, Goldman paid out just 43.9pc of net revenue, a figure somewhat less than the majority of its competitors.
Goldman's record financial out-turn came on the back of some stunning one-way bets against the sub-prime mortgage sector, which has had a disastrous 12 month period as US homeowners struggle to cope with resetting interest rates.
The bank reported a fourth-quarter profit before tax of $3.22bn on revenues of $10.74bn, up 2pc and 14pc respectively on the same period last year.
Of particular note was the performance achieved in investment banking, with full-year revenues of $7.54bn, up 34pc on 2006, driven by demand for financial advisory, up 98pc in the fourth quarter 2007 against fourth quarter 2006, and equity underwriting work.
The firm's trading and principal investments arm also shone, however, for it was from within this division that the decision to bet against sub-prime mortgages was taken.
Overall, trading and principal investment revenues were up 22pc to $31.23bn.
Chairman and chief executive Lloyd Blankfein, who is expected to pick up a $70m package as a result of the firm's success this year, said: "We are ever mindful of the importance of effective risk management. We continue to see significant growth opportunities across the global economy."
---
Ok, so what do we have here: on one hand lots of banks in the world lost money because they put them into subprime carp, on the other hand this bank is very successful.
But did it invest money into new technologies like say those designed to replace fossil fuels and thus they made lots of money? No.
Maybe they invested money into new development of new drugs against cancer, succeeded and now reap the benefits of their smart investment? No.
Perhaps then they invested money into something mundane like say healthy foods, or new movies that make people think? No.
What they did is bet against the market and win. Effectively they made money on other people's misery - frankly those banks that lost money on subprime carp deserve it, however it is a very bad thing that successful bank is not the bank that invested elsewhere, but the bank that made financial bet and won.
Conclusion - windfall tax on such behavior to that no money left to give such bonuses. Perhaps next time they will invest money into something useful for humanity. Thoughts?
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