Goldman Sachs Group Inc., the securities firm that set a Wall Street compensation record in 2007, is now demonstrating how little it can pay.
The portion of revenue allotted for salaries, bonuses, stock awards and benefits was 38 percent in 2012, down from 42 percent a year earlier and the lowest since 2009, the company said yesterday in a statement. The move helped the bank post a fourth-quarter profit that beat analysts’ estimates and pushed return on equity to 10.7 percent for the year, up from 3.7 percent in 2011. The stock climbed the most in 10 months.
“It’s a better time to be an investor than when bonuses are becoming ridiculous,” said Michael Vogelzang, chief investment officer at Boston Advisors LLC, which manages $2.4 billion including Goldman Sachs shares. “You’re seeing a massive amount of overcapacity in the business and it’s continuing to push down the price of labor.”
Goldman Sachs still may be one of few Wall Street firms that pay employees more for 2012 because revenue surged 19 percent and it cut staff by 3 percent. JPMorgan Chase & Co., the biggest U.S. bank by assets, cut total compensation expense at its corporate and investment bank 3 percent last year as revenue at that division rose 1 percent. The pay expense was 33 percent of revenue for the year, down from 34 percent in 2011.
Morgan Stanley, which is eliminating 1,600 jobs, will defer 100 percent of bonuses for some senior bankers and traders over three years as it reins in costs, a person briefed on the matter said earlier this week. Deutsche Bank AG is weighing 2012 bonus cuts of as much as 20 percent for investment bankers in Europe, while those in New York will see smaller declines, four people briefed on the matter said this week.
Anton Schutz, president of Rochester, New York-based Mendon Capital Advisors, said control of expenses, which rose 1 percent during 2012 even as revenue climbed 19 percent, is something Goldman Sachs investors have craved.
“One of the things we’ve been looking for in this space for a long time is operating leverage,” said Schutz, whose firm has about $150 million under management including Goldman Sachs stock. “That’s exciting for shareholders. I don’t think it’s so good for employees unless they own a lot of stock.”
Goldman Sachs rose 4.1 percent yesterday to $141.09, the biggest advance since March. The shares have gained 11 percent this year on top of a 41 percent advance in 2011.