General bonuses don't get payed out until end of the year. The actual disbursement doesn't usually occur until well into the first quarter, although the record books probably reflect the bonuses in the fourth quarter (not sure about this).
If you're looking for compensation information from the company's quarterly statement:
Compensation and Benefits:
The accrual for compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as benefits) was $1.58 billion for the third quarter of 2011, a 59% decline compared with the third quarter of 2010. The ratio of compensation and benefits to net revenues for the first nine months of 2011 was 44.0%. Total staff levels decreased 4% compared with the end of the second quarter of 2011.
From TFA: "Goldman said it paid a one-time dividend of $425 million on its preferred stock." (Off of a "loan" of $10 billion USD.)
The TARP moneys weren't "loans" in the traditional sense, but equity purchases or preferred shares, which allowed U.S. Treasury to impose some significant restrictions on how the company operated.
Yes, Goldman paid back (with what looks to be about 4% interest), but the total expenditures of TARP have not yet been recovered, and are still a significant loss.
From wikipedia [1]:
Of the $245 billion invested in U.S. banks, over $169 billion has
been paid back, including $13.7 billion in dividends, interest and
other income, along with $4 billion in warrant proceeds as of April 2010
I have difficulty understanding the negative attitude people have towards bonuses in this case. Are you a Goldman shareholder who feels that the bank is performing so poorly that its employees don't deserve bonuses? And when you refer to bonuses, are you referring to bonus pay-outs to all employees or just those connected with the financial losses? Just trying to understand this perspective because it seems very bandwagony.
1. When banks loose money they shouldn't get bailed out.
2. The Bonuses come from bailout money.
3. If the banks want bailout money they should work as civil-servants(and get an average salary) and not pretend that they are winners(like traders or hedge funds - who get no bailouts, when they loose they really loose). Bankers lost money, and caused a major financial crisis so they should Loose their bonuses!
We have no capitalism right now. we have Lemon socialism.
I do understand this sentiment, to an extent. The reality is that all the banks participate in the same job market and need to compete to attract and retain talent. If a bank (regardless of bail-out status) does not compensate employees competitively, it will fail to attract and retain the necessary talent and as such fail to perform. The only way a bank could still succeed without paying bonuses is if all banks did the same thing. Don't hate the player, hate the game.
i started working at a small electronic trading shop in september 2008. the next january, they gave me a 60k bonus - after just 4 months of work. it was my first job, and i was still going to grad school 20 hours a week, and i was living in north carolina, where the cost of living is nothign compared to nyc.
so when you couple the fact that they get huge bonuses with the fact that the work they're doing has marginal value for society, if any at all, the sentiment makes perfect sense to me.
The bonuses are huge because the numbers are huge and not everybody can do it.
The so-called "marginal value to society" is relative. I might not think your job at the electronic trading shop provided much value to society, but that doesn't mean somebody else didn't. I would bet many of Goldman's clients feel they're providing a great value, otherwise they wouldn't be clients.
The only valid reason for people to be mad is because tax-payer money was used to provide them with liquidity during the financial crisis. That money has since been paid back (with interest), so I have no problem with Goldman paying out whatever they want to their employees now. In retrospect, I'm of the opinion the US government should have demanded equity in return for the loan, but that's water under the bridge at this point. I'm not a shareholder, so GS can pay whatever they want to their employees.
>The only valid reason for people to be mad is because tax-payer money was used to provide them with liquidity during the financial crisis. That money has since been paid back (with interest),
Was the $800B stimulus paid back? What about the two (and counting) rounds of QE the Fed has implemented (there will be consequences to such huge intervention, it's just not clear exactly what yet)? The financial crisis cost us a great deal more than just TARP.
The stimulus mostly went to states, I'm not sure if any of it even went to Goldman Sachs. I'm also not sure it's entirely fair to say 1 bank's compensation package should be called into question because of a worldwide recession. Let the shareholders decide what's appropriate.
It doesn't matter where the stimulus went, but the fact that it was needed at all to prevent (or forestall) a second Great Depression. Of course, the whole idea behind the stimulus was to keep people paying their mortgages so that the trillions of MBS's in the system wouldn't default and bankrupt the banks, pensions, and whatever else had bought them over the years. Basically, another form of bailout for the banking system.
Nonsense, it absolutely does matter. The government gave them money and they paid it back with interest, end of story. If you think the banks should continually be "punished" for some indeterminate amount of time as a result of economic conditions they may or may not have caused, then that should have been a condition of accepting the money...but it wasn't. So go complain to your congressman, your senator or your president, but as far as I can tell the recipients followed the letter of the law...so I have no bone to pick with them now.
"Marginal value for society"? Good thing they're not getting paid by society then. If you're not a shareholder, I don't think you get to complain that other people are giving these people money.
Not that up with US stuff, but didn't GS get money from the government during the AIG bailout? If so, doesn't that give every one in the US complaining rights?
They paid TARP back but not the AIG backdoor bailout, iirc. That's the reason for the continuing brouhaha over AIG - Goldman (and other AIG counterparties) got 100% of what they had at risk with AIG, no haircut, all via the US govt bailout, and didn't pay it back (b/c it wasn't paid directly to them in the first place, hence 'backdoor' bailout).
Their profits have to come from somewhere, and a lot of those profits come from their trading activity in the markets, and for them to extract money from that, then the other participants in that market (myself, and "society") have to be losing it.
Do you think it might be possible that moving that money between market participants is actually a good thing? Let's say someone decides to put 10% of their fortune into a hedge fund and the fund goes to zero. Is that worse than just giving 10% of your money to the church? The children of the limo drivers, pilots, fund administrators, sales desk people, all deserve to eat (in my opinion).
You do realize that the bonuses are paid to practically all staff, right? That includes IT, HR, Legal, Personal Assistants, and so on. So by your logic it's only OK for banks to pay bonuses to staff who do something that benefits society? Or banks shouldn't pay bonuses at all? What about consultancy firms or other large companies that pay bonuses?
my point is that electronic trading provides very little, if any benefit to society.
the usual argument they make is that they are 'adding liquidity' to the markets - which means that they make it easier for buyers to find sellers. electronic trading is an arms race - the guy who gets there first gets most (if not all) of the profit. so a ton of money is spent trying to be the first guy to get there.
for something like a house, adding liquidity is awesome, by saving time for both buyer and seller. for something like a spread contract, though, you could argue the reverse - a spread is complicated financial instrument, and nobody can really be certain how much it's worth. by adding liquidity, you're making it much easier for people to exchange items of dubious value.
in other words, market makers (which is what we were doing) provide the 'service' of reducing the bid-ask spread of given contracts. that spread is really a measure of uncertainty - the larger the spread, the more disagreement there is about how much the contract is worth. by reducing spreads, the market makers are saying 'we are more certain about the value of this option than the rest of the market is.'
if you believe that someone can know the value of an option that expires in three months, accurate to three decimal places, then yes, it does make sense that the market makers are adding value to society. but if you believe that the market makers are possibly overstating their level of certainty, then what they're doing is adding a false sense of certainty to the market.
when you then take into account that the extra liquidity means that people can trade these wildly complicated financial instruments in microseconds, the 'we are helping the world by adding liquidity' argument gets even more absurd. does the world really benefit as a result of people who want to buy pork belly futures being able to find a seller within microseconds of deciding to buy, instead of minutes or even hours later? is that benefit really enough to justify the enormous amount of compensation given to the people who make such a thing possible?
so the question you have to ask yourself is this: is it better to underestimate how much you know, and take longer to make decisions, or is it better to overestimate how much you know, and make your decisions much faster?
So by the content of this post I will guess that you only worked at a trading firm for a year or two?
Narrower spreads by definition make the coordinates of that forward price known with more certainty. By definition and by construction. It is not hubris for the market to think it knows that price -- that's the price.
I wish people would stop selectively questioning some post-modern economic constructs, like buying and selling derivatives, then conveniently ignore how the company that wrote Go buys and sells.... search terms! And eyeballs!
How else are we all going to eat when farms and factories are all automated?
Luddite.
Bonuses are a poor incentive match for people creating and selling products whose performance may not be known for years to come; or may have expected average losses, but seem profitable until they blow up big. Bonuses turn into a reward for creating opaque products people don't know how to price and hiding information the market needs. Look up Abacus deal for example.
The perverse incentives baked into the typical compensation structure are bewildering. I can only think that it is herding behavior, similar to the way VCs and other investors rain client money down on tech entrepeneurs who often cash out or throw the money away before their companies have been proved viable. Groupon is a top of the mind example. How could they have been allowed to just cash out when the company had current liabilities that needed to be paid?
Why are people happy about this? I thought Warren Buffet was supporting higher taxes on rich people. And GS is already moving toward closing up the "investment banking" part of their business and becoming a normal "bank holding company".
Actually, GS will never be a "normal" bank holding company. Their commercial banking business is open to a very select number of clients, and will stay that way. GS became a BHC because they would have access to the Fed's emergency funds in case of another major crash -- a line of defense. GS hardly makes any money from their commercial banking arm.
GS's core business will remain their cash cows: Investment Banking, Securities, and Asset Management (in that order). GS will NEVER wind down their Investment Banking arm, in which GS is king above all other banks (closely followed by Morgan Stanley).
GS's core businesses actually did quite well relative to the rest of the industry. This loss is really just "on paper", coming primarily from the Private Equity portfolios. GS has a reputation for aggressively marking-to-market, and their PE portfolio lost a lot of value on paper because the equity markets shit the bed this quarter.
It's a bit like a business that takes horrible risks with fire. The business burns down and the fire takes out most of the town.
The business borrows money from the town to rebuild itself and pays what it borrowed back with interest.
How do you think the rest if the town's citizens feel toward the fabulously wealthy business owner when he states: "I paid you back with interest!"
50 comments
[ 2.5 ms ] story [ 86.1 ms ] threadCompensation and Benefits:
The accrual for compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as benefits) was $1.58 billion for the third quarter of 2011, a 59% decline compared with the third quarter of 2010. The ratio of compensation and benefits to net revenues for the first nine months of 2011 was 44.0%. Total staff levels decreased 4% compared with the end of the second quarter of 2011.
http://www2.goldmansachs.com/media-relations/press-releases/...
http://dealbook.nytimes.com/2009/06/17/jpmorgan-repays-treas...
Also keep in mind the returns also reflect stock appreciation (and buybacks of warrants)
The TARP moneys weren't "loans" in the traditional sense, but equity purchases or preferred shares, which allowed U.S. Treasury to impose some significant restrictions on how the company operated.
From wikipedia [1]: Of the $245 billion invested in U.S. banks, over $169 billion has been paid back, including $13.7 billion in dividends, interest and other income, along with $4 billion in warrant proceeds as of April 2010
1: http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#P...
It looks like most of the money has been paid back. GMAC is one of the big outstanding exceptions.
(+ 45 45 40 25 25 8.1 10 10 7.579 6.6 4 3.555 3.389 3 3 1.23)
So bonuses are going to be 60% lower, right? (not likely)
We have no capitalism right now. we have Lemon socialism.
Or hate anyone who repeats this meme.
GS has paid back their loan, with interest.
i started working at a small electronic trading shop in september 2008. the next january, they gave me a 60k bonus - after just 4 months of work. it was my first job, and i was still going to grad school 20 hours a week, and i was living in north carolina, where the cost of living is nothign compared to nyc.
so when you couple the fact that they get huge bonuses with the fact that the work they're doing has marginal value for society, if any at all, the sentiment makes perfect sense to me.
The so-called "marginal value to society" is relative. I might not think your job at the electronic trading shop provided much value to society, but that doesn't mean somebody else didn't. I would bet many of Goldman's clients feel they're providing a great value, otherwise they wouldn't be clients.
The only valid reason for people to be mad is because tax-payer money was used to provide them with liquidity during the financial crisis. That money has since been paid back (with interest), so I have no problem with Goldman paying out whatever they want to their employees now. In retrospect, I'm of the opinion the US government should have demanded equity in return for the loan, but that's water under the bridge at this point. I'm not a shareholder, so GS can pay whatever they want to their employees.
Was the $800B stimulus paid back? What about the two (and counting) rounds of QE the Fed has implemented (there will be consequences to such huge intervention, it's just not clear exactly what yet)? The financial crisis cost us a great deal more than just TARP.
What a win for the U.S. tax payer!
This is not a frivolous reply.
the usual argument they make is that they are 'adding liquidity' to the markets - which means that they make it easier for buyers to find sellers. electronic trading is an arms race - the guy who gets there first gets most (if not all) of the profit. so a ton of money is spent trying to be the first guy to get there.
for something like a house, adding liquidity is awesome, by saving time for both buyer and seller. for something like a spread contract, though, you could argue the reverse - a spread is complicated financial instrument, and nobody can really be certain how much it's worth. by adding liquidity, you're making it much easier for people to exchange items of dubious value.
in other words, market makers (which is what we were doing) provide the 'service' of reducing the bid-ask spread of given contracts. that spread is really a measure of uncertainty - the larger the spread, the more disagreement there is about how much the contract is worth. by reducing spreads, the market makers are saying 'we are more certain about the value of this option than the rest of the market is.'
if you believe that someone can know the value of an option that expires in three months, accurate to three decimal places, then yes, it does make sense that the market makers are adding value to society. but if you believe that the market makers are possibly overstating their level of certainty, then what they're doing is adding a false sense of certainty to the market.
when you then take into account that the extra liquidity means that people can trade these wildly complicated financial instruments in microseconds, the 'we are helping the world by adding liquidity' argument gets even more absurd. does the world really benefit as a result of people who want to buy pork belly futures being able to find a seller within microseconds of deciding to buy, instead of minutes or even hours later? is that benefit really enough to justify the enormous amount of compensation given to the people who make such a thing possible?
so the question you have to ask yourself is this: is it better to underestimate how much you know, and take longer to make decisions, or is it better to overestimate how much you know, and make your decisions much faster?
Narrower spreads by definition make the coordinates of that forward price known with more certainty. By definition and by construction. It is not hubris for the market to think it knows that price -- that's the price.
I wish people would stop selectively questioning some post-modern economic constructs, like buying and selling derivatives, then conveniently ignore how the company that wrote Go buys and sells.... search terms! And eyeballs! How else are we all going to eat when farms and factories are all automated? Luddite.
Who are they hurting?
GS's core business will remain their cash cows: Investment Banking, Securities, and Asset Management (in that order). GS will NEVER wind down their Investment Banking arm, in which GS is king above all other banks (closely followed by Morgan Stanley).
GS's core businesses actually did quite well relative to the rest of the industry. This loss is really just "on paper", coming primarily from the Private Equity portfolios. GS has a reputation for aggressively marking-to-market, and their PE portfolio lost a lot of value on paper because the equity markets shit the bed this quarter.
http://www.smh.com.au/business/lot-of-bull-about-goldman-200...
Q2 profits: $1.0 billion
Q3 profits: -$.5 billion
Unless they lose $3.2 billion in the 4th quarter, they will still be plenty profitable.
How do you think the rest if the town's citizens feel toward the fabulously wealthy business owner when he states: "I paid you back with interest!"