A Fading Wall Street Darling
01/24/2012 10:00 am EST
While most financials have been hammered for years now, this first among equals has been spared the same fate…until now, writes Chris Preston of Wyatt Investment Research.
Goldman Sachs (GS) isn’t the Golden Goose it once was. Employees of the investment banking giant found that out the hard way yesterday.
According to The Wall Street Journal, several partners at the big bank were told on Thursday that their total pay was slashed nearly in half. Some employees of Goldman’s fixed-income trading unit are reportedly taking pay cuts of close to 60%. Overall, the bank trimmed total pay for the 33,300 worldwide employees it has by 21%.
Now, that’s not to say we should feel sorry for Goldman Sachs employees. The average pay per employee is still $367,000 a year, even after the latest round of salary cuts. That still puts Goldman workers among the fabled “1%-ers,” in the eyes of the Occupy Wall Street fanatics.
But it might not bode well for Goldman’s future. As our own Ian Wyatt wrote last month, part of what has made Goldman Sachs so successful is its ability to attract top-shelf talent by offering generous salaries and rich bonus packages.
That practice has angered Congress and made the company a favorite target of the Occupy Wall Street protesters. But top talent has helped make Goldman Sachs profitable during a time when many of its peers (i.e. Bear Stearns and Lehman Brothers) were going bankrupt.
If lavish bonuses and cushy salaries are a thing of the past at Goldman (or, more accurately, if bonuses are less lavish and salaries less cushy than they have been), then the Gordon Gekko of big banks may find it harder to attract and retain top talent.
So what does all this mean for holders of Goldman Sachs’ stock? Well, not much yet. The stock is up 1.4% to $109.16 a share today, and 20% year-to-date. The company churned out $1 billion, or $1.84 a share, in net income last quarter. Goldman is doing just fine—for now.
But the bank’s days of bottomless salaries and outlandish bonuses may be numbered. That might keep the Occupy Wall Street mob at bay, but it may be bad for the long-term future of the stock and for shareholders.