When Goldman Sachs reports its fourth quarter results later today, it's widely expected to reveal a $2bn loss. For a firm that hasn't made a loss since 1929, this is a big deal. But for Goldman employees, the bigger deal is likely to be the implications for jobs and pay.
Goldman has already made 10% of its staff redundant, and according to insiders another round of layoffs is slated for early 2009. A lot more heads will need to roll if compensation is to be maintained at anything close to recent levels.
In 2007, average compensation per head at GS reached a record $661k. This year, it's likely to be closer to $400k. Even this is above the long term average: in 2001 and 2003 Goldman paid out $339k and $379k respectively.
Dragged down by private equity losses
The very real danger is that for the next few years, Goldman's earnings will be impacted not only by reduced risk appetite in its trading business, but by writedowns at its private equity and principal investment arms.
Figures from Alliance Bernstein Research show that Goldman's private equity investments went from $2.5bn in 2000 to $34.4bn in the third quarter of 2008.
"Goldman has had too much of a good thing," says Brad Hintz at Alliance Bernstein. "Private equity is a high return asset and everyone is very jealous of Goldman Sachs during the good times. But you can't liquidate private equity investments quickly and during slowdowns in the economy you have to write them down.
"My guess is that comp is going to come down pretty sharply over the next two years," he adds.