After this week’s set of results, which bank would you rather work for?
Not Morgan Stanley, which saw its profits fall 7% after unexpectedly high losses on trading structured credit products. Not Bear Stearns, which suffered a precipitous 61% profit fall thanks to the revenue meltdown in its fixed income division and the collapse of two of its hedge funds. Not Deutsche Bank or Commerzbank, which both felt obliged to issue profit warnings yesterday, alerting investors that the credit market squeeze is proving rather more vice-like than anticipated.
No, the only bank that appears to have done well out of the current crisis is Goldman Sachs. While all around were losing their hats, Goldman was donning a rather stylish Fedora. Allowing for a one-off increase related to the sale of a wind turbine company, the firm saw a 23% increase in its third-quarter net income.
Why did Goldman do so well, while all others floundered? Most obviously, it was down to the skill of the firm’s fixed income traders, whose decision to short assets related to sub-prime mortgages helped the bank offset a US$1.7bn write down on its loan book. Less measurably, it may also have had something to do with the depth of Goldman’s client relationships – something the bank itself seems keen to propagate, with the Financial Times today quoting ‘insiders’ saying clients’ fondness for the firm enabled it to increase market share during ‘difficult times.’
Whatever the source of the miracle, this week’s results make it only more likely that Goldman will continue to walk on water in future. The firm already has the pick of the best brains in the market at graduate level. It may now also benefit from a string of defections from rival banks.
This is because while its rivals are licking their wounds, cutting staff and slashing bonuses as close to the bone as they can, Goldman looks set to offer bigger payouts than ever this year – particularly, undoubtedly, to the people in its proprietary trading teams who saved its bacon. According to Bloomberg, Goldman has set aside US$16.9bn to pay its employees, an average of US$566k per head, up more than 40% on last year. This is reportedly double that stashed away by Bear Stearns, Lehman or Morgan Stanley.
Success in investment banking is about brand, relationships, strength of the platform and making the most of cross-selling synergies. Most importantly, however, it also is about the calibre of employees. Goldman already excels on all points, but with the biggest brains in the industry set to make an even more determined beeline to its door in future, it is the final point that is likely to go furthest in ensuring Goldman Sachs continues to outdo the rest.