In case you were wondering what’s going on at Goldman Sachs, CFO David Viniar stood up at the Credit Suisse financial conference last week and delivered a little explanation.
“Many investors remind us that our 2011 revenues were more consistent with revenues that we generated six years ago, but our head count (sic) is higher and our profitability is lower,” said Viniar. “That is factually correct. But it is misleading…”
How so? Goldman ended 2011 with 33,300 people, each paid an average of $367k and each delivering net profitability of $75k. Goldman ended 2006 with 26,467 people, each paid an average of $622k and each delivering net profitability of $371k.
Something seems to have gone wrong.
Not so, said Viniar. That decline in profitability is due to Goldman’s big push into new markets: a necessary endeavour that should lead to growth over time. “Our headcount outside the Americas is up by more than 50% and we are in new cities including Mumbai, Dubai, Riyadh, and Kuala Lumpur,” Viniar pointed out. He added that revenues in Asia were up 268% for the two years of 2010-2011 vs. 2001-2002 and that they now account for 16% of Goldman's total.
This makes Goldman’s Asian revenues around $5bn a year. However, in 2006 Goldman’s total revenues were $8bn higher than in 2011. For all the excitement, it seems that emerging markets expansion comes at a price and it is not one that compensates the decline in established markets.
Separately, Viniar reiterated that Goldman is growing share in Europe. He produced an interesting pie chart showing the continued potential for DCM growth on the continent if only European banks stop taking loans and start issuing bonds, and claimed that banks' sales and trading businesses are suffering from massive overcapacity.
We’ve added some of the relevant charts from Viniar's presentation below, plus one clarifying that, in good times Goldman doesn’t increase its people’s pay as much as it could, and that - in bad times, it doesn’t cut as much as it might.