Nevertheless, CFO David Viniar said the firm WILL be hiring in 2011. Viniar predicted a, mid-to-high single digit percentage increase this year, implying Goldman might hire anything from 1,785 to 3,213 people.
And where will this hiring take place?
1) Emerging markets
Nothing new here. Goldman has been building its ‘growth markets’ business for ages. Last year it revealed that its headcount in growth markets had increased by a CAGR of 33% over the previous 7 years, vs. a business average of 7%.
This won’t change. Viniar said 2011 headcount increases will be also, “focused on growth markets.” He went on to say that competition is increasing among banks in China, but that it doesn’t matter because it will be offset by, “a dramatic increase in volumes,” which will overcome any reduction in margins.
2) Asset management
Asset management was one of the only areas of Goldman’s businesses to have a great year in 2010, with revenues up 9% on 2009. Viniar said there will be, “more focus,” on adding headcount in asset management than elsewhere.
3) Not FICC, maybe commodities
Goldman’s FICC division didn’t have a great 2010 and revenues slowed, “meaningfully” (39%) in the fourth quarter.
The question is what happens next. Viniar pointed to “macro uncertainties” [the European sovereign debt crisis] leading to lower customer activity levels in the fourth quarter. But, as David Trone, an analyst at JMP Securities LLC in New York, points out, Goldman’s been saying clients had no conviction for three quarters in a row.
Will FICC revenues recover in 2011? Viniar said there’s been a pickup in the first quarter and analyst Mark Lane at William Blair & Co is predicting an improvement based on, ‘important clarity achieved on business model risk and capital requirements.’
However, no one’s expecting a big FICC recovery, making hiring here unlikely. The exception may prove commodities, where revenues at Goldman were up in Q4, “amidst more favourable market conditions.”
4) Not derivatives maybe flow products
Complex products are not popular. Viniar said there’s, “more focus on cash products than derivatives products right now, partially because of the concern around regulation.”
Goldman seems to have particular issues with equity derivatives. Revenues here were slammed in the second quarter of 2010 and Viniar said last quarter’s 10% decline in equities execution revenues was reflective of a reduction in net revenues in the equity derivatives business. This may suggest the bank needs to do some upgrading; it may suggest it won’t hire at all.
Lane is predicting a big increase (10%) in total equities revenues in 2011, suggesting cash equities could be an area of focus.
5) Junior investment banking?
M&A and capital markets are still more about pitching than action.
Viniar said there’s, “a lot of dialogue,” and that if there was, “more conviction’ there would be more activity.
Until activity levels show a definite pick-up, hiring’s unlikely. However, pitching implies pitchbooks and pitchbooks imply juniors. Based on this tenuous reasoning, there could be some hiring here soon.
There are no plans to reduce headcount, or for a long term reduction in compensation – yet
Separately, yesterday’s results and call revealed no big plans to cut headcount or modify compensation.
Viniar said the plan is to increase revenues rather than reduce costs and that if revenues persisted at Q4 levels there might be a need to trim headcount, but that this isn’t thought likely. He also said there will be no noticeable increase in the amount of compensation that’s deferred at Goldman in future – the bank has always deferred pay; 2010 is no different.