Solomon's Goldman Sachs looks fast and flighty. - The opposite of Gorman's Morgan Stanley

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Goldman Sachs Morgan Stanley Q32018

So, now we know for sure: David Solomon's Goldman Sachs is doing some very feverish hiring.  Today's results reveal that the firm increased its headcount by 10% in the year to September 2018 by adding 4,000 people. If you want to work for a bank that's going for growth, there's therefore Goldman Sachs. Alternatively, for those who like a steadier employer, there's always Morgan Stanley.

Admittedly, we don't exactly know what's going on with headcount at Morgan Stanley. - James Gorman's bank doesn't disclose how many people for its institutional securities division (investment bank). It does say that compensation expenses in the division were up 14%  year-on-year in the first nine months of 2018, which might be an admission of hiring, but might equally be higher pay to match higher revenues (up 17%), given that non-compensation expenses were up 14% too.

It's in terms of revenue growth by business that Goldman Sachs really seems to be going for some vroom though. As the first chart below (in yellow and grey) shows, revenues in Goldman's equity capital markets (ECM) division were up over 100% in the third quarter while fixed income and debt capital markets (DCM) revenues declined (breaking the streak of rising fixed income revenues at Goldman this year). Morgan Stanley's M&A bankers didn't too well in the last quarter, but elsewhere performance was modestly ok.

A similar picture of modest outperformance at Morgan Stanley is suggested by the chart below (red and green). In growth terms, Morgan Stanley's businesses outperformed Goldman's in every area except fixed income (where Goldman's earlier wild growth fizzled to a halt in Q3 on what the bank describes as 'significantly lower net revenues in interest rate products' and ' low client activity amid low levels of volatility') and equity capital markets (where Goldman's growth looks a little freakish).

This isn't to entirely disparage Goldman's successes in 2018. - The firm has managed to achieve an annualized return on equity of 13.7%, its highest for nine years. And for a moment there, it seemed to have broken the back of endless declining quarters in fixed income trading, until the old low volatility and low client activity gremlins reappeared.

The big question, though, is whether Goldman's zippiness is sustainable, particularly with its new, puffier, cost base. In growth terms, the firm has outperformed most of its U.S. rivals this year - but then Morgan Stanley has too, albeit by less.

Goldman's employees will be expected to be rewarded for their successes. It's unfortunate, then, that the firm actually cut compensation spending while increasing headcount in the past three months, resulting in 12% decline in pay per head in Q3 (to $78k). This may not bode well for bonuses.

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Photo: Getty

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