Banks' Losses Seen Limiting Payouts

19 December 2007

2 minute read

Fourth-quarter results confirm that bulge-bracket banks' profits and payouts are coming in below 2006 - except at Goldman Sachs, which is extending its lead over its peers.

Morgan Stanley chief executive John Mack said Wednesday he won't take a bonus for 2007, after his firm reported a $3.59 billion net loss for the fourth quarter. The Wall Street Journal reports Bear Stearns chief James Cayne and other senior executives there are expected to forego taking bonuses as well. On Thursday Bear Stearns is set to announce its first quarterly loss ever - "an outcome certain to curb pay for the firm's 15,500 employees," the Journal notes.

The financial pain is likely to reverberate throughout each company afflicted by sub-prime mortgage-related write-downs, and hold down year-end payouts across all levels and departments.

In contrast, average pay at Goldman Sachs - whose annual profit soared 22 percent to a record $11.6 billion, including $3.22 billion in the difficult November quarter - climbed again after surging 26 percent in 2006.

As Goldman prospers while rivals struggle to stay in the black, Wednesday's Journal observes, "Goldman will reap the benefits from this in the financial industry's battle for talent."

Goldman's $20.2 billion in reported compensation and benefits expense for the year averages out to $661,000 per employee - up 5.7 percent from 2006, even after the bank's staff headcount swelled 13 percent to 30,522 employees. "Goldman has now established the benchmark by which others will be measured," the Journal says. At Lehman Brothers - which avoided the brunt of the credit market turmoil and posted relatively solid earnings - average 2007 pay per employee clocked in at $333,000, little changed from 2006.

Company-wide pay averages mean little in themselves, because they ignore major differences in the composition of each bank's work force. However, the trend in the average from year to year does provide a rough gauge of whose employees are probably doing better and whose are doing worse.