The massacring of Goldman Sachs vs. the jocundity of Jefferies
Yesterday, a nasty thing happened to Goldman Sachs. Analysts at Barclays Bank slashed its predicted Q2 EPS by 65%. They also reduced their Q2 estimates for Goldman's M&A revenues by 25%, for Goldman's ECM revenues by 50%, and for Goldman's DCM revenues and core FICC and equities revenues by 40%. In total, the bank's Q2 revenues are now predicted to be 32% lower than originally expected, what with the volatility of the second quarter.
On Tuesday, by comparison, a nice thing happened to Jefferies. The mid-tier bank released its results for the past five months, replete with favourable comparisons (in bold and capitals) with the first half of 2009. Investment banking revenues, for example, were up 123%, despite the shorter time period, and despite the fact that investment banking businesses globally have been the dynamic equivalent of a cauliflower in the five months since January.
What's going on?
US analyst Dick Bove says Jefferies results need to be taken with a degree of circumspection: "Jefferies believes in providing the smallest amount of data possible in its press release so it did not provide the two month results and it did not offer any truly comparable figures," he notes.
Equally, however, there is little denying that Jefferies is doing well, particularly in investment banking, where its heavy hiring appears to be paying off.
And Jefferies can pay
As a mid-market bank flying below the regulatory radar, Jefferies is also free to pay for its expansionary intentions.
The bank has added 92 people over the past quarter, and 514 over the past year (thereby increasing its headcount by 22%). Compensation as a percentage of revenue now stands at 57%.
By comparison, Goldman's comp ratio was 43% in the second quarter, and BarCap analysts are predicting it will level off at 40% for this full year.
2010 compensation per head at Goldman and Jefferies is likely to be roughly similar as a result, at a mean rate of $480k per head. Jefferies is a player, and a payer.
