Goldman Sachs expects to add staff in its investment management division, in fast-growing developing markets and in compliance, says CFO David Viniar.
The greatest concentration of new hires will likely come in its investment management division, Viniar said during Tuesday's second-quarter earnings conference call. In particular, Goldman plans to staff up in support areas, in anticipation of having to comply with new regulations due to the recently-passed financial reform bill. The firm also promised to strengthen oversight of sales-related disclosures and other practices as part of its settlement of SEC civil fraud charges announced last week.
Geographically, Viniar said hiring will be "more outside the U.S. than inside." Goldman will mainly expand in countries "whose economies are growing...While it's not going to be a straight line, developing markets over the next medium term will have more growth than developed markets. We will invest more in those markets going forward, across all our businesses."
The bank continued to add staff last quarter even while revenue shrank. It ended the quarter with 34,100 employees, up 3 percent from three months earlier. Meanwhile, company-wide revenue was down 31 percent versus the first quarter, led by a 40 percent plunge in trading revenue from fixed-income, currencies and commodities. Investment banking revenue fell 23 percent.
Can Headcount Growth Be Sustained?
Goldman's continued hiring in the face of shrinking market volume, revenues and profits is in line with the message delivered by other big U.S. banks that reported second-quarter results last week. For instance, JPMorgan's investment bank headcount swelled 5 percent in the quarter while the division's revenue declined 24 percent compared with the first quarter.
Hiring plans might be scaled back if business doesn't rebound soon. At a minimum, weak second-quarter results across the industry threaten to compress bonus pools.
Goldman accrued $3.8 billion for compensation and benefits expenses last quarter. For the first half of this year compensation and benefits (excluding the $600 million UK bonus tax) comprised 43 percent of net revenue - the lowest first-half compensation ratio since the firm went public in 1999. Asked whether the ratio will return to around 50 percent which was the norm prior to 2009(when the full-year figure was 36 percent, Viniar maintained the non-committal stance he's put forward since January: "It's based on our performance, the competitive environment and the external environment. Any or all of those could change in any direction."
Viniar said Goldman doesn't plan to spin off its private equity business as a result of the Dodd-Frank reform bill's capping alternative investments at 3 percent of Tier 1 capital.