Goldman Sachs released its earnings today, showing earnings were down 11 percent in the second quarter of 2011. The results also show Goldman has done incredibly well in Fixed Income Currency and Commodities (FICC) and is re-opening the pay differential with J.P. Morgan.
First, the bad stuff. Headcount was trimmed by 100 compared to the first quarter of 2012 and by 1,183 compared to the second quarter of 2011. Lloyd Blankfein spoke ominously of market conditions deteriorating and lower activity levels in the second quarter.
But, there was good news too. Apropos of nothing, Goldman’s FICC sales and trading revenues rose a massive 37 percent year-on-year in Q2. This looks like quite an achievement in light of the 17 percent decline at J.P. Morgan and the 4 percent decline at Citi. Admittedly, Citi and J.P. Morgan’s figures are adjusted for the accounting obscurer that is DVA, and Goldman’s aren’t – but Goldman says DVA didn’t have much impact on its results.
It therefore looks like Goldman did a lot to regain its lost FICC market share from J.P. Morgan over the past quarter. Goldman’s FICC performance is all the more impressive given that J.P. Morgan increased its FICC VaR by 50 percent last quarter and still suffered a big revenue decline. By comparison, Goldman reduced its average daily commodities VaR by 50 percent and cited commodities as one of its key growth areas.
Given that FICC margins tend to be higher than for other areas of the business and that FICC salespeople and traders tend to earn more, it’s not entirely surprising that Goldman has started opening the pay differential with J.P. Morgan again.
In the first half of 2012, average pay per head at Goldman Sachs was $226,000 (down 5 percent on last year). This was 22 percent higher than average compensation per head at J.P. Morgan’s investment bank. Until recently, J.P. Morgan was closing the Goldman pay gap. In the first half of 2011, it only paid its investment bankers 12 percent less than average compensation at Goldman Sachs.