When Goldman Sachs announced its 2011 bonuses last year, they came as a bit of a disappointment. People at Goldman were very unhappy, headhunters told us in February 2012. Some of them had, it seemed, been paid bonuses that were as much as 40% lower than the year before. Rather a lot of Goldman bankers had received absolutely no bonus at all.
This year, rumour has it that Goldman Sachs wants to make amends. Along with Morgan Stanley and JPMorgan, Goldman is expected to announce its bonus numbers later this week. For 2012, the bank is expected to spend a total of $13.8bn on total compensation, up from $12.2bn in 2011. In the first nine months of 2012, pay per head at Goldman Sachs rose 15% to $449k. This is the highest it's been at Goldman since 2009.
"We're hearing that Goldman will be paying bonuses that are similar to 2011," says one risk headhunter in London. "Last year, some people in risk at Goldman in London were paid 20-30% down," he adds. The head of a front office headhunting firm confirmed the rumours that Goldman will pay well, but said that numbers from 2010 and earlier are likely to be the template for this year's bonus round: "Goldman's bonuses will be alright this year. They're going to make up for last year."
Goldman Sachs didn't return a request for comment. However, insiders pointed out that the main determinant of bonuses at the firm isn't the need to compensate employees for past disappointment, but recent performance and the compensation to net revenue ratio. On these measures Goldman also looks able to pay well. In a note released today Nomura banking analyst Glenn Schorr suggested Goldman can afford to be generous. "We note that GS has relatively more flexibility than its peers with its comp expense given that GS’s revenues (ex-DVA) over the past 9-months are up 14% y/y while headcount is down 5% y/y," Schorr said, increasing his fourth quarter earnings per share estimate for Goldman from $3.65 to $4.33 on stronger investing & lending (mostly on private equity and ICBC gains), M&A and equity underwriting, and equity trading.
If Goldman's going to pay big bonuses, the same can't be said for other banks. Credit Suisse increased compensation per head in its investment bank by 1.3% in the first three quarters, but may yet make serious negative adjustments to pay in Q4 as it seeks to cut an additional CHF1bn from costs. One equities headhunter says senior CS equities professionals are expecting bonus cuts of around 30%. Swiss newspaper Tages Anzeiger is predicting that bonuses at Credit Suisse will fall 20% this year compared to last. This follows reports that Credit Suisse is planning to restrict access to its asset-backed bond scheme this year and the apparent resignation of Credit Suisse's US head of high yield sales after he learned the likely size of his bonus last week.
Credit Suisse declined to comment on bonus speculation. The only upside for Credit Suisse bankers in the UK is the fact that the bank will pay this year's bonuses in April, after the UK's top rate of tax has been reduced from 50% to 45%. Goldman is said to be thinking of delaying this year's UK bonus payments for this reason.
This year's other bad payer is likely to be Morgan Stanley. James Gorman said last year that all investment bankers are overpaid and headhunters say its staff are bracing themselves for what is expected to be a paltry bonus round. Having increased Goldman's expected fourth quarter earnings per share by 19% this morning, Glenn Schorr reduced his expectations for Morgan Stanley by 26%. This close to bonus time, that doesn't augur very well at all.