Why you shouldn't get excited about Goldman Sachs' results - unless you're a student who wants to work there
Goldman Sachs' third quarter results are out. They're good news for anyone looking for an entry-level job at the firm. They offer less cause for excitement if you're looking for evidence that fixed income currencies and commodities (FICC) trading has made a definitive comeback or if you're a Goldman Sachs banker hoping to be paid more than you've earned in the recent past.
1. Goldman guzzling juniors
Credit Suisse has come out and said that it mostly intends to hire juniors. Goldman Sachs hasn't made a similar declaration, but this is what it seems to be doing.
The third quarter is when banks add their analyst and associate hires. Any big additions to headcount in July to September are typically due to the arrival of university students and MBAs. In the third quarter of 2014, Goldman's headcount increased by 1,100 people, net of everyone who was let go. This was the biggest third quarter jump at the bank for several years - in Q3 2013, headcount rose by 900 people. In Q3 2012 it rose by 300 people and in Q3 2011 it fell by 1,800 people.
We conclude that Goldman has been on a junior hiring spree, quietly.
2. Goldman's huge FICC win isn't what it seems
Goldman's headline performance in fixed income trading in the third quarter looks exceptional. Compared to the third quarter of 2013, FICC trading revenues rose by...74%.
But there are several catches.
Firstly, Goldman's 2014 results were flattered by the 'extinguishment of certain of the firm's junior subordinated debt', and by an accounting gain on its own borrowing where last year there was a charge. When the effect of these gains and charges is taken out, Goldman's FICC revenues only increased by 50%.
A 50% increase sounds pretty impressive. Except that Goldman's fixed income trading revenues in the third quarter of 2013 were 48% below their four year average, meaning that this year's 'standout third quarter' is merely a reversion to the norm. Across the full nine months of 2014, Goldman's FICC revenues are only up 5%.
3. Goldman isn't paying more. It's paying exactly the same
Finally, there's the potential for some misguided excitement about Goldman's pay. In the third quarter, compensation spending at the bank rose by 18% compared to the previous year. Again, however, the longer term picture is less seductive than it first seems.
For the first nine months of 2014, average pay per head at Goldman Sachs was $320k. For the first nine months of 2013, average pay per head at Goldman Sachs was also $320k. This is not a bank that's spending more on its employees. This is a bank that has a strict handle on its staff costs - particularly when you consider that it was paying $336k for the same period in 2012.