Goldman Sachs (GS), known for making it rain, can also rein it in. That’s what the bank had to do to meet expectations in the recent quarter, and the frugal moves don’t bode well for bonus season.
Hamstrung by what Chief Executive Lloyd Blankfein called “slow client activity,” Goldman chopped almost one-quarter from its operating expenses. It would have preferred to profit the old-fashioned way—trading like mad, jetting around the world to close M&A deals, and cobbling together complex financial instruments for institutional investors—but the cost-cutting worked.
The bank posted a profit of $1.5 billion this morning, pretty much flat from the year-earlier period, while sales in the quarter fell 20 percent, to $6.7 billion. Although Wall Street had expected far more revenue, Goldman still beat profit estimates.
While the thrifty moves may have pleased investors, they were a bearish sign for employees counting on year-end bonuses. Most of the expense savings were pulled from compensation coffers. The bank set aside 35 percent less to pay workers than it did a year ago. On a per-worker basis, Goldman earmarked about $73,000 for each of its 32,600 employees in the quarter, down from about $113,000 in the same period last year. Cue the Grinch.
Sales in the unit that trades stocks and bonds for institutional clients declined by almost one-third, and Goldman’s lending business took some lumps as well. “Clearly, concerns about the global economic outlook created a more difficult operating environment for our clients in the third quarter,” Chief Financial Officer Harvey Schwartz said on a conference call this morning.
In one of the few bright spots on an otherwise smudgy statement, returns from investment banking were virtually flat from the year-earlier period.
There is still hope among the masters of the universe at Goldman that paychecks can be propped up by the end of the year. Blankfein, who spent some time this month lecturing lawmakers about the dangers of default, lauded the budget deal struck in Washington last night. “We could see an improvement in corporate and investor sentiment that would help lay the basis for a more sustained recovery,” he said in a statement.