Run This by Compliance

Firm sees the straight and narrow as a competitive advantage.

Wall Street banks are famously shrinking, but there's one area at Goldman Sachs where the job prospects are pretty hot: workers hired to keep everyone else out of trouble.  

Goldman added 2,800 people to its headcount in 2015, Chief Financial Officer Harvey Schwartz told investors on a conference call, and  "a little more than half was due to our continued investment in regulatory compliance and other Federation initiatives, largely in technology and operations." ("The Federation" refers to the firm's administrative arm and has nothing to do with the United Federation of Planets in "Star Trek"... but then again, who knows with these guys.) 

What's notable is how Goldman views compliance workers -- as contributors to the bottom line, and a source of competitive advantage. Just listen to Schwartz: 

At this stage obviously we're making very significant investments in regulatory compliance. We think it's critically important. We actually think it's a competitive advantage to be best-in-class and so you'll see us continually invest in tech and businesses and, over the long term, we think it's a contributor to our performance.

Move over, star traders! The compliance folks are the new heroes! Well, maybe that's  a bit of a stretch, but it's easy to see how good compliance can translate to the bottom line, even when the top line has flattened as it has at Goldman. In the fourth quarter, Goldman paid a hefty price for activities way back in the salad days of the mortgage boom -- reducing profit for the period by $1.54 billion, to $765 million. Its total bill for the settlement is about $5.1 billion. JPMorgan Chase, Bank of America and Citigroup have been penalized by more than $37 billion in the same case. 

Goldman's provisions for litigation and regulatory proceedings were more than $4 billion last year, compared with $754 million for 2014. All its competitors have paid up over the past few years.

High Price for Noncompliance

Full-year costs for legal actions, litigation and settlements for big Wall Street banks.

Source: Bloomberg

The bills for those four have declined in aggregate, but minor settlements are still almost a daily occurrence and it would surprise approximately no one if there were more large bills to come. Just last month, for example, Bloomberg News reported that U.S. regulators are examining whether banks colluded in setting prices for credit-default swaps indexes. And presidential candidates have made loud noises about their  plans to get tough on Wall Street. 

It's hard to quantify the savings of legal trouble avoided, but it's tangible, both in terms of the balance sheet and public image. Goldman is smart not only to increase its spending on compliance, but also advertise that fact now that clean is better than greed. A beefed-up compliance staff is no guarantee that banks will avoid big fines in the future, but trouble has a way of finding them when they're not looking for it. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Michael P. Regan in New York at

    To contact the editor responsible for this story:
    Daniel Niemi at

    Before it's here, it's on the Bloomberg Terminal.