21 January, 2010

Goldman Sachs: Profiteers abound!

13.4Billion! A staggering number when counting just about anything, but especially so when one is counting all of the dollars of profit made by investment banking titan Goldman Sachs (GS) in 2009. Revenue for the year topped out at $45Billion, another massive figure.

$4.79Billion in profits in the latest quarter sees Goldman once again having the eyes of the banking industry squared directly on itself. This time however, more than just the envious glares of rivals await Goldman, as the banking sector has been in the political cross-hairs for almost 2 years. Since spawning the credit crisis, which has been largely to blame for the prolonged recession Americans found themselves in, banks haven't had the easiest time with things like profits and bonuses as taxpayers ended up footing the bill for financial bailouts.

Having set a compensation record in 2007 with over $20Billion in bonuses, Goldman's bonus pool for '09 shot back up to $16.2Billion after falling substantially as the bank suffered credit losses and took government aid in 2008. Repaying TARP money and allowing the government to make a profit on its aid package to Goldman has alleviated some political pressure but the company surely still faces a substantial uphill battle. The next step for the company, why charity of course! Taking $500Million out of the bonus pool and putting it into the company's Goldman Sachs Gives foundation. Certainly a worthy deed by the company, however even this sizable donation will likely receive minimal press when compared to the overall pay practices of the nation's largest banks.

Comparatively in the year, Goldman will actually spend a much lower percentage of Revenue on compensation than its rivals, but one thing remains crystal clear; it's become business as usual on Wall Street, even though these firms are only one year removed from bringing global financial markets to the brink of collapse.

While shareholders are certainly happy with continued banking excellence at Goldman Sachs, investors are increasingly wary that 'business as usual' might not be an option in the near future. The financial sector is down today as a renewed push from the White House and President Barack Obama make it clear that going forward lawmakers will look to create legislation to restrict risk-taking, banking activities and the size and scope of certain financial institutions.

Most major firms are seeing red to the tune of 5% in today's trading session on the front page legislative news. The position that Goldman finds itself in, should give shareholders little reason to fear restrictive legislation as history has shown the firm to be a presence in all major financial law-making, nimble enough to avoid competitors pit falls, and sharp enough to continue profiteering like the stereotypical banker! And that, in the end, will be great for shareholders.

Disclosure: Author owns GS

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