STOCK MARKET WATCH -- Monday, 19 January 2015

[Demeter]

36. Goldman Traders Are Making Way Less Than They Used To

http://www.businessweek.com/articles/2015-01-16/goldman-traders-are-making-way-less-than-they-used-to#r=rss

The glory days may be over for Wall Street traders. Goldman Sachs just reported its lowest annual trading revenue since 2005. The bank made $1.16 billion from trading the fixed-income, currency, and commodity (FICC) markets in 2014—a 31 percent decline from a year earlier.

While Goldman Chief Executive Officer Lloyd Blankfein is staying positive about the future, analysts detect a change on the horizon—one where stricter financial regulations and a slow economic recovery will make it difficult for banks to make as much money from trading as they did pre-financial crisis. Here’s what Goldman’s news means for you.

So Goldman isn’t making as much money trading. Who cares? Aren’t they still really rich, anyway?

Goldman did manage to beat analysts’ estimates, posting $7.69 billion in revenue in the fourth quarter of 2014, but it’s been suffering a decline in its FICC revenue—which has traditionally been a bright spot for the bank—for several years now. That means it’s had to run its business with less money, and therefore pay its employees out of a smaller pool of money over time.

Take a look at Goldman’s compensation ratio—the money spent paying employees vs. revenue. As Bloomberg News’ Michael Moore notes, the share of revenue Goldman set aside to pay employees has steadily declined since the start of the financial crisis, falling to 36.8 percent in 2014 from 48 percent in 2008. Goldman hasn’t had a compensation ratio this low since 2009. While the ratio gives us a peek at what the average Goldman employee is getting paid, its decline over time shows business hasn’t quite picked up in the last few years.



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