Goldman Sachs’ third quarter results have just been released. You can access them here, shortly before the executive team talk through them on a conference call.
Goldman has not proved its omnipotence, with total revenues slipping by 20% year on year, to $6.72bn, and 22% since the second quarter. Overall net income was flat at $1.5bn, however, and for the first nine months Goldman is still ahead of 2012, albeit by a mere 2%, with total net revenues coming in at $25.4bn. So, what does the bank’s performance say about the state of the investment banking job market?
1. Goldman has not really been cutting staff
Despite the difficult quarter, Goldman Sachs had 900 more staff at the end of Q3 than it did at the end of June, with 32,600 employees. This is an increase of 3%, but exactly in line with this point last year, suggesting that Goldman weeded out underperformers at the tail end of 2012 and has gradually been building headcount again. Alternatively, this could largely be down to the annual graduate intake, which joins in September.
2. FICC traders should possibly be very scared, but maybe not
Performance in Goldman’s FICC division was particularly bad during the third quarter. Revenues dropped by a massive 44% year on year and 49% since Q2, coming in at just $1.2bn. Goldman points to a particularly bad time for its mortgages and interest rate products, as well as currencies, in a difficult environment “characterised by economic uncertainty, difficult market conditions in certain businesses and lower levels of activity”.
However, for the first nine months of 2013, FICC revenues were down by a comparatively modest 12%, to $6.9bn on the back of a good first half. It may, like Citi, decide that one bad quarter doesn’t necessitate big redundancies.
4. Pay has seemingly been obliterated, but not really
Goldman’s compensation pot for the third quarter is down by 35% to $2.4bn on the same period in 2012. While the bonus pool in Q3 2012 equated to 44% of revenues last year, it’s now down to 35%, suggesting that the bank is cutting comp, rather than headcount (or perhaps as a prelude to redundancies). This works out as $73k per head during the three months to September, compared to $113k for the same period in 2012.
However, for the first nine months the drop in compensation is not spectacular. It’s accrued $10.4bn so far this year, versus $10.9bn in 2012, or a 5% decline. It's enough to pay each of its employees $319.7k for the nine months or 2013, compared to an average of $336.4k last year. This means a compensation accrual of 41% of total revenues so far this year, as opposed to 44% last year.
5. ECM is hot
The stand out performer for Goldman, like most other banks to report so far, was equity capital markets. Its underwriting business posted a 13% uptick in revenues for the third quarter, which is one of the few positives. However, year to date, equity underwriting is up by 52% on 2012, with revenues of $1.03bn, while Goldman’s DCM team is up 35% to $1.8bn. All of this has ensured that the bank’s investment banking division’s revenues have exceeded the first nine months of 2012 by 22%, despite weak performance in its M&A business.
6. Fund management is quietly doing well
Goldman Sachs’ investment management business doesn’t receive the plaudits of its investment banking division, and some key departures – notably Jim O’Neill – would have rocked the division. However, revenues were up a modest 2% on Q3 last year and 4% for the year to date. This doesn’t match JPMorgan’s asset management division, which has been frantically hiring, but still reflects well on the health of the sector.