Goldman Sachs sets aside £10bn for pay and bonuses

Investment banking giant Goldman Sachs said today it had set aside a mammoth $16.7bn (£10.3bn) so far this year in pay and bonuses as it revealed a 278 per cent leap in profits.

The group, which employs around 5,500 staff in London, revealed a 46 per cent hike in the compensation and benefits pool for the first nine months of the year.

The bumper rewards news comes after Goldman made net earnings of $3.19bn (£1.96bn) between July and September, up from $845m (£519.8m) in the third quarter of last year.

Goldman earmarked $5.35bn (£3.29bn) in pay and benefits - including redundancy costs - for the third quarter alone after reaping profits from a resurgent investment banking sector.

Fellow US group JP Morgan Chase yesterday kicked off the third quarter reporting season with a bigger-than-expected surge in profits to $3.6bn (£2.3bn) as banks return to health less than a year after the financial crisis.

Today's bonus news from Goldman is likely to fuel concern over a return to the sector's pre-meltdown culture of excessive rewards, having tipped the world into global recession and resulting in billions of pounds in taxpayer bail-outs.

The Treasury announced yesterday that the bank was one of a number with UK operations to agree to tougher international rules on pay and bonuses.

Officials said 11 banks including Bank of America and JP Morgan had signed up to the G20 recommendations drawn up last month. These include so-called clawback clauses and to spread out bonuses over three years or more.

Banks are being boosted by a bounce-back to stellar returns in their investment banking divisions, amid resurgent market conditions and the demise of certain competitors.

Goldman said fixed income, commodities and currency trading buoyed its profits for the second quarter running.

It stunned the market in the summer with news of a 65 per cent leap in second quarter profits, to $3.44bn (£2.12bn).

The group, which employs 31,000 staff globally, has been seen as one of the strongest banks throughout the financial crisis.

It had less exposure to toxic mortgage-backed securities than other companies and has been more aggressive in its trading.

The current market conditions have also been helping bank profits rebound.

Investment banks trade everything from government and company bonds to currencies, shares, commodities and complex derivatives.

As well as advising on takeovers and mergers, they help clients raise funds through issuing debt in the form of bonds, or equity - through the issue of new shares in a rights issue for example - and promise to buy up any left over through a process known as underwriting.

The huge push for financing by cash-strapped companies needing to trade through the recession has led to a surge in commission fees for the banks.

There is also less competition for investment banking work in the aftermath of the financial crisis, which has claimed a number of scalps - the biggest of which was Lehman Brothers last autumn.

Lloyd Blankfein, chairman and chief executive of Goldman Sachs, said: "Although the world continues to to face serious economic challenges, we are seeing improving conditions and evidence of stabilisation, even growth, across a number of sectors."

A raft of other major US banks are due to report third quarter earnings over the next two days that are expected to confirm the improving conditions and stoke concerns over pay practices.