Private equity gains allow Goldman to end year in style

Click to follow
The Independent Online

Goldman Sachs revealed Wall Street's biggest ever quarterly profit yesterday, and fired the starting gun for what is set to be the most generous annual bonus season in the finance industry's history.

Soaring stock markets and economic growth across the world, particularly in Asia, have combined with a boom in merger and acquisition activity to juice profitability this year, and Goldman Sachs said it sees no reason why the good times will not continue to roll into 2007.

The spectacularly successful end to the financial year means that Goldman can hand its 26,467 employees annual bonuses that will be 25 per cent higher than last year. Dozens of the bank's most important dealmakers can expect to take home bonuses running to eight figures, while the average managing director can expect a pay-out of around $1.5m (£760m). For most staff, the annual bonus represents the large majority of their pay for the year, and their award is the culmination of months of manoeuvring and paranoia.

Staff in the bank's most important growth areas, such as those advising private equity clients or working in Goldman's own private equity investment arm, can expect higher bonuses than those in more traditional areas, but Goldman's finance chief, David Viniar, insisted that the cake is divided equitably.

"At Goldman Sachs, we believe a dollar is a dollar and it doesn't matter where in the group it comes from," he said. "Everyone at Goldman Sachs shares when the firm does well, and shares when it does poorly."

Despite the soaring absolute numbers, Goldman has managed to keep its total compensation bill for the year - $16.5bn, compared to $11.8bn in 2005 - below 44 per cent of net revenues, compared to 47 per cent last year.

The bank earned $3.1bn in the past three months, it said, and earnings per share were up 97 per cent on the same period last year.

The vast bulk of that profit was generated by the company's own trading in the financial markets and private equity investments, each of which blew away Wall Street analysts' forecasts.

Goldman enjoyed a near-$1bn windfall from its holding in the Industrial and Commercial Bank of China, which was the world's largest flotation when it listed in Hong Kong last month.

The final quarterly profit took net earnings for the financial year ended 24 November to $9.5bn. Over the year, $24bn of Goldman's income came from the trading and investments side of the business, compared to $5.6bn from the investment bank, which advises companies on deals and fundraisings.

Goldman shares fell in early trading yesterday, as investors cashed in on the recent rally and began to worry that a slowing global economy will crimp profits next year.

Mr Viniar said that both the trading and the investment banking sides of the business could continue to increase their dominance of the market, and the investment banking side was confident of sealing additional mergers and acquitisions in the new year. "If the global economy continues to grow, then we'll grow," he said. "We're seeing a good backlog of deals and a lot of dialogue with companies."