Yes, it’s business as usual in the Goldman Sachs bonus department

Outlook

(Reuters)

Happy days at Goldman Sachs, it seems. What am I on about? Hasn’t the bank just announced that it’s about to get hammered by the US authorities for its role in packaging up lots of dodgy mortgages and selling them on? Those so-called “mortgage-backed securities” that banks such as Goldman were promoting before they played a major role in creating the financial crisis and spread its toxic impact around the world?

It is true that the prospective $5bn (£3.5bn) penalty for that made its presence felt when the bank revealed its fourth-quarter earnings. But the reason Goldman’s bankers are smiling is that it appears to have had precious little impact on the bonuses currently being showered upon them.

Yes, despite the fact that net revenues for the year fell by 2 per cent and pre-tax earnings fell by 29 per cent, the total money allocated to employee compensation was unchanged. The compensation ratio, which compares the cost of Goldman bankers to its net revenues, actually rose.

To be fair to Goldman, and given the way the bank sometimes behaves that isn’t always easy, the number of employees increased by 8 per cent over the year.

However, it probably won’t surprise you to learn that a large number of those new staff work in compliance. While working in compliance is more lucrative than it used to be – the demand for people with the right qualifications has increased quite sharply – they aren’t anything like as expensive as the investment bankers and traders who qualify for the really big money.

Goldman will probably tell you that the mortgage penalty was a “legacy issue” and that it pays its bankers out of “underlying profitability” – in other words, what it makes before accounting for one-offs such as regulatory penalties.

But should banks be allowed to get away with brushing off such things as their misbehaviour with dodgy mortgages as “legacy” issues? Let’s say DNA evidence resulted in the capture of a criminal who had burgled someone’s house seven years ago. Even if they’d since led a spotless life, how would a court react to their trying to plead that it was a “legacy issue”?

Big fines/settlements have also become so commonplace that it is also a stretch for banks to describe them as one-offs. They’ve become a recurring cost, and if banks like Goldman paid due regard to the interests of their shareholders, they would be factored in when bonus pools are totted up. That’s what should have happened. What has happened is that shareholders have effectively been told to pay up and keep quiet.