Monday, December 5, 2022
HomebanksGoldman's big Utah bet pays off handsomely

Goldman’s big Utah bet pays off handsomely

Goldman Sachs Group Inc has been quietly moving thousands of jobs from pricey places like New York and London to cheaper cities like Salt Lake City in recent years, and executives said on Thursday those efforts are finally starting to show up in the bank's results.

Goldman posted a profit of $2.25 billion in the fourth quarter on Thursday, as lower compensation costs helped blunt some of the impact of weaker bond trading revenue.

The average pay per Goldman employee was $383,374 last year, down 4 percent from last year and less than two-thirds pre-crisis levels. Further, less of the bank's revenue is getting paid to employees: about 37 percent in 2013, down from some 38 percent in 2012 and almost half in 2008. That ratio is among the lowest in the bank's history as a public company, and it is possibly because of staff being moved, executives said.

The bank added a net of 500 employees to its payroll of 32,900 in 2013, but it added many more than that to lower-cost cities and cut staffing in higher-cost cities, they said. Besides Salt Lake City, Goldman has also built staffing in cities like Dallas and Bangalore, India.

"I've been covering this company for 10 years, and I can't remember the last time they were cutting compensation at this level," said Tom Jalics, a senior investment analyst at Key Private Bank, whose clients own Goldman shares. "They're really ratcheting them down."

(Read more: Goldman beats expectations)

Cutting compensation costs is vital in a post-crisis world where intense regulation and less trading activity are weighing on revenue. At the same time, it also shows how Goldman employees, who have long been regarded as kings of Wall Street, may be losing power.

With fewer dollars going into employees' pockets, more money goes to the bottom line. Goldman's revenue barely changed last year, meaning that if the bank had not reduced expenses, its profits would likely have been flat instead of up 6 percent for the year.

"They're responding to revenue pressures in the business," said Frederick Cannon, a bank analyst at Keefe, Bruyette & Woods. "Goldman's making adjustments to ensure they remain profitable while revenues are under pressure."

Much of the growth in Goldman's far-flung offices has been driven by new rules and penalties that are forcing banks to staff up in compliance, legal and regulatory functions.

Ten years ago, Goldman had only a handful of employees in Salt Lake City. Now it has about 1,800 employees, with nine of the bank's 11 divisions represented there, in functions ranging from research and credit analysis to trade settlement and compliance.

More than 30 people with global responsibilities are now based in the state capital of Utah, including a compliance team headed by Matthew Moore, a managing director who oversees regulatory audits and inquiries. A credit research team of more than 60 people who perform reviews of Goldman's counterparties is also based in Utah.


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