Can Citi trump Goldman in 2009 bonus round?

By Rob Cox
January 13, 2010

Rob Cox 55x64 jpg.ashxThis bonus season, would you rather be a banker at Goldman Sachs or Citigroup? Goldman has famously set aside more money to reward staff for their efforts last year. But the biggest bonuses will come mostly in stock, and Goldman’s shares have surged from the lows of the crisis. Give other banks’ shares a chance to catch up and bankers paid in the laggards’ equity could wind up richer on 2009’s spoils.

Consider Goldman’s recovery. Last year’s equity compensation was set when the stock traded at $78.78 a share. Since then, the market price has more than doubled. So an employee who received, say, half of a $500,000 bonus in stock wound up 12 months later with $250,000 in cash and shares worth $543,000. Not bad.

Given Goldman’s stunning 2009 performance, that same employee may be on track for a $1 million payout this time – though the equity component will most likely be higher, perhaps 80 percent. Indeed, Goldman’s top 30 executives will receive nothing but restricted shares, a policy being mimicked across the industry.

A Citi banker who received the same $500,000 bonus a year ago, split 50-50, would be nursing a 50 percent loss on the equity part since then. Suppose that banker grabs a bonus this year that is 30 percent smaller than his Goldman peer, or $700,000, also with four-fifths of it in stock. He’d receive around 155,000 Citi shares.

The good news is, at $3.63, those shares are cheap compared with Citi’s third-quarter book value, or assets minus liabilities, of $6.15 per share. Contrast that with Goldman, whose stock already trades at 1.6 times book value, a big premium to rivals.

Suppose Citi recovered to book value – a goal that’s not far-fetched – and Goldman’s stayed flat. The Citi banker’s shares would then be worth around $950,000, for a total package of about $1.1 million – trumping the Goldman payout, at least in the short run.

Of course, this assumes the rally in Goldman shares is over, and that Citi can regain the full confidence of investors. Those are big “ifs”. But for employees of the biggest laggard in finance, there’s always hope.

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