Unstructured Finance

The new Goldman way: Less cushy compensation?

By Lauren Tara LaCapra

On a conference call to discuss Goldman Sachs’ new chief financial officer yesterday, an analyst asked departing CFO David Viniar why he was leaving when the stock is at a historic low.

Viniar avoided the question by joking that his successor, Harvey Schwartz, would trump that performance. But some investors think they have a better way to fix Goldman’s stock slump: cut back further on comp.

Goldman has brought compensation costs down, in part, by firing, nudging into retirement, or happily accepting the resignation of people who make a whole lot of money. (Viniar, whose salary clocked in at $15.8 million last year, is among that group.) Overall, the bank reduced comp costs by $3.2 billion last year and has cut 3,400 staffers from its payroll since the end of 2010.

But some shareholders think Goldman should be doing even more.

One prominent investor who focuses on financial stocks said Goldman is facing “the Lazard problem” — a culture where employees expect to get paid a lot, and will leave if they don’t. But, he says, management is not seeing things the same way as shareholders because they have fared much better financially, even in bad times.

To illustrate this gap, he compared return-on-equity for common shareholders against compensation as portion of common equity. (For ROE, he divided pretax earnings by common shareholder equity and for the compensation measure, he adjusted pay for estimated tax costs and divided that by common shareholder equity.)

S&P calls baloney on Wall Street’s “cyclical” profit view

By Lauren Tara LaCapra

Ask a Wall Street CEO whether his bank will be able to make as much money as it used to make, once customers start trading and doing deals again. He will inevitably respond with some form of “Yes!”

Ask just about anyone else with a shred of common sense and the answer is more along the lines of “hahaha…you’re kidding, right?”

This conversation is known on Wall Street as the “Structural vs. Cyclical” debate. On the structural side, you’ve got those who are convinced that new regulations, higher capital requirements and clients’ mistrust of big, conflicted i-banks will keep  a lid on profits for firms like Goldman Sachs, JPMorgan and Morgan Stanley. On the cyclical side, you’ve got people like Goldman CEO Lloyd Blankfein and JPMorgan CEO Jamie Dimon, who keep insisting that everything will be just fine once various “headwinds” subside.

UF’s Weekend Reads

Here is Sam Forgione’s suggested weekend reads. Happy St. Patrick’s Day everyone. The calendar says March but it feels like mid-May in NYC.

 

From Dealbook:

Recent graduates are becoming disenchanted with Wall Street careers. Kevin Roose interviews a college grad, a recruiter, professor, and former Goldman employee support to make his point.

From Fortune:

Mina Kimes takes a look at James J. Wang, the head of the small and wildly successful OceanStone Fund, who she describes as being spectrally mysterious.

When it comes to its hedge funds, Goldman is on the CAIS

By Katya Wachtel

Goldman Sachs’s own hedge fund product  — like the now defunct Global Alpha — is generally reserved for the checkbooks of the investment bank’s wealth management clients. But not always.

For investors looking to get a piece of a Goldman hedge fund for a discount (and without having to actually be a Goldman private wealth customer) the investment bank is offering one of its commodity-focused hedge funds on a third party platform: CAIS.

CAIS Group, which opened its doors in 2009, already offers its customers an entree to brand name managers including John Paulson’s eponymous hedge fund, and Daniel Loeb’s Third Point.  The platform also includes John Thaler’s JAT Capital — one of 2011′s standout performers — on its shelf.

Goldman vs Goldman

By Jennifer Ablan and Matthew Goldstein

Goldman Sachs’s chief executive Lloyd Blankfein and his likely successor, Gary Cohn, issued a formal response today following a scathing op-ed in the New York Times from Greg Smith, who announced his resignation from the investment firm.

Smith, a banker who worked in Goldman’s equity derivatives group, asserted that several Goldman managing directors had referred to their own clients as “muppets.” In Britain, where Smith is based, “muppet” is used as a derogatory term to describe someone who is regarded as being ignorant.

You can read his list of complaints below.

For their part, Blankfein and Cohn wrote: “We were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients.”

The Book of Goldman

View from Goldman Sachs office, Salt Lake City.

By Katya Wachtel and Lauren Tara LaCapra

Al Crutchfield, a 56-year-old cab driver who has spent most of his life in Salt Lake City, does not understand why so many Americans are angry at Goldman Sachs.

“Everyone seems to be so mad at them all the time, but I think it’s a good thing for Salt Lake that Goldman’s expanding here,” he said. “I drive lots of Goldman Sachs employees, so it’s good for my business, and their folks are really nice.”

Across America, and elsewhere, Goldman has often been the target of populist rage against Wall Street greed. But Al Crutchfield’s sentiment is not uncommon in this mountain city, where the investment bank has built up a cadre of back-office, technology, operations and research staff. It is now the investment bank’s fourth largest global operation, as Reuters reported Friday.

The taxman cometh for MF Global

By Matthew Goldstein

You can add the U.S. Internal Revenue Service to the long list of creditors and customers looking to get their money back from MF Global, the failed futures brokerage firm.

The IRS slapped a lien on what’s left of MF Global, seeking to recoup some $395,000 in unpaid taxes stemming from 2006 and 2007. The tax lien was filed with New York State’s division of corporations on Nov. 16, about three weeks after MF Global filed for bankruptcy.

The unpaid tax bill predates the period during which former New Jersey Governor Jon Corzine took over the helm of MF Global.

  •