Unstructured Finance

Darwin theorized that peacocks’ colorful plumage was a sign of        their evolutionary strength.

Wall Street has always been known as a cutthroat kind of place, but lately it seems big investment banks are just mulling around, hoping their competitors die first.

A report on Friday by Goldman Sachs bank analysts said that the industry has entered what they called a state of “reverse Darwinism,” in which banks are betting their long-suffering trading operations can increase revenue not by stealing business from rivals on a competitive basis, but by waiting for rivals to call it quits – leaving their clients with no choice but to move business elsewhere.

The Goldman analysts met with senior executives from Citigroup, Bank of America, Morgan Stanley and Lazard to find out what’s going on in their apparently stagnant capital markets businesses. The executives’ tone was “universally lackluster,” according to the analysts, who predict that investment banking and trading revenues will once again drop about 20 percent this quarter, as they did in the year-ago period. More pain is expected ahead as new derivatives trading rules, higher capital requirements and the long-awaited Volcker rule are implemented.

With that bleak backdrop, everyone is trying to figure out where they can cut costs and what businesses even make sense to stay in anymore. The only way to make money in trading, it seems, is to have such huge market share that enormous volumes can make up for the cost of the operation.

By Lauren Tara LaCapra

There’s an interesting article out today from Bloomberg, which accuses Goldman Sachs of skirting the yet-to-be-defined-or-implemented Volcker rule, and accuses its top executives, including CEO, Lloyd Blankfein, of being a hypocrite.

Bloomberg reporter Max Abelson has done some good work on the subject. His article is well written and well sourced—he spoke to at least 20 people and got many of them to go on the record about their former employer and describe how Goldman continues to place bets with the firm’s own money.

Abelson concludes “Goldman Sachs has worked around regulations curbing proprietary bets at banks. “ But what the article really points out is that Wall Street will keep finding new ways to move the goal posts in its favor when it comes to defining and clamping down on prop trading.

By Lauren Tara LaCapra

As 2012 comes to an end, it’s clear that Wall Street has had the best-worst year in quite some time.

Bank profits are at record highs and lows, driven by free money from the Fed that they can’t make any money with, and a historically small number of historically huge deals. Facebook’s IPO – among the biggest ever – happened this year, and it was an enormous failure and a terrific success all at once.

And if that’s not enough to convince you, just take a look at the big-tiny payday that Wall Street employees are expected to get this year: bonuses for bankers, traders and money managers are supposed to rise up to 10 percent, in what a top pay consultant called one of the weakest years in a decade or more. Since big banks have been required to shift more bonus money into restricted stock with clawback provisions, some employees even feel like they’re getting punished by those bigger paychecks.

It was a good third quarter for Wall Street profits and an even better one for employees: Goldman Sachs and Morgan Stanley set aside another $7.6 billion in compensation during the period, with year-to-date pay for the average employee up 15 percent at Goldman and 3 percent at Morgan Stanley.

Total comp accruals for both firms so far this year are up to $23 billion, 2 percent higher than the amount set aside a year ago. That equates to or 47 percent of adjusted net revenue, down from 50 percent for the first nine months of 2011, but still much higher than the pay levels some shareholders are demanding.

The data are a little befuddling, since New York State Comptroller Thomas DiNapoli recently said he expects Wall Street to lose jobs this year, and for pay to drop. Recruiters and Wall Street pay consultants have also said they expect pay to either decline or remain relatively flat for many kinds of traders and bankers this year. And JPMorgan’s investment bank has already started chopping down banker pay.