Citing choppier than expected market conditions for the fourth quarter, analysts at Credit Suisse lowered their earnings estimates for Goldman Sachs (NYSE: GS).
Investors can take some solace though, as one positive for them may be a source of worry for its employees awaiting bonuses: the prospect of a leaner, meaner Goldman. The Credit Suisse analysts said they expected the firm’s compensation expense to be at 40.4 percent of revenue for 2010 — the second-lowest level for Goldman since it went public in 1999. Wall Street firms typically aim for a compensation expense ratio of 40 to 45 percent of revenue. With trading revenue down across the Street, that will be difficult for some to hit.
The low Goldman ratio, Credit Suisse says, is “reflective of both management discipline and the impact of new hires over the past year.” Goldman increased its headcount by 9 percent this year, the UBS analysts said in their note to clients. Stories have flurried recently that bonus pools are being cut, and this should improve bottom line results. Though, one must question if this is in the long run best interest of the firm, as this may cause a brain drain losing talent to rivals and niche areas of finance not subject to such stringent regulation.
