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.)

As Goldman works to boost shareholder returns, compensation is at the forefront of some investors' minds. One investors examines the difference between Goldman shareholder returns and what the bank has paid employees to find that its workers got 10 percentage points more, on average, than shareholders since the firm went public in 1999. Join Discussion

Jamie Dimon’s teflon coating

By Matthew Goldstein and Jennifer Ablan

Jamie Dimon’s coat of teflon is wearing well, even as the criminal and regulatory investigation into the London Whale trading scandal deepens.

Shares of JPMorgan Chase, which plunged more than 20 percent in the days after the bank revealed in May that the trading losses were much worse than previously believed, have rallied back. The stock is now trading around $38.66 a share. On May 10, when the bank disclosed after the bell that it had lost at least $2 billion on derivatives bets made by a group of London-based traders, the stock closed at around $40.

When Dimon was called before Congress to testify on the trading scandal in June, he was generally treated like the king of Wall Street by congressman and senators. At the time, bank’s internal probe had not yet found evidence that the three traders may have tried to hide their losses, so the fallout from the scandal appeared limited. The bank disclosed those finding to federal authorities before releasing its second-quarter earnings and restating its numbers for the first quarter.

So has Dimon, who came sailed through the financial crisis without a scratch–unlike say Goldman’s Lloyd Blankfein–once again emerged as a champion? Maybe, but a lot will depend on what the investigations turn up and whether it fits with Dimon’s attempt to portray the now $5.8 billion trading debacle as an isolated risk management failure–potentially carried about by a small group of traders bent on concealing their actions.

As Emily Flitter and David Henry have been reporting over the past few weeks, Dimon’s narrative has begun to take some hits. The once small group of people believe to be involve now includes at least 7 current or former employees who have hired lawyers, including several risk officers. On Wednesday,  Reuters reported a fourth trader who worked under Bruno Iksil, the man nicknamed the London Whale because of the big bets he has taken on, is now also drawing scrutiny.

And now comes word  that the Sen. Carl Levin’s powerful Permanent Subcommittee on Investigations maybe  looking to dig deeper into the scandal. That could prove embarrassing for Dimon, especially since it was the Levin committee that led to the grilling of Goldman Sachs over its subprime CDOs and an in depth review into allegations of money laundering by HSBC.

Jamie Dimon's coat of teflon is wearing well, even as the criminal and regulatory investigation into the London Whale trading scandal deepens. Join Discussion