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Under its policy of setting aside almost half of its earnings to pay its staff of 31,000, the firm has built up a compensation fund of $16.7bn for the year to date- - including $5.35bn set aside in the last quarter.
Average compensation per employee Goldman, is set to reach about $743,000 this year, double last year's $364,000 and up 12% from about $622,000 in 2007, according to Wall Street Journal analysis, published on Wednesday.
Goldman announced that it was putting $200 million into a charitable foundation aimed at supporting educational initiatives around the world. The bank's chief financial officer, David Viniar, accepted that Goldman was treading a delicate line as controversy rages over pay in the financial industry.
Revenue compared with the second quarter dropped in every division except principal investing and asset management, and earnings declined 7.25 from the second quarter’s record $3.44 billion.
Trading in bonds, commodities and currencies raised Goldman's profits for the second straight quarter. Investment banking revenue fell to $899 million in the third quarter. The results were 31% worse than similar quarter last year as the credit crisis was worsening and 38% worse than the most recent quarter.
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David Viniar, Goldman's chief financial officer, said during a conference call that the GS has made no decisions on year-end bonuses yet, and it will not make any determinations on how much to pay employees until the end of the year. Viniar said the bank is "very focused on the economic climate" and that will be taken into account when decisions are made.
"Although the world continues to face serious economic challenges, we are seeing improving conditions and evidence of stabilization, even growth, across a number of sectors," CEO Lloyd Blankfein said.
David Trone, securities industry analyst at Fox-Pitt, Kelton, shares his analysis of Citigroup and Goldman's earnings:
Citi
Citi reported Wednesday that it earned $101 million in the third quarter thanks to smaller reported losses on its hoarding of toxic loans and investments.
The embattled giant, has been bailed-out by the US government, which is its largest shareholder largest shareholder with a 34% stake reported revenues of $20.4 billion.
Citi's results amounted to a loss of 27 cents per share of common stock, because it was required to pay $288 million of its profits as a dividend to preferred shareholders. The results compared with a loss of $2.8 billion, or 61 cents a share, during the same period last year.
"Sustainable profitability remains our primary goal in the near term,"CEO Vikram Pandit said in a statement.
The company received a total of $45 billion in direct investments from the Treasury Department. It has borrowed billions more with help from the Federal Deposit Insurance Corp., and it has availed of emergency aid programs operated by the Federal Reserve.
Citigroup added the smallest amount to loan-loss reserves in two years, spurring concern that the bank may need to post writedowns in future quarters.
Loan losses during the quarter came to $8 billion, down $386 million from nearly $8.4 billion in the second quarter. Citi said it added $800 million to its loan loss reserves during the third quarter, down $3.1 billion from the addition it made during the second quarter.
The allowance for loan losses increased to $36.4 billion, or 5.9% of total loans.
John Gerspach, Citigroup's chief financial officer, said during a conference call that the view of credit in North America is "somewhat mixed."
Nokia posted a surprise quarterly loss Thursday after the cellphone maker was hit by a major writedown at its networks unit. "I think the replacement cycle is starting to kick in. Mobile devices at the end of the day they are a necessity item," Olli-Pekka Kallasvuo, CEO of Nokia, told CNBC:
Davy Research: Alpha Generator - - Reflation once again
Donal O'Mahony, Global Strategist at Davy, in a report issued today titled Alpha Generator, which may evoke the illusional halcyon pre-credit crunch days, says that as time passes, the trauma fades, but memories of the fallout from the Lehman bankruptcy will linger long in the mindsets of financial market participants. Global healing of both economies and markets is demonstrably underway, but investors retain an understandable reticence, borne out of the unprecedented dislocations of the past 12 months. Policymakers, alive to such reticence, are anxious to reassure, not only bestowing unprecedented stimulus but, more importantly, precommitting such stimulus..."for an extended period."
O'Mahony says as recovery takes hold, the arguments will rage, not least in terms of sustainability, but also regarding the risks of unintended consequences. Will the world double-dip; will banks resume lending; will the US dollar fall further, and possibly faster; and will central banks manage the impossible and effect exit strategies to perfection, if not in unison?
These and a host of other conundrums face all investors and policymakers today. Recovery is here, but its ultimate shape and form remain highly uncertain.
Markets in recovery mode
- Global healing is now underway, with fast-improving financial conditions leading the revival in macroeconomic activity.
- Positive feedback loops can self-perpetuate, all the more so with policymakers overcompensating via 'opportunistic reflation.'
- Growth and earnings expectations have passed their cyclical inflection points, with topside risks for both in the period ahead.
Investor caution still prevails
- Investor sentiment is improving, but risk re-positioning is lagging and cash weightings remain relatively elevated.
- Valuations still generally inexpensive in credit, fair in stocks and rich in government bonds, but 'excess liquidity' continues to float all boats.
Equities to replace credit as asset class of choice
- Equity markets to restore hegemony over credit in asset-allocation flows as reflationary mindsets take hold.
- Too early for inflation-risk premia, but reflation trades will power commodities, steepen yield curves and weaken the dollar.
- Gold breakout is augury of sustained topside risk, its 'store of value' status enhanced in a world of flat currency debasement.
PetroNeft
PetroNeft Resources , owner and operator of Licence 61, Tomsk Oblast, Russian Federation, says it has signed a contract for the construction of a pipeline from its Lineynoye oil field to the Kiev-Eganskoye oil field. It is a fixed price contract and is within budget estimates. The contractor will move their equipment to the field over the coming months and construction is scheduled to commence in January 2010.
The pipe is currently being transported by barge from its storage location to a staging point south of Licence 61. This relocation should be completed within the next few weeks.
The field survey of the revised southern pipeline route has commenced and it is now expected that the route will be approximately 60 kilometres long as opposed to the previous 70 kilometre estimate, which included a contingency. The shorter route means that no additional pipe will now need to be acquired.
European car sales
In its Monthly Bulletin, the European Central Bank said car-scrapping incentives in Eurozone countries have been of limited benefit and could have a negative impact on the economy next year and in the medium term.
In its monthly report for October, the ECB said that, although they had supported car production in the short term, the programs could harm the economy by distorting consumers' spending patterns and competition.
The European Automobile Manufacturers Association said Thursday that in September, European passenger car registrations increased by 6.3% compared to September 2008, reaching a total of 1,388,136 new car registrations. The September results were boosted in markets with government incentives to support fleet renewal in place, and especially in those countries where these schemes come to an end soon. Nine months into the year, registrations of new cars were lower than over the same period of 2008, noting a decrease of 6.6%.
Irish car sales were down 63% in the nine months to September 2009.
The West European market increased by +9.6% in September compared to the same month last year, recording the largest jump since 1999. In absolute figures, however, the September registrations stayed below the levels reached since 2002. Germany remained the best performer with +21.0%. Spain also posted a marked double digit growth (+18.0%) in light of the country’s incentive scheme nearing its end, and after sixteen months of severe downturn. Austria (+17.9%), France (+14.0%), Norway (+12.7%), the UK (+11.4%), Italy (+6.8%) and Switzerland (+2.9%) also recorded positive results. Nine months into the year, only three countries – Germany (+26.1%), Austria (+6.7%) and France (+2.4%) – saw their markets expand. The downturn ranged elsewhere from 5.9% in Italy to -79.5% in Iceland. The Spanish and British markets shrunk by 28.6% and 15.5% respectively. In total, 10,310,038 new cars were registered in Western Europe, or 4.8% less than in the same period a year ago.
In the new EU Member States, the downturn prevailed, reflecting the still challenging market conditions. In September, markets contracted by 36.4% in the region. Poland (+7.9%) and the Czech Republic (+0.5%), the two largest markets, were the only ones posting growth. From January to September, new car registrations were down 28.7%. The vast majority of markets declined sharply, ranging from -22.3% in Slovenia to -80.2% in Latvia. Slovakia (+19.7%), the Czech Republic (+8.0%) and Poland (+1.7%) were the only expanding markets.
Are hefty bonus payouts a reasonable way for banks to retain top talent or a slap in the face to the American taxpayers who bailed them out? Keith Boykin, of The Daily Voice, and James Pethokoukis, of Reuters, share their insight:
US markets
The number of Americans filing initial claims for unemployment benefits dropped last week to the lowest level in nine months.
Claims fell by 10,000 to 514,000 in the week ended Oct. 10th, the Labor Department said. The total of continuing to claim benefits dropped by 75,000 to 5.99 million, its first time below 6 million since March.
The Labor Department also reported that consumer prices rose 0.2% last month. Core prices excluding the volatile energy and food categories also rose 0.2%. Over the past 12 months, consumer prices fell 1.3%.
The Dow Jones Industrial Average fell 7 points at 10,008, hurt by the Goldman and Citi reports in addition to a disappointing reading of the Philadelphia Federal Reserve's index of regional manufacturing conditions.
The Philadelphia Fed's index, which has posted growth for three straight months, fell to 11.5 this month from 14.1 in September, indicating a slowing rate of expansion.
CNN reports foreclosure filings hit a record high in the third quarter, according to a report issued Thursday.
"They were the worst three months of all time,"said Rick Sharga, spokesman for RealtyTrac, an online marketer of foreclosed homes.
During that time, 937,840 homes received a foreclosure letter -- whether a default notice, auction notice or bank repossession, the RealtyTrac report said. That means one in every 136 US homes were in foreclosure, which is a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.
The Nasdaq is down 0.36% and the S&P is off 0.20%.
In Europe, the Dow Jones Stoxx 600 is up 0.14% Thursday.
In Dublin, the ISEQ is down 0.2%.
Both AIB and BoI are down 3%.
Oil
On the New York Mercantile Exchange, oil for November delivery is trading at $75.64 up 46 cents from Wednesday's close. In London, Brent crude for November delivery is trading at $72.63 a barrel.
