From the monthly archives:

October 2009

Despite the clamor over executive compensation, major U.S. banks and securities firms are set to pay employees a record $140 billion this year. Staff at the top 23 investment banks, hedge funds, asset managers and stock and commodities exchanges will earn more this year than they did during the peak year of 2007, reports the Wall Street Journal.

The rebound in compensation is a result of a stronger stock market, easing of the credit crunch, and a pick-up in deal making in capital markets. It also reflects the attitude by many Wall Street firms that they must pay top dollar to retain top talent. 

Investment banks such as Goldman Sachs and Morgan Stanley typically pay employees roughly 50 percent of revenues. Commercial and other banks, which have tellers and other retail-banking support personnel, usually pay a lower rate.

The Wall Street Journal analysis pegs Goldman as being on track to pay a record $21.85 billion to employees, a figure that’s disputed by Goldman. Securities records show Goldman paid out $20.19 billion in 2007.

A Goldman spokesman said the firm must offer competitive pay packages or risk losing key executives to non-U.S. companies, private equity firms and hedge funds. Employees also have a long-term stake in the company because many are compensated in shares which they can’t touch for years. Average compensation per employee at Goldman is set to reach $743,000 this year, which is double last year’s $364,000 and up 12 percent from $622,000 in 2007, according to the Wall Street Journal analysis.

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More signs that the industry is on the rebound: A report by analysts at Keefe, Bruyette & Woods says the managing directors who were recently hired by Lazard, Greenhill and Evercore will bring in an estimated $300 million in new revenues to the boutique banks in 2010 and 2011, when M&A activity rebounds.

The report, mentioned in Wealth Bulletin, notes that the incremental revenue brought in by a senior managing director is substantial. A managing director at a firm such as Lazard can generate up to $8 million per year in advisory revenues.

It’s a big reason why independent banks are reaping the benefit of the steady migration of senior talent from failed, merged or weakened bulge bracket firms. Of the 67 senior managing directors hired by Evercore, Greenhill, and Lazard, nearly 40 percent came from bulge bracket competitors such as Lehman Brothers, UBS, RBS, Dresdner and Merrill Lynch.

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Bashing the banks and blaming Wall Street for the financial crisis has practically become a new spectator sport. But it’s time Americans understood the role that finance and banking have played in the success of our nation’s economy over the past century. So says Steven M. Davidoff, a professor at the University of Connecticut School of Law, in a recent article in the New York Time’s blog, Dealbook.

Although he still shows the move Wall Street to his students for historical context, Davidoff argues that it’s time America realized the value of finance. Finance is the fuel that powers our factories, creates innovative companies such as Google and Apple, and ensures that infrastructure such as roads and bridges are built.

As for investment banking, today’s companies survive and thrive depending on whether they can obtain loans or persuade investment banks to underwrite the sale of their securities to third parties.

Even the rise of securitization and financial derivatives, Davidoff says, has allowed capital and risk to be managed more efficiently. Currency swaps, for example, allow companies to hedge currency risk when trading abroad. The notional value of such swaps has reached $414 trillion, according to the International Swaps and Derivatives Association.

Finance has also driven the export of American legal, accounting and consulting services. And since World War II, the private equity, venture capital and hedge fund industries have all found the center of their universe to be located right here in the United States.

This is a world that Main Street does not fully understand, Davidoff says. Thus, those of us both seeking and working in investment banking jobs will have to do a better job of illuminating the value of finance in society, while we participate in fixing what has gone wrong.

“There must be a firm embrace of the idea that finance’s rise is a good thing,” Davidoff writes. “Finance is an inevitable product of a $14 trillion economy and a modern society. We cannot simply turn off the cash machine.”

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Goldman Continues Investment Banking Job Spree

October 5, 2009

Goldman Sachs continues to beef up its global asset management business by going on another hiring spree. Now it’s looking to hire an additional 200 staff across all regions in an attempt to achieve a dominant position as one of the world’s leading asset managers, according to a story in the Financial Times. The strategy […]

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