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Why does Goldman pay so much?

19 March 2007

Anonymous

What makes working for Goldman Sachs (or Goldman Sachs JBWere) quite so lucrative? Here’s our verdict…

1. It makes more money. Net revenues per head in 2006 were US$1.4m (AU$1.8m). This compared to US$678k at Lehman Brothers, for example. At 43.7% as a proportion of revenues, compensation costs were lower than at most other banks on the Street (shareholders are not being fleeced).

2. It works on bigger deals. According to Dealogic, the average M&A deal involving Goldman in 2006 was worth US$2.9bn. This compared to $2.6bn at Morgan Stanley, $2.5bn at Merrill Lynch and $2.1bn at Credit Suisse. Bigger deals mean bigger fees: last year Goldman earned 35% more in M&A fees than its nearest rival, Morgan Stanley.

3. It does more trading and risks more of its own capital. Trading and principal investments accounted for a massive 74% of total first-quarter revenues at Goldman Sachs this year. Profitable traders are expensive beasts, but they can generate plenty of profits for their employers.

And if you don’t believe us, here’s what the experts say:

“They are smart, well-connected risk takers,” affirms Dave Hendler, an analyst at independent research firm Creditsights. “They pay more, simply because they make more. And as a trading house, they get results quicker than houses that focus on M&A deals, which are a slower process and can take months to close.”

“Goldman pay more because they’re involved in more profitable activities,” says Dick Bove, an analyst at Punk Ziegel & Co. “At Goldman, there are a lot of traders on some pretty big packages. At Merrill Lynch, there are 15,000 people involved in selling stocks and a whole bunch of support people working for them earning US$50k to US$60k a year.

“Goldman works on bigger deals, does more deals, and has a bigger fee base,” he adds.

Comments (5)

GS is an amazing place to work. But there is a good chance that your family might forget what you look like.

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Comments (5)

  • What these articles neglect to mention is that back-office staff get paid below market rates. The logic being that they should be grateful for working at GS. If they look elsewhere at say a second-tier bank they will see others doing the same job but paid more.

    Anonymous 22 Mar 2007

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  • The article is not insightful at all. 1. When comparing trading revenues one should look at Revenue per $ of VaR – Goldman is not the top bank by this measure. 2. Big deals do not necessarily result in big fees. Big deals tend to be very competitive and involve many banks working together – not so lucrative. The sweet spot deals tend to be mid sized. 3. Taking more risk does not mean that the bank is a superstar – Goldman's global alpha fund has been posting poor performance over the past couple of years and recently JP Morgan surpassed Goldman in terms of AUM. No doubt Goldman is the best i-bank on the street and is a leader in many areas. But not the least for the reasons stated by the author. Instead of writing articles on how good GS is it will be useful if the author writes about how to get a job with this glorious bank.

    Anonymous 22 Mar 2007

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  • Goldman pay well because they are under-resourced. Each person does two jobs and works twice as many hours. Therefore – they get paid twice as much. Rather sad...

    Anonymous 22 Mar 2007

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  • I don't think GSJBW are quite in the same ball park as their GS cousins just yet.


    It's definitely true that front-office staffers are paid better than back-office staff (which is justified given the revenue streams).


    In Australia .. the UBSs, Macquaries would be on comparable terms salary-wise.


    How do you get a job with GS? My advice is to get experience at another bank first and then apply. It's becoming harder these days to work your way up the chain unless you're overly qualified for the role or you're exceptionally good at networking.

    Anonymous 22 Mar 2007

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  • GS is an amazing place to work. But there is a good chance that your family might forget what you look like.

    Anonymous 31 May 2007

    RECOMMEND Recommended 0 times | Alert Moderator

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