Bumper Yield on Wall Street (for some)
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Thought some of you might find this article on financial services firms interesting:
From The Economist
Investment banks
Coining it
Dec 20th 2006
From Economist.com
American securities firms have had a bumper year
IT HAS been a year to make even Croesus blush for the big Wall Street securities firms. Goldman Sachs, Bear Stearns, Morgan Stanley and Lehman Brothers have all announced record profits and beaten analysts’ expectations in the process. Bloomberg, a financial-information firm, calculates that the industry will make $29.1 billion after tax in fiscal 2006, a 43% rise on last year, which was itself a bumper one. New York’s tabloids have had a field day, splashing headlines like “Sachs of Loot†and fantasising about all the things outsized bonuses could buy.
Goldman, the best performer, is setting aside an unprecedented $16.5 billion to reward its talent, equal to $620,000 per employee across the firm. But it is now so profitable that the ratio of pay to revenue has actually fallen, to 43.7%, well below the 50% seen as a ceiling in the industry. And on Tuesday November 19th Goldman revealed that the bank’s boss, Lloyd Blankfein, would pocket $53.4m this year. This paypacket broke an industry record set only last week at Morgan Stanley—its chief, John Mack, will get around $40m for his work in 2006. The huge sums of cash and the attendant publicity prompted Mr Blankfein to call for humility as his troops reflect on their stellar year.
Even if some bankers do exercise a little modesty when it comes to spending their vast earnings this is unlikely to dampen the mood of purveyors of luxury goods and fancy homes, who hope to pick up more than a few crumbs from Wall Street’s table. Orders for bespoke suits are up on last year, says Jack Mitchell, who kits out some of Wall Street's financial bigwigs. New York officials are delighted, too. They have slashed the city’s budget-deficit forecast, in part because of the sharp rise in tax receipts from investment banks.
The banks can thank near-perfect markets for their good fortune. Mergers and private equity are booming, as are stockmarkets (the Dow Jones Industrial Average hit another record high on Tuesday). Volatility is low, credit still plentiful. Hedge funds and others are trading derivatives at a furious pace, providing a further lift to the banks’ prime-brokerage businesses. In these conditions, the banks have (so far) profited handsomely from ratcheting up their own risk-taking. Across the industry, value-at-risk—a measure of potential losses on a bad trading day—has risen steadily. Some 70% of Goldman’s net revenues now come from trading and investing on its own account.
Everyone knows this cannot last forever. The banks are hoping that their scope will help them when markets turn. Growth prospects look good in Asia and Europe, and all of the leading firms apart from Bear Stearns now do a big chunk of their business outside America. They are also beefing up their distressed-debt and bankruptcy teams, a source of profit that should mitigate any pain from a rise in defaults and tougher debt markets.
But with investment banks outperforming their commercial-banking counterparts on almost every measure, including share price, the gloating will be hard to contain. Just now, much of it is directed at Citigroup, which is under pressure to cut costs and raise its share price. Strikingly, the financial conglomerate is paying slightly higher interest on its five-year debt than Lehman or Bear Stearns.
Moreover, any investment banker worth his salt will tell you that there is not much money in meekness. After a day or two reacquainting themselves with their families at Christmas, most will race back to their desks next week, hungry to make another killing.
IT HAS been a year to make even Croesus blush for the big Wall Street securities firms. Goldman Sachs, Bear Stearns, Morgan Stanley and Lehman Brothers have all announced record profits and beaten analysts’ expectations in the process. Bloomberg, a financial-information firm, calculates that the industry will make $29.1 billion after tax in fiscal 2006, a 43% rise on last year, which was itself a bumper one. New York’s tabloids have had a field day, splashing headlines like “Sachs of Loot†and fantasising about all the things outsized bonuses could buy.
Goldman, the best performer, is setting aside an unprecedented $16.5 billion to reward its talent, equal to $620,000 per employee across the firm. But it is now so profitable that the ratio of pay to revenue has actually fallen, to 43.7%, well below the 50% seen as a ceiling in the industry. And on Tuesday November 19th Goldman revealed that the bank’s boss, Lloyd Blankfein, would pocket $53.4m this year. This paypacket broke an industry record set only last week at Morgan Stanley—its chief, John Mack, will get around $40m for his work in 2006. The huge sums of cash and the attendant publicity prompted Mr Blankfein to call for humility as his troops reflect on their stellar year.
Even if some bankers do exercise a little modesty when it comes to spending their vast earnings this is unlikely to dampen the mood of purveyors of luxury goods and fancy homes, who hope to pick up more than a few crumbs from Wall Street’s table. Orders for bespoke suits are up on last year, says Jack Mitchell, who kits out some of Wall Street's financial bigwigs. New York officials are delighted, too. They have slashed the city’s budget-deficit forecast, in part because of the sharp rise in tax receipts from investment banks.
The banks can thank near-perfect markets for their good fortune. Mergers and private equity are booming, as are stockmarkets (the Dow Jones Industrial Average hit another record high on Tuesday). Volatility is low, credit still plentiful. Hedge funds and others are trading derivatives at a furious pace, providing a further lift to the banks’ prime-brokerage businesses. In these conditions, the banks have (so far) profited handsomely from ratcheting up their own risk-taking. Across the industry, value-at-risk—a measure of potential losses on a bad trading day—has risen steadily. Some 70% of Goldman’s net revenues now come from trading and investing on its own account.
Everyone knows this cannot last forever. The banks are hoping that their scope will help them when markets turn. Growth prospects look good in Asia and Europe, and all of the leading firms apart from Bear Stearns now do a big chunk of their business outside America. They are also beefing up their distressed-debt and bankruptcy teams, a source of profit that should mitigate any pain from a rise in defaults and tougher debt markets.
But with investment banks outperforming their commercial-banking counterparts on almost every measure, including share price, the gloating will be hard to contain. Just now, much of it is directed at Citigroup, which is under pressure to cut costs and raise its share price. Strikingly, the financial conglomerate is paying slightly higher interest on its five-year debt than Lehman or Bear Stearns.
Moreover, any investment banker worth his salt will tell you that there is not much money in meekness. After a day or two reacquainting themselves with their families at Christmas, most will race back to their desks next week, hungry to make another killing.
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Slow day it is. Freakin slow. I won't be able to trade until tomorrow night, coz of work. I wouldn't say its my hobby or a full time job. Its just what i do, call it a part time job! :)
88 pips down since open, and i was away. just got home, so no profit in my bag.
here is todays GBP/USD image :)
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