Pay cuts likely to signal a ‘new normal’ on Street
“I hate this phrase, but I think their compensation levels at this point are the new normal,” said Michael Cohn, chief investment strategist at Atlantis Asset Management, which owns Goldman Sachs shares. “The world isn’t going back to the way it was anytime soon.”
If Wall Street employees are the losers from these pay changes, there are some winners, as well. “It’s a good trend for the stocks and for investors,” said Mark Morgan, senior analyst at Thrivent Asset Management, which oversees more than $80 billion in assets. Less money for employees means more for shareholders. “It’s tougher to justify the expense if revenues aren’t there,” Morgan added.
Oppenheimer analyst Chris Kotowski called Goldman a “textbook example” of how banks can boost profitability even in a difficult business environment by cutting employee pay. “It is simply not an option for bank managements to earn non-competitive returns in the long run,” he said.
Goldman’s return on equity for the quarter — a measure of how well the bank turns shareholder funds into profit — was 16.5%, nearly triple its level in the same quarter a year earlier.
There are some sceptics who say it is too early to declare the arrival of a new era when it comes to Wall Street pay. After all, they point out, banks are only taking drastic steps after punishing investors with weak returns for the past few years.
Be the first to comment.