Now look at this five-year chart of Goldman's stock. It closed on June 28, 2006, at $146.49, and today it trades at about $135. The stock is down 7.8 percent under his reign. Goldman's stock has paid a dividend of about $1.40 per share for the past several years. So, adjusted for dividends, according to Yahoo! Finance, the total return under Blankfein has been -3.5 percent. Investors would have... [more]
Now look at this five-year chart of Goldman's stock. It closed on June 28, 2006, at $146.49, and today it trades at about $135. The stock is down 7.8 percent under his reign. Goldman's stock has paid a dividend of about $1.40 per share for the past several years. So, adjusted for dividends, according to Yahoo! Finance, the total return under Blankfein has been -3.5 percent. Investors would have done much better leaving their money in a bank and collecting minuscule interest payments.
We'll concede that it has been a rough several years for the financial services industry and for the market as a whole. Here's a five-year chart comparing Goldman to the S&P 500 and to the KBW Bank Index. Over the past five years, Goldman has outperformed the sad sack bank index by a significant margin but has underperformed the S&P 500.
So imagine a bunch of senior Goldman executives hired an expensive portfolio manager and tasked him with creating positive returns. Next, imagine that the manager came back year after year and informed the executives that the best he could do was flat returns — but that he nonetheless deserved a multimillion-dollar payday. They'd laugh.
And yet while Goldman's returns have been subpar, CEO Lloyd Blankfein is getting paid like he's crushing the market. As the Financial Times reported this week, Blankfein "was paid $14m in 2010.
This highlights the real problem with Goldman Sachs. Like other investment banks, it isn't run for the benefit of its clients, or for the benefit of public shareholders, despite what its business principles say (#3: "Our goal is to provide superior returns to our shareholders.") No, Goldman and other publicly traded Wall Street firms are really ingenious machines for spinning revenues into compensation for insiders
This is really nothing new. In 1940 Fred Schwed, Jr., published the classic book on how brokers prosper while investors suffer. It was entitled Where Are the Customers' Yachts? Goldman Sachs stockholders might rightly ask Where Are the Shareholders' Yachts?
http://finance.yahoo.com/news/The-Real-Scandal-Goldman-dg-2903663016.html;_ylt=AhSHxFJyYBp2VMhsfM_am5y7YWsA;_ylu=X3oDMTE2MWVhOTJlBHBvcwMxMgRzZWMDdG9wU3RvcmllcwRzbGsDdGhlcmVhbHNjYW5k?x=0&sec=topStories&pos=9&asset=&ccode=[less]
having most of their compensation tied to stock bonuses, how much of the employees vested bonuses are worthless with this stock performance?
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Response by nyc_sport
almost 15 years ago
Posts: 816
Member since: Jan 2009
This is a truly dumb comparative analysis. Markets don't price stocks based on current performance, but on future outlook. Increasing regulation, and increasing scrutiny, means bank stocks will never, or at least not in any near term, earn returns remotely similar to what was earned in 2006 (or 2007, when the stock traded at 250). This is like comparing the performance from 5 years ago of a company that divested a core product line in the interim. Maybe you can argue management is at fault for bringing on the regulation or losing a core money making business line, but that says nothing about whether management is running what is left of the business well (or better or worse than its peers).
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Response by AvUWS
almost 15 years ago
Posts: 839
Member since: Mar 2008
I think part of the OP's point was that GS's investors as well as those in many other financial institutions, have not done well, and that jibes with your point that they aren't because in the future the banks won't do well. But the other part was that despite the shareholders performing poorly, the bankers themselves seem to be doing QUITE well.
http://www.ritholtz.com/blog/2011/06/classic-goldman-sachs-alchemy/
having most of their compensation tied to stock bonuses, how much of the employees vested bonuses are worthless with this stock performance?
This is a truly dumb comparative analysis. Markets don't price stocks based on current performance, but on future outlook. Increasing regulation, and increasing scrutiny, means bank stocks will never, or at least not in any near term, earn returns remotely similar to what was earned in 2006 (or 2007, when the stock traded at 250). This is like comparing the performance from 5 years ago of a company that divested a core product line in the interim. Maybe you can argue management is at fault for bringing on the regulation or losing a core money making business line, but that says nothing about whether management is running what is left of the business well (or better or worse than its peers).
I think part of the OP's point was that GS's investors as well as those in many other financial institutions, have not done well, and that jibes with your point that they aren't because in the future the banks won't do well. But the other part was that despite the shareholders performing poorly, the bankers themselves seem to be doing QUITE well.