Goldman, Morgan Stanley Bring Down Curtain on an Era

Free toasters!

Steve - not so sure I agree. Now Goldman and Morgan Stanley have the Fed permanently behind them (as opposed to the "temporary" Primary Dealer Credit Facility), and have a standby buyer for their most toxic assets (the taxpayers). What makes you think this will hurt bonuses? Their capital structures have been noticeably shored up overnight.

It's not as if regulation had kept bonuses down at Citi, JPM, BofA, etc.

The bigger question is whether or not there will be riots in the streets when these bankers receive million-dollar bonuses this year on the heels of the bailout.

Remember free toasters?! Ah, the good old days!

faustus: "The change is also likely to lead to less risk-taking by the companies and possibly lower pay for their employees. Both Goldman and Morgan Stanley held more than $20 of assets for every $1 of shareholder equity, making them dependent on market funding to operate.

Goldman, in particular, has been remarkable for the high bonuses it pays to its employees. Goldman's CEO and two co- presidents were each paid more than $67 million last year.

``They're going to have to protect their deposit bases by law, and the days of high leverage are gone,'' said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, who wrote ``Wall Street: A History.'' ``The days of the big bonuses are gone.''

http://www.bloomberg.com/apps/news?pid=20601087&sid=aSfyFs2LTxYs&refer=home

The big bonuses weren't paid at Citi, JPM, BofA - they were paid at the investment banks, whose bonus money even went to secretaries. Commercial bank bonuses did go to star performers, but nothing along the lines of the investment banks.

Hedge funds are next.

Risk management is being forced upon the industry.

This is a good thing - too bad it cost me money because I didn't happen a week ago.

Steve - I hope the article is right, but I have my doubts. To correct you, the big bonuses were indeed paid at Citi, JPM, BofA - in their investment banking operations. I know many people at each of those banks (again, investment bankers) who were paid multi-$M bonuses over the years. It doesn't matter if they are "bank holding companies", Citi, BofA and JPM have paid competitive bonuses (in many cases higher than other I banks). Investment banking is investment banking, and they all get paid about the same otherwise they go across the street. Now, bonuses may go down across the board during this downturn, but it's because of the downturn, not because GS and MS are now banks.

"I know many people at each of those banks (again, investment bankers) who were paid multi-$M bonuses over the years."

I know people, too, and the bonuses were not generous to anybody but the star players. Secretaries didn't make $1 million like they did at Goldman, whose average employee made like $275k, including the mail room staff.

"It doesn't matter if they are "bank holding companies"

It does indeed, because investment banks are regulated by the SEC, not the Fed, the Comptroller, and the states, Basel capital requirements, etc.

"Citi, BofA and JPM have paid competitive bonuses (in many cases higher than other I banks)."

No one paid more than Goldman. They were competitive with each other, but nothing like the 5 major investment banks.

"Investment banking is investment banking, and they all get paid about the same otherwise they go across the street."

That assumes that there was an infinite demand for these people at every firm. That's not true.

"Now, bonuses may go down across the board during this downturn, but it's because of the downturn, not because GS and MS are now banks."

Wrong. You know nothing about banks or banking. I've worked at these firms and audited them. As soon as you get your funding from federally-insured deposits, it's an entirely new ballgame.

I know people, too, and the bonuses were not generous to anybody but the star players. Secretaries didn't make $1 million like they did at Goldman, whose average employee made like $275k, including the mail room staff.

C'mon Steve, you are using averages the same way brokers do to justify their claims the last two quarter to show a rising market. If Goldman had two employees, a CEO and a guy in the mailroom, and one makes $67 million and one makes 67K their average salary is $33.5 million.

kgg - do your due diligence before posting, see who made what bonuses where. You will find that at the investment banks, lavish bonuses were paid from bottom to top; that was not the case at commercial banks.

"it also puts Goldman and Morgan under the Fed's supervision, increasing the agency's regulatory oversight and possibly forcing them to raise additional capital. As banks, Morgan and Goldman will be forced to take less risk, which will mean fewer profits."

http://money.cnn.com/2008/09/21/news/companies/goldman_morgan/index.htm

Honestly, after this week I can't believe that there are still real-estate bulls who see no effect on the Manhattan real estate market.

Why should my tax dollars go to bailing out these lazy out of work wall street types? I am sick of my tax dollars going to lazy out work people who just have their hand out for the government to take care of them.

They should just go out and get a job at McDonalds instead of sitting on their asses getting paid for not working by my tax dollars.

steve - you can see my longer comment on "you are an idiot", but if you think investment bankers at citi, bofa and jp morgan didn't make comparable money to peers at goldman and morgan, you are sorely mistaken.

stop posting about items which you know nothing about, unless you enjoy further undermining your credibility

"if you think investment bankers at citi, bofa and jp morgan didn't make comparable money to peers at goldman and morgan, you are sorely mistaken."

evillager - I know you were in the elevator with Bernie Ebbers once, but read what I wrote. I didn't say the stars, did I?

steve, first of all, I agree with you. Everything is different and prices are going down. I'm just pointing out that your implication that mail room guys at Goldman made an average of 275k is bogus.
You are misusing statistics to serve your purposes which invites attack.

"I know many people at each of those banks (again, investment bankers) who were paid multi-$M bonuses over the years."

Agreed.

"I know people, too, and the bonuses were not generous to anybody but the star players. Secretaries didn't make $1 million like they did at Goldman, whose average employee made like $275k, including the mail room staff."

Well I guess it depends on generous and star. My buddy is certainly no star and he made enough to afford an 8 mil apt working at one of these real banks.

"No one paid more than Goldman. They were competitive with each other, but nothing like the 5 major investment banks."

That may be right about Goldman and I certainly agree that comp on wall st is going down significantly but you're talking like all these people are going to be paupers. There were plenty of people at Citi, Chase, etc making a ton of money, if they weren't they would have walked across the street.

stevejhx "Honestly, after this week I can't believe that there are still real-estate bulls who see no effect on the Manhattan real estate market"

Seriously, it blows my mind. Now understand brokers, but the average person looking to buy. I don't see how people could be so nieve.

I have never written anything about bernie ebbers, you have me confused with someone else.

But it's not just "stars"...unless you count every MD and/or group head with a roster of clients who generate business as a star.

At the MD level, you eat what you kill, whether your investment bank is owned by a commercial bank or not. As lower levels (analyst/associate/VP), it's more based on the market. Comp will be way, way down, but they still need to pay people relatively well, since otherwise they won't be able to fill the positions (these jobs are really quite terrible)

"Honestly, after this week I can't believe that there are still real-estate bulls who see no effect on the Manhattan real estate market"

I meant to comment on that too. Are there a significant number of these people, or do you guys just like to pretend there are so you can continue to make your very witty sarcastic posts? And btw, do you guys really think those are amusing, or even the tiniest bit clever.

ccdevi- There you go again, careful little grasshopper, I can see that vain in your forhead again. Lighten up, why not take a stab and give your analysis on why we will not see a major NYC correction. It may help with anger. Really, why so much anger? Did you buy recently? Are you a Broker? Try to make me understand. Well at least I'm trying.

Sure, there is bipartisan support for the Bush administration's $700 billion bailout of financial firms plan... but the two parties are, as the Wall Street Journal reports, "scrambling to put their marks" on it:

"Democrats are looking to add provisions that include beefed-up congressional oversight, aid for individual homeowners and changes to bankruptcy laws...Perhaps the biggest looming fight is over Democratic efforts to require the program's participants to curb what they pay their executives."

So the bail out will most likely include limitations to what Wall Street firms can pay their execs. Basically Wall Street bankers will become something like CPAs. Limited in what you can do and limited in what you can earn.

I dont feel bad for them at all. Wall Street has been a parasite to the individuals and companies who actually create wealth. Wall Street banks basically put together transactions. They were pilfering so much from the transactions (and creating false wealth) that they were able to all make millions.

The actual amounts these banks should make is a total of a few percentage points. The new Wall Street model needs to become and will become more like eBay - taking a dollar or a few points per deal.

oh dco, you're such a tool, same old game. show me the post in this thread where I seem angry.

"Lighten up, why not take a stab and give your analysis on why we will not see a major NYC correction"

I've always maintained, well at least for the last 8-12 months, that NY re was heading downward. And given my post above asking whether there really are any bulls, why ask for this question? can you not read? As for how much the downturn will be, I don't know, to me any guess would be just that a guess, who could really know.

Everyone is "nuts"...there is still tons of money out there and prices are not going to fall. I've heard all the noise from stevejhx and others and nothing changes, I'm wrong...prices keep going up.

"Wrong. You know nothing about banks or banking. I've worked at these firms and audited them."

Umm, are you really this pompous? This is clearly a major shift in the banking world, but smart people who can adapt will still find ways to make a lot of money. Financial crises don't happen every year, but they have happened before.

Julia, I understand what you're saying but these price increases are generally just on paper, nobody is actually paying these prices. Asking prices will start to fall significantly when people are under economic or other pressure and need to sell. That will happen but it takes time.

"smart people who can adapt will still find ways to make a lot of money."

Who said that's not true? But you can only work within the rules, and the rules, they are a changing.

"Job Losses

London's financial-services industry is expected to lose 42,000 jobs, or about 10 percent of the total, in the next year, according to the City of London Corp., the municipality for the U.K. capital's main financial district.

The New York metropolitan area is forecast to lose 64,000 positions, or 13.5 percent, by the second quarter of 2010, according to West Chester, Pennsylvania-based Moody's Economy.com.

Last week's bankruptcy filing by New York-based Lehman Brothers, once the fourth-largest U.S. investment bank, and Charlotte, North Carolina-based Bank of America Corp.'s buyout of Merrill Lynch & Co., prompted Economy.com to increase the forecast for job losses in the New York area by 6.6 percent.

Pay packages for employees who keep their jobs may fall as much as 50 percent, said Gavin Rankin, a managing director in London for Smart Cube, a financial services research firm."

http://www.bloomberg.com/apps/news?pid=20601109&sid=akd8fnbNZUao&refer=home

hey BJW - do you agree with McCain's plan to "deregulate the healthcare industry as we have done over the last decade in banking?"

It sounds like a brilliant plan!

I'm in a different financial situation....that's where I'm wrong. You're talking about $2m apartments falling and perhaps you're right...I'm talking about one bedroom apartments coming down to $450 and I don't see that at all...in fact I gave up and rented.

steve, if the Treasury Department is handed $700,000,000,000.00 they're going to need to increase staff. Thousands of ex-Wall Streeters and new hires move to D.C. This is a huge amount of money. Every financial institution would have to deal with the Treasury to try to get their piece of the pie (i.e. sell their bad mortgage debt for more than it's worth). To get the money you need to be close to the money. The money is all going to D.C. along with the jobs and the new construction. In a few years D.C. metro will be the new condo capital of America. If this bill is passed. Mark my words. Mark me.

80sman - you dont think that there is a possibilty that DC moves to Wall Street?

"This is clearly a major shift in the banking world, but smart people who can adapt will still find ways to make a lot of money."

Which likely means not in banking...

petrfitz, read the proposed bill. Paulson and Bernake wan to create the Pentagon of Finance. With unlimited power and no oversight or accountability. He can spend the $700B to buy anything he wants for as much as he wants and not tell anybody why. And he can keep doing this for as long as he wants. Wall Street was a competitive market. Multiple banks fighting for the same business. The Department of the Treasury has no competition. The bill says $700B...AT ANY ONE TIME...which means $700B bought and sold and bought and sold....

http://www.nytimes.com/2008/09/21/business/21draftcnd.html?_r=1&ref=business&oref=slogin

-----Highlights below------

Sec. 2. Purchases of Mortgage-Related Assets.
(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.
(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

Sec. 6. Maximum Amount of Authorized Purchases.
The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

yeah but why would he center this whole thing in DC? Why not create the department but house it in NY right by Wall Street. Just because it becomes fed govt entity doesnt mean it has to be in DC.

I would think that they need to be near Wall Street to be able to watch and make sure that the kids play properly.

Also Paulson wont get the unfettered oversight he is asking for. He will have to turn it over to an independent commission or panel. Congress will not write the blank check and allow Paulsen free reign.

This is going to end, in the creation of the most corruptible agency ,in the history of this world. I could see it now. Politicians appointing, their high school drop family members, to positions within this agency. It's going to be a disaster before it even starts.

"Which likely means not in banking..."

Likely. But people will continue to make money in finance. I don't subscribe to what Steve said in another thread here ("Dead - forever.") Some of us are getting a bit carried away here.

"hey BJW - do you agree with McCain's plan to "deregulate the healthcare industry as we have done over the last decade in banking?"

It sounds like a brilliant plan!"

Hey petrfitz, what's your angle here? I've never been on board with McCain's healthcare plan - I just never cared for your mischaracterizations of it. If you're really curious about credible critiques of the healthcare proposals, check out the web exclusives at Health Affairs this month - a former professor of mine critiques McCain, and a guy from AEI critiques Obama. Good stuff, and much better than most of what you'll find in the media.

petrfitz, Paulson is about to become the second most powerful man in America. He's going to be in charge of the largest pool of money ever assembled in the history of America. He's going to create a 4th branch of government. He's not moving to NYC. NYC is where things ended. D.C. is where they restart.

dco, this is going to be about as corrupt as the later Roman empire. Put your plundering boots on!

80sMan - i dont think that in an Election year the congress is going to give him control over the whole shebang. Also keep in mind that Paulsen is probably out of a job in a few months. McCain wont keep him if by some disaster he wins, and Obama will quickly show him the door.

Obama is already huddling with Buffet about the situation and Warren wants Bloomberg to run the show. Either way you can beat that no one will be made king, and Paulsen's time is short.

...in terms of being regulated by the Fed, MS and GS are in compliance with all of the capital requirements associated with being a bank holding company. In fact, they are more compliant than most commercial banks.

Also, to whoever claimed that "no one paid more than Goldman. [The commercial banks] were competitive with each other, but nothing like the 5 major investment banks." That is simply not true. Morgan Stanley and Goldman Sachs have generally paid at best in-line with the commericial banks who have investment banking businesses. I worked at MS for many years, and anyone will tell you that we always paid roughly what Goldman did, and always less than what the commercial banks did.

It doesn't matter petrfitz, the show will be run from D.C. Morgan and Goldman already know this and have positioned themselves as commercial banks with ties to the Fed rather than separate elite "investment banks".

Its all meaningless. You're talking about bonuses when times were GOOD.

They are not now. There is less money in everything, including M&A and the old standbys.

Add in that the government will now be on Wall Street's ass for at least a decade.

EVERYONE will be making less... or nothing at all.

Putting Paulsen in charge of the assets would be like hiring a Bank Robber as a Security Guard and only letting him have the keys to the Vault:

Reuters reports today that "The incoming Treasury secretary, Henry M. Paulson Jr., was awarded an $18.7 million cash bonus for half a year of work as the chief executive of the Goldman Sachs Group." The massive bonus was, not surprisingly, approved by Goldman Sachs at the very same time Paulson was both CEO and Treasury Secretary designate."

Paulsen is done. He is too dirty in this to get the keys.

Mitsubishi?

petrfitz, how much money did GS make that year? what was the return on their stock? I don't know the answer to these questions but they seem relevant don't ya think?

ccdevi - i think the real questions that should be asked is not how much did GS make that year, it should be HOW did GS make thier money that year and previous years. Paulsen was the man at the wheel when GS made all this funny money.

dont you think that sounds relevant?

is there something fundamentally wrong with GS's balance sheet? GS made 2 bil last quarter, was that funny money too? whats funny money btw?

Wasn't Goldman one of the few (only?) firms to realize that the mortgage stuff was going to hell and to bail in it before last summer's crisis?

so ccdevi - you are saying that GS did not partake in these subprime debacle? They were party to all the shenanigans that got us into this credit crisis? That Paulsen saw this stuff happening and told GS not to act?

If that was the case, why didnt he stop it at all firms when he become Sec of Treasury?

You got your head in the sand.

"So - it's over. The end of obscene bonuses. All the major investment banks are now regulated like commercial banks, with federally-insured deposits as their funding source, and specific capital requirements eliminating leverage."

Oh? You think this is the end of M&A? The end of private banking (high wealth individuals)? The end of road shows to raise capital? I doubt it. You seem to be focused on the legendary Wall Street bonuses to the exclusion of everything else. Laws will be passed to restrain Wall Street bonuses, eh? Dream on.

lowery - it wont be the end of M&A, nor the end of road shows to raise capital. It will be the end of Wall Streeters making money off of transactions. It will be the end of ridiculous bonuses. It will be the end of "Masters of the Universe"

Wall street will become likeeBay or Paypal - they will get just a small fraction of each transaction they process.

Wall Street bankers will earn salaries and bonuses similar to accountants.

they always have and always will. small fraction of multi billion dollar deals = several million. the problem is when they used their balance sheets to act like big hedge funds.

you guys are dreaming to think that this is the end of high bonuses - you're also missing the obvious - in a few years subsidiaries of the supposed "bank holding companies" will spin off in order to be able to follow different sets of rules - business as usual - all these companies reorganize and restructure ad infinitum - pay will be down, down, down for the next two or three years and there will be lots of layoffs - you're trying to read the End Of Mankind As We Know It where there is nothing more than another wrinkle in time

What's good for Mitsubishi is good for America.

lowery you are dreaming if you think Wall Streeters are going to make anywhere the amounts of money they have recently.

It will be abpout 10 years before salaries reach out the middle class if ever.

> lowery you are dreaming if you think Wall Streeters are going to make anywhere the amounts of money
> they have recently.

Finally, Pete gets something right. Of course, it completely destroys his "now is the time to get into NYC RE" claim.

Crain's did a piece on how bonuses will be affected by the commercial bank rules.. I posted it on another thread.

http://www.streeteasy.com/nyc/talk/discussion/5193-why-bonuses-will-drop-further-with-banking-changes

Steve - did you write that the people in the mailroom at GS earn $275k? Do you really think that? Look, you are obviously a bright guy, but that statement is ridiculous. I know you were a bank auditor at PWC years ago, but I know the auditor at these firms right now, so let's dial the exaggerations back just a bit, okay?

Business will change in these firms, but they will a) find a way to make money, b) have some regulations that will change to help them, like an overhaul on Basel II and c) the market is terrible right now, but will get better.

These firms also do pay competetively as far as I-Banking goes. Choose to not believe this, but you are wrong.

80sMan - please stop with the whole "the financial services industry in moving to DC" garbage. It is not true and you saying it in every post will not make it true. For those unaware, 80sMan has said that this who moving to DC idea is his "thing" on Streeteasy. He wants people to recognize him for it and think of him as "enlightened". He wasnts to be seen as "the one" who called this before anyone else.

We hear you. You are incorrect. No need to keep putting it in every post. It just dilutes any good points that you raise.

Steve wrote that the average of $275K was calculated using inputs that include mailroom staff; kgg wrote that mailroom staff earn $67K

Oh, and in case you are wondering, although it may appear that I type with my feet, I do not. Sorry for the typos. Gotta laugh at yourself....

guys, been here, done this, seen this
and part of what's been done, seen, heard is
"This is the end of Wall Street and New York City.
Things will NEVER get back to where they were."

Let's relax and drink a nice calming cup of tea
and stop pressing the panic button.

But no, don't buy Manhattan real estate in the
next two years, and yes, look to see LOTS of
unemployed ex-financiers and white-show lawyers.

Anyone remember the term "Downwardly Mobile Professional?"
Shortened to "DUMPY"?

Of course not.... you think this is the first time
ever. But at the same time -- it's THE WORST SINCE
THE GREAT DEPRESSION! And Wall Street survived
the Great Depression and incomes increased by leaps
and bounds many times since then, though not after
a long period of retrenchment.

oops - though not until AFTER a long period of
retrenchment - and petrfitz, I get loud and
clear that you think 10 years is an eternity
and that you are not hearing a word I've said,
which is that 10 years is just a little blip
on the radar screen

ccdevi, "funny money" is created by assets on your balance sheet for which you set the price. This is also called marking your own book. So if Goldman says its mortgage bond portfolio is worth 3BB and last quarter the same portfolio was worth only 2BB then they made 1BB! It's up to the independent auditors to verify the increased value. You can't look up the price of these types of holdings online or in a paper or on an exchange. The problem with Goldman and Morgan is that it doesn't matter what they think the assets are worth, the Federal Reserve only values them at less than $0.50 on the dollar so both these banks would have to raise capital to meet their reserve requirements and get funding for the next business day. So rather than writedown any more they decide to turn into commercial banks, have access to the Fed special reserve window and get an extended period of time to clean up their balance sheets while they switch to bank holding companies.

All this talk...blah, blah, blah...who made this, that, whatever. Of course Wall Street will come back.
Of course NYC will have another boom. But as Lowery says "a long period of retrenchment" is due.
We will look back at this period in time as he "roaring aughts" or "awesome aughts" or "naughty aughties" because it has been good times for a long time.

And by the way, my 67k mail room estimate was completely fabricated for the sake of argument.
I imagine that is what the boss of the mail room makes. My point was a 275k average is radically skewed by the top earners. If there is 101 people in a company and 100 make 67k and one makes 67,000,000 the average salary is $730,000. Not bad huh. Shit, I'll work there! Except that 99% of the company can't afford to buy a home in Manhattan not mention most of the boroughs. There are a lot of non-stars working at or working for vendors or tangential businesses to these firms.

well put, kgg. And, when there is a boom, if it comes after a decline and years of stagnation, you are still talking about major real losses when leverage and interest payments are factored in. I've long thought that the worst damage isn't done by quick declines, it is long term returns under inflation. That goes completely counter to the way most people think and act - they'd rather "ride out" a decline than admit a loss - but it doesn't make it any less true.