1/16/2014 12:40 PM
On the Call: Goldman Sachs CFO on compliance, pay
By The Associated Press
The sluggish environment for trading in bonds and other securities last year brought a 21 percent drop in Goldman Sachs' fourth-quarter profit. The company has been reducing costs to help offset the decline.
Goldman's biggest expense, compensation, fell 3 percent last year to $12.6 billion, the lowest level since 2009 at the height of the financial crisis. Goldman is renowned for its copious bonuses paid to hard-charging bankers and traders.
The cost of complying with new banking regulations is another big expense.
On a conference call with Goldman's Chief Financial Officer Harvey Schwartz, financial analysts tried to pin down how much compliance will cost the company this year.
Goldman set aside $962 million for legal and regulatory expenses in 2013, more than double the 2012 amount of $448 million. The analysts also asked about compensation and Goldman's method for setting it.
QUESTIONS: How much will compliance cost? And specifically what will be the impact of the new so-called Volcker Rule? The federal rule bars banks from trading for their own profit, also known as proprietary trading, with an eye to reducing risk-taking on Wall Street. On compensation, is Goldman considering changing its formula for setting it?
ANSWERS: (Harvey Schwartz, Goldman's CFO): "The compliance burden is pretty intense." Schwartz noted that the company has already started to shut down its proprietary trading operations and also intends to reduce its investments in hedge funds, another requirement of the Volcker Rule. As for putting a number on the cost: "It's just too early to quantify."
On compensation: "Absolutely no change to how we're thinking about compensation. ... Compensation will be driven by performance" this year.
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