Zero bonuses at Goldman

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This is pretty major stuff: Goldman recorded negative compensation in Q4 as zero bonuses are accruing for the quarter.

Reuters says:

The bank recorded negative compensation expense in the fourth quarter because of the contribution to Goldman Sachs Gives, the firm’s charitable arm.

The compensation total was far below the record $20.2 billion the firm paid in 2007, and well below what the firm was expected to pay this year as it reported blockbuster profits.

Goldman’s British staff is likely to bear the brunt of the bonus cut as the firm curbed payouts in light of Britain’s supertax on bonuses, an industry source said.

Wow! There is precedent for this. See No one gets a bonus at Commerzbank and no dividend either from last February.

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Goldman obviously knows it have a target on its backs and has moved to take action. When I tweeted on the news I said:

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If I were a conspiracy theorist I would say Goldman was tipped off about Obama’s regulatory moves and took action

One reply was:

If I was a realist I would say Goldman was tipped off about Obama’s regulatory moves and took action

Goldman aside, however you look at it, 2010 is a heck of a lot different than 2009 when it comes to bank shares. That’s why I am still bearish on bank stocks.

The low-hanging fruit (government bailouts, subsidized borrowing, low interest rates, huge spread margins, bonus payments for lending) has been picked.

Prepare for tough headwinds:

  1. A flattening yield curve
  2. FDIC pre-payments
  3. A withdrawal of subsidized borrowing
  4. Larger commercial mortgage losses

I expect the momentum born of upside earnings surprises to turn to the dread of earnings warnings.

Let’s add in regulatory reform and increased capital requirements to the mix. And, by the way, the market is off 2% as we speak. This is just the beginning.

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