Investment Bankery

You're working for the wrong company.

At least that's what you'll think after reading this article about the bonuses expected to be paid out by Goldman Sachs this year:

Typically, Goldman Sachs’s announcement of its third-quarter results kicks the bonus season into high gear. Long revered for being where the serious money gets made, the firm has had a blowout year even by its own standards. Announcing a record profit in the third quarter, Goldman also noted that it had set aside $9.25 billion, almost $420,000 per employee, in compensation. When fourth-quarter results are factored in, that total could swell to an $11 billion pool, or $500,000 per employee.

Naturally, money on Wall Street is not shared equally, not even close. Most Goldman employees will receive a good deal less than half a mil, while a few will make an ungodly amount more. It’s simply a matter of how much more. Is that guy on the commodities desk who bet right every time on the price of oil worth $20 million this year—or $25 million? Maybe it’s worth taking $5 million out of the pocket of that old-school investment banker who couldn’t close that simple snack-food takeover deal. Maybe it’s time he was sent a clear signal about the weight he’s been failing to pull.

It may seem like good times on Wall St. now, but the party is usually over once the fools start making ungodly amounts of money.  Your jealousy may turn into schadenfreude yet.

And in other I-banking related news, I had the pleasure of sitting next to an associate in the asset-backed fixed-income division at a major Wall St. firm this weekend.  I like when stuff like this happens.  Given that many of these companies are fairly closed box, when it comes to how they make their money, it's nice to talk to someone, and get a feel for their side of the business.  He told me two things I didn't know about the asset-backed market.  One is that his company, and I presume the others, when selling, say, a mortgage-backed security, offer insurance to the buyer on the assumed profits.  This means, that even though the bank may not hold the assets, if the assets start to underperform (due to bankruptcies, etc.), they still incur risk.

He also pointed out that we don't know the impact of the interest-only loans which have become so popular over the last few years.  They're structured so that the borrower's monthly payments take a large jump after 5 years, when they have to start paying down principal, but since the mortgages have only been issued for 2 or 3 years, we have yet to see what happens when these monthly payments jump.

Oh yeah, he also told me he works 6 days a week, and often until 2 AM...and he's been at the company 8 years.  Maybe you don't want to go to work on Wall St.  Maybe you already do.  Enjoy your bonuses.

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