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Goldman's Partner Departures In a Year of Shrinking Comp Are Actually a Sign of Loyalty

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You can't possibly care about GS earnings can you? "Beat Diminished Expectations" is an elegant summary. FICC looks anemic relative to JPM and C but as Glenn Schorr of Nomura pointed out on the call some of what those guys call FICC Goldman calls "Investing & Lending" and an important principle of selling financial services generally is that non-comparability helps you so good work Viniar!

Good work Viniar generally; my favorite bit was when Schorr asked about all the recent partner departures and Viniar said basically that they were making up for lost time what with all the partner non-departures over the last four years, when it was a "tough economic environment, a tough reputational environment," and partners - well they were so "completely loyal" that they just couldn't leave GS in the lurch at trying times like those. This tickled me because, boy, don't you wish you were a Goldman partner? In my line of work, when nobody was hiring and if they were hiring they weren't hiring Goldman alums because Goldman was a vampire squid sucking the stuffing out of muppets, staying at Goldman until conditions improved was just simple pragmatism and nothing to be proud of: if you can't get a job elsewhere, and you need a job, it stands to reason that you keep the job you've got. But once you're making ten bucks a year the same behavior is the height of loyalty: since you don't need a job anywhere, you show that you're unbowed by the bad job environment and Goldman's tarnished reputation by continuing to draw your partner paychecks. That seems right actually, and I promise you that I will grow many delightful moral qualities if you pay me $10 million a year.

Anyway, in possibly related news Goldman comp accruals were down 8.6% per capita and 16% per stirpes*; on a one-quarter lag Lloyd comp was down 35% so perhaps there are some relative disadvantages to the partnership. Annualized ROE was down from 14.5% to 12.5%, and while the dividend increased the buyback seems somewhat adrift so it seems that shareholders are sharing the employees' pain as well they ought to, unlike those ingrates at Citi who just symbolically voted down Vikram's comp.

All in all, though, kind of a boring call. Meredith Whitney tried to liven things up by asking something like "sing to me of how you think about risk," which Viniar properly said "well that is pretty broad" and then gave a very practiced two-part answer. First he said that the main driver of GS's risk appetite is client flow: as clients want more risk, the firm gets riskier. (Good, Volckery answer!) But his secondary driver of risk appetite was the line traders' view of their ability to analyze the situation; and he pointed out that political risk, which dominated recent quarters, is particularly hard to analyze and makes them cautious.** If you listen to the rest of the questions though: outside of one question from Susquehanna about the sensitivity of the M&A market to economic fundamentals that thrilled Viniar ("that is a really, really good question"), everything was basically how will Basel III and related capital rulemaking affect you, how will the Volcker Rule affect you, how will Fed stress test math affect capital return, and how will a wave of potential, potentially innumerate Moody's downgrades affect the industry? It seems like it will be a long time before GS can stop managing regulatory and quasi-regulatory risk and get back to managing market risk. And since by Viniar's own admission the politico-regulatory stuff is not what they're good at, it's no wonder that they're getting paid less for doing it.

* Yeah yeah. The point is total accrual was $4.4bn vs. $5.23bn in Q1 '11, whereas comp per employee is $135k vs. $148k and also headcount is down 8.5%.

** Which risks, you might ask, are easy to analyze and make GS bold?