The US investment bank wants to pay its employees a third more for 2021 than a year ago.
(Photo: Bloomberg)
Is it all starting again now? The US investment bank Goldman Sachs wants to pay its employees a whopping 33 percent more for 2021. Other major investment banks are also becoming more expensive to hire, and headhunters are predicting that bonus payments will rise to their highest level since the financial crisis.
For some, this brings back uneasy memories of the years prior to 2008, when banker hubris became a threat to the global financial system. Is the new bonus record a warning sign that we are heading for a financial crisis 2.0?
The short answer to this question is no. Even in the boom years before the big bang, the problem was not the absolute size of the bonuses, but their structure. Long-term business, whose success or failure only became apparent years later, were rewarded in the short term. This tempted the bankers to take far too much risk.
The regulators have now eliminated these incentive problems. In addition, banks now have to set aside significantly more equity for riskier transactions, which further dampens risk appetite.
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The bonuses will still cause controversy. The sharp fall in the price of Goldman’s shares after the balance sheet was presented shows that shareholders are once again asking themselves what to think of a business model in which they, as the owners, have to bear the losses but receive a very significant proportion of the profits employees are claimed.
And another question arises: the next financial crisis will probably not come from the investment banks. But the fact that dealmakers barely know which customers to serve first right now raises suspicions that there’s a lot of nonsense going on with all the cheap money.
Some billion-dollar mergers, which bankers and CEOs praise as an ingenious strategic leap forward, will turn out to be expensive flops as soon as the situation on the markets gets rough again.
More: Bonuses soar faster than revenue – Wall Street celebrates the return of the rainmakers