Goldman Sachs has reported its second quarter earnings and they are 'disappointing'.
They are especially disappointing when juxtaposed with the results of JPMorgan.
In the first half of 2011, revenues at JPMorgan's investment bank rose 6% and profits rose 15%. At Goldman Sachs, revenues fell 11% and profits fell 48%.
Particularly depressingly for Goldman Sachs, its profit per employee in the first half was $55k. At JPMorgan's investment bank, it was $160k.
Some may say we're not comparing like with like - after all JPMorgan's investment bank is just an investment bank and Goldman's figures include its asset management arm.
This is true, but such excuses haven't been necessary in the past. And in any case, Goldman Sachs is still paying its average employee more than JPMorgan pays its average investment banker: in the first half, compensation per head at Goldman Sachs was $238k, versus $211k at JPMorgan's investment bank.
In the same vein, in the first half of this year, Goldman paid 44% of its revenues to its comparatively unsuccessful employees. JPMorgan paid 38% of its investment banking revenues to its comparatively successful investment bankers.
Such differences have been noted. Goldman's shares are now at their lowest level since August 2009 whereas JPMorgan's shares rose the most in eight months when it reported its results last week.
So what can Goldman Sachs do to be more like JPMorgan?
If it wants to make a start and achieve a JPMorgan-esque compensation ratio, there are two clear alternatives:
1) Get rid of 4,800 people
In order to bring its compensation ratio down on a par with JPMorgan's, Goldman would have needed to save around $1.2bn in compensation costs. If it's paying an average of $238k a head, this implies 4,800 people need to go.
2) Cut compensation by 14%
Alternatively, to achieve a 38% compensation ratio, Goldman could have trimmed compensation per head to $205k for the first quarter. This would leave it paying less than JPMorgan for the first time in recent history. But then looking at the two banks' results, this seems entirely appropriate.