Reportedly, Goldman Sachs (NYSE: GS) staff will be receiving the largest bonus payouts in the company's 150-year history, thanks to a solid first half of 2009. This news has kicked off a bit of concern that large investment banks that survived the credit crunch would hamper any attempts at financial regulation reforms. The main reason that Goldman Sachs was able to perform well in the quarter was a general lack of competition and a surge in revenue thanks to the company's trading of foreign currency, bonds, and fixed-income products.
A week ago, the London staff of Goldman Sachs was told that they could expect larger bonuses -- as long as the company's predictions for its most profitable year ever come to fruition. Next month's second-quarter earnings report are expected to show a jump in profits. An example of how strong the quarter was, Warren Buffet spent $5 billion to purchase GS shares in January -- and the Oracle of Omaha has made $1 billion on this investment.
In April, Goldman Sachs announced that it would set aside half of its sizable first-quarter profit to reward its staff, many of these payments will come in the form of bonuses. That said, the plan is not without its critics, who believe that the firm's dominance based on risk taking could work against regulators who hope to stabilize the financial system. That said, I don't have too much of a problem with this. In fact, Goldman Sachs should reward the employees for turning in a good quarter.
As far as the rest of the financial system is concerned, perhaps they could learn a lesson from the way Goldman Sachs conducted its business. Watch for this report to generate a bit of outrage, but I think it could generate a good example of how to run a business during tough times.
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