Goldman Sachs Bonuses May Get Boost as Obama Plan Hammers Stock

President Barack Obama's call to curb bank risk-taking and crack down on "obscene" Wall Street bonuses may help boost those very payouts at Goldman Sachs

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By Michael J. Moore

(Bloomberg) — President Barack Obama's call last week to curb bank risk-taking and crack down on "obscene" Wall Street bonuses may help boost those very payouts at Goldman Sachs Group Inc.

Goldman Sachs, like many banks, is awarding more of its bonuses in stock to tie them more closely to performance. The firm priced those shares at $154.12, the closing level on Jan. 22, a person familiar with the matter said, after a two-day, 8.1 percent slide prompted by Obama's plan.

The biggest two-day drop since March means employees will receive more shares than they would have earlier in the week, and have a greater opportunity to profit should the stock gain. The firm said last month that its top 30 executives will get bonuses entirely in stock that they can't sell for five years. Goldman Sachs rose 1.9 percent to $156.99 at 12:19 p.m.

"The unintended consequences of some of this craziness coming out of Washington are breathtaking," said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. "In the process of trying to score political points, they have taken the target, in this case the so-called fat-cat bankers, and provided them with a reward."

Morgan Stanley priced its stock awards on Jan. 21, the day Obama announced his plan, the firm said in a regulatory filing. Morgan Stanley shares tumbled 4.2 percent that day and 5.3 percent on Jan. 22. JPMorgan Chase & Co. priced stock for most employees on Jan. 20, a person familiar with the matter said. Its shares tumbled 9.8 percent during the next two days.

Obama's proposals would curb proprietary trading and prohibit banks from investing in hedge funds and private companies.

$16.2 Billion for Pay

"My resolve is only strengthened when I see a return to old practices in some of the very firms fighting reform; when I see soaring profits and obscene bonuses at some of the very firms claiming that they can't lend more to small businesses, they can't keep credit-card rates low, they can't pay a fee to refund taxpayers for the bailout without passing on the cost to shareholders or customers," Obama said on Jan. 21.

Goldman Sachs, based in New York, subtracted $519 million from its compensation pool in the fourth quarter and made $500 million in charitable donations. That brought full-year pay costs to $16.2 billion, or 36 percent of revenue, the smallest portion since the firm went public in 1999.

Chief Financial Officer David Viniar said last week that the firm tried to "balance the needs of the public versus being fair to our people" on compensation, and he doesn't expect many employees to leave in protest about the pay cuts.

— With assistance from Christine Harper and Elizabeth Hester in New York.

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net.