Goldman eager to shed wage shackles

Goldman Sachs, buoyed by profit that exceeded the most optimistic Wall St estimates and a 54 per cent jump in its stock price, plans to raise US$5 billion ($8.4 billion) to repay federal rescue funds and shed Government limits on executive pay.

Chief executive Lloyd Blankfein, eager to redeem the US$10 billion his New York bank received in October, announced the fundraising plan yesterday as the company reported a US$1.81 billion profit in the first quarter.

The bank earned US$3.39 a share, more than double the US$1.64 average of 16 analysts surveyed by Bloomberg News.

Goldman Sachs was the most profitable Wall St firm before converting to a bank last year and posting its first quarterly loss since going public in 1999.

The bank also said it lost US$780 million, or US$2.15 a share, in the month of December, before the start of its new fiscal year.

The bank said it would use proceeds from the common stock offering plus "additional resources" to pay back the funds it got from the Troubled Asset Relief Programme (Tarp).

US regulators are unlikely to object to the repayment.

The Government favours letting banks return money if they fare well on stress tests completed by the end of this month and can get private capital.

The firm's business model depends on its ability to attract top traders and bankers with promises of lucrative bonuses, a model under attack by politicians incensed at multimillion-dollar payouts in an industry blamed for causing the economic crisis.

The Government imposed limits on executive compensation at banks such as Goldman Sachs that accepted more than US$500 million in Tarp funds.

Before last year, Goldman Sachs set two consecutive Wall St pay records. Even last year, 953 employees made more than US$1 million.

This year, the bank set aside US$4.71 billion for compensation and benefits, 18 per cent more than during the first quarter a year earlier. The expense totalled 50 per cent of revenue, up from 48 per cent in last year's first quarter, even as the workforce shrank 12 per cent to 27,989.

If Goldman Sachs returns the Tarp money, it may pressure other banks to follow suit or risk appearing dependent on the Government, according to Brad Hintz, an analyst at Sanford C. Bernstein in New York who rates Goldman Sachs "market perform".

The better-than-expected earnings would also make it difficult for competitors scheduled to report their own results this week or next week, said Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisers.

"This makes life much more difficult for everyone else out there. To merely beat your numbers now will be viewed as, 'What's wrong?"'

Goldman Sachs Results Book value per share rose to US$98.82 at the end of March compared with US$98.68 in November, and return on equity, a gauge of how effectively the firm invests earnings, was 14.3 per cent in the first quarter, Goldman Sachs said.

First-quarter revenue was US$9.43 billion. The highlight was Goldman's fixed-income, currencies and commodities business, known as FICC, in which trading revenue was a record US$6.56 billion, 34 per cent up on its previous high.

Goldman Sachs benefited as the gap between what banks pay to buy fixed-income securities and the price at which they sell, the so-called bid-ask spread, almost doubled to 19 basis points in six months.

The loss of competitors including Lehman Brothers and Bear Stearns meant Goldman Sachs attracted more business, said Sorrentino.

"A lot has to do with the fact that they really narrowed the playing field," he said.

"All that business has to be flowing through to someone."

- BLOOMBERG