Goldman Sachs Group Inc’s move to increase compensation and benefits by 33 per cent after record earnings raised concern among some lawmakers in Washington over excessive pay, even after the firm repaid rescue funds from US taxpayers. Others expressed relief the bank was profitable.
“It really makes the American people think, is it just going to be business as usual with Goldman Sachs and much of the rest of the financial industry?” said Senator Sherrod Brown, an Ohio Democrat on the Banking Committee.
Senator Robert Menendez, a New Jersey Democrat, said he wasn’t troubled by the pay increase because the New York-based bank has repaid its debt to taxpayers.
“We want all of these companies to be profitable again,” said Menendez, 55. “What the private sector does without government money is one thing.
What the private sector does with government money is another thing.”
Goldman Sachs said on Tuesday that second-quarter revenue from trading and stock underwriting reached all-time highs. Net income was $3.44 billion, or $4.93 a share, 65 per cent higher than during the same period last year. The bank returned $10 billion of US bailout money last month along with $426 million in dividends.
“I want them to make a profit,” said Republican Representative Jeb Hensarling, 52, of Texas, who sits on the Congressional Oversight Panel, which oversees the bank rescue fund. “If they lose, they are going to come back here with their hand out.”
The firm, the fifth-largest US bank by assets, set aside $11.4 billion for compensation and benefits in the first half of 2009, enough to pay each employee $386,429 for the six-month stretch.
Lawmakers are beginning to draft legislation based on President Barack Obama’s proposal to overhaul US financial rules and prevent a repeat of last year’s turmoil in the financial services industry, when the collapse of Lehman Brothers Holdings Inc and American International Group Inc froze credit markets and worsened the global recession.
Bonus payments made by AIG earlier this year helped fuel public outrage over the bailout and spurred calls for restrictions on executive compensation. Obama’s proposal includes giving shareholders a non-binding vote on pay.
Obama spokesman Robert Gibbs said on Tuesday he wasn’t sure whether the president had seen reports on Goldman Sachs’s earnings and compensation plans, and he declined to comment.
Brown, 56, a member of the Senate Banking Committee who voted for the $700 billion US bank bailout last year, said the financial services industry is trying to “weaken the president’s proposal” to revamp regulations.
Other lawmakers of both parties said Goldman’s increased compensation is a sign that the economy is heading in the right direction.
“Obviously, we should not be utilizing taxpayer dollars for excessive compensation, but I think the larger issue is the question of how the economy is performing,” said Senate Banking Committee member Michael Crapo, 58, an Idaho Republican. “If their results this morning have shown at least one bright light in that context, I think that’s the best news we could have asked for.”
Scott Garrett, a New Jersey Republican on the House Financial Services Committee, said lawmakers are likely “going to hear a pushback from constituents across the county saying, “Well, there they go again.’”
On the other hand, “There’s a sense of relief in that they and the financial markets are beginning to show an uptick,” Garrett, 50, said.
House Majority Leader Steny Hoyer, 70, a Maryland Democrat, said he wants “all the people we gave money to to make profits” and “pay the money back with interest and have a net zero cost to our program.”
Senate Majority Leader Harry Reid, 69, a Nevada Democrat, said, “I am glad any business is doing well. I am glad someone made some money.”
Senator Jon Tester, a Montana Democrat on the banking committee who opposed the bailout, sounded a note of caution for Goldman.
“It’s good they had a good quarter, but I’m not happy about the whole compensation thing,” he said. “We’ve been down this road once before.”
Companies “need to look at it from a perspective that it’s not business as usual anymore, and they can’t continue along these lines or there will be outrage,” Tester, 52, said
James Reynolds, chief executive officer of Loop Capital Markets LLC in Chicago, said criticism of Goldman Sachs’s success was misplaced.
“This is what the government investment was meant to do,” Reynolds said in an interview. “I just don’t understand why the country, or a working person in Michigan, Ohio or Kansas, would cheer against Goldman doing well just because the government invested in Goldman at a time when the financial markets were in chaos.”
Representative Paul Kanjorski, a Pennsylvania Democrat on the House Financial Services Committee, said it isn’t in the “realm of a legislative or governmental body in our system to get heavily involved” in compensation.
“Is there a law in the United States that you can’t make profits?” Kanjorski, 72, said. “It shows that there will be some capital available to be invested, and that’s a good sign for the economy.”
