Morning Coffee: How to earn a $100m bonus at Goldman Sachs. Why prime broking businesses are so special

It is possible to earn $100m at Goldman Sachs. It may take more than one year to do so. Ed Emerson, the former Goldman star commodities trader who retired aged 47 in 2023, was said to have been paid $100m over the three years previously. Now, Goldman CEO David Solomon will be earning $100m too, for his cumulative efforts since 2021.

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Solomon's $100m was valued at only $17m when he was awarded it, but it has swelled in value after meeting performance conditions relating to Goldman's absolute share price, Goldman's dividends, and Goldman's share price relative to peers like Bank of America, Citigroup, JPMorgan, Morgan Stanley, and Wells Fargo. Many of these performance conditions have been far exceeded and so Solomon will receive $100m - maybe more - once the award cliff vests at the end of October. All he will then need to do is to wait another year and the money will be his. 

The new windfall might be why Solomon is thinking of retiring as CEO in 2028. It's also not his only $100m. He's also been paid around $250m in "regular" salaries and bonuses since 2018, plus another $80m retention award with a five year cliff vest for 2030, which will still pay out if he hangs around at Goldman in some capacity. This retention award would be worth around $116m at Goldman's current share price. 

All of this suggests that earning $100m at Goldman is partly a question of patience. Solomon isn't alone in getting a payment at the end of October. Bloomberg notes that 19 members of Goldman's management committee in 2021 are getting a share of a similar payout, now worth $400m. This was awarded around the same time as Solomon's to keep them all happy in 2021 and is subject to the same performance and retention conditions. These people include John Waldron, Ashok Varadhan, Dan Dees and Marc Nachmann. Waldron and Dees probably need the money: between them, they have 11 children.

Maybe they deserve it. Goldman's share price has soared since March 2024, rising from $386 to a peak of $1,062 in June. However, the Financial Times observed last year that Goldman has been a particular beneficiary of deregulation under the Trump presidency, and had seized upon this to slash its core tier one equity capital ratio from 15.1% to 13.3% and increase its total assets by 8%. This suggests that friendly regulation helps if you want to earn $100m. Goldman's shares have done particularly well under Trump II. It also helps that David Solomon was finally persuaded to exit the loss-making consumer business he'd previously championed. 

All that Goldman's executives need to hope now is that the share price doesn't fall too much further before the 2021 awards vest at the end of October. 

Separately, it's a great time to work in prime broking. With memories of Archegos Capital Management in the deep past, the Financial Times reports that the revenues banks make by lending to hedge funds have gone through the roof. 

Coalition Greenwich reportedly expects prime revenues to hit 38% of equities sales and trading revenues this year (up from 10% two decades ago) and total prime broking revenues to hit $47.9bn. The FT says a single hedge fund can generate a revenue stream of $200m a year after trading costs (Goldman reportedly generated $200m in fees from Situational Awareness, for example). 

What could go wrong? Credit Suisse famously lost $5.5bn through the "incompetence" of its prime brokers in dealing with Archegos. The FT says the Bank of England has its eye on things. The Federal Reserve says prime brokers are now offering 11x leverage to the biggest hedge funds, and this doesn't include derivative exposures, which can increase leverage to 25 times for hedge funds and 40 times for electronic trading firms. Sounds great for prime brokers, while it lasts.

Meanwhile...

Kevin Sneader, Goldman's president of Asia Pacific ex-Japan, says: “When our young folks now start work, they’re managing agents...They have to make the most of this virtual army that they’ve now got.” (Bloomberg)

Andy Burnham wants to do away with non-compete clauses in the UK. (FT) 

Citi hired Rogier Pop, who was JPMorgan's head of EMEA capital goods. (Financial News) 

Deutsche Bank hired David Garland from BP to help it expand US power trading. (Bloomberg) 

Alex Evangeli from Virtu joined Goldman Sachs for fixed income ETF trading. (Fi Desk) 

156,000 students entered the World Quant international quant championship this year, almost double last year's total. 75,000 were solo entries working with AI. (FT) 

Banks are cutting tech headcount in India. Citigroup has hired a net 2,000 people in India so far this year, down from about 4,000 last year. (Bloomberg) 

How to impress partners at Goldman Sachs. “Did you fail any levels of the CFA?” Brevity is confidence, I thought, and answered simply: “Nope.” (NoRebates) 

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