Equity investors expected Goldman Sachs to perform well. The venerable investment bank did not disappoint. Meanwhile, Citigroup’s loss was less than expected, but failed to fuel a further DOW Jones rally as equities slipped under the esteemed 10,000 mark.
On Wednesday “JPMorgan set a high bar; a bar that is tough to beat for other banks,” said Tim Ghriskey of Solaris Asset Management. Investors agreed that the 10,000 threshold might be difficult to sustain. Goldman’s stellar earnings are tempered by public opinion polls that question the company’s bonus policies.
In the wake of the fact that Goldman needed $10 billion of taxpayer support and collected another $10 billion from the taxpayer’s bailout of AIG, struggling consumers are not accepting the company’s proposed average $660,000 per employee bonus plan.
Goldman CEO, Lloyd Blankfein, has been under fire to justify the bonus payments. Rolling Stone magazine labeled the company, “the vampire squid wrapped around the face of humanity.” Hundreds of organizations have pushed the company to temper the bonus plan and make substantial charitable donations.
On Thursday, Blankfein announced a $200 million contribution to Goldman’s charitable organization. At the same time, the CEO defended the company’s bonus plans, citing the efforts and successes of the organization. The Goldman Sachs bonus pool is on pace to top $20 billion in 2009. Blankfein’s ability to explain that bonuses consist of a mixture of stock and cash may be key to how then public views Goldman. At best, there is a large amount of skepticism surrounding the lack of transparency in both the Goldman and Citigroup releases.
As Congress appears set to approve regulation, Wall Street compensation policies will take center stage for the next few weeks. A return to pre-recession compensation policies is largely unacceptable.
Unemployment Lower, But…
Applications for new unemployment claims fell by 10,000 for the week ended October 10, 2209. The 514,000 figure marks the lowest number of new claims in the past nine months. The number of persons collecting long-term unemployment benefits was trimmed by 75,000 as the number of recipients fell below the 6 million mark.
Analysts suspect both numbers are somewhat tainted. The long-term benefit shaving could well represent the expiration of term rather than an employment improvement. Analysts also suggest that the lowering of initial claims merely reflects a bottom of the market. Simply, there are not many jobs left to trim.
The 10,000 DOW mark presents a serious psychological threshold. The recovery seems fueled by government and not by production. Companies have trimmed spending, including employment, and been permitted previously non-existent latitudes with mark-to-market accounting that has enabled profits to rise. The real question centers around sustainability.
There is plenty of hype surrounding the economy’s performance, but how real can a recovery be that has consumers reeling, housing tumbling and employment dwindling?
Equifax Check In
While Goldman Sachs contemplates how to disburse $20 billion in bonuses, one of the nation’s largest credit reporting agencies reported how the taxpayers are doing. It is not pretty. The people that were asked to keep Goldman Sachs afloat are in dire straits.
7.65% of American homeowners are 30 days delinquent on their mortgages. 41.36% of those notorious subprime mortgages are delinquent. The shadow inventory of bank-owned residences is overstocked and slowly entering the marketplace pushing prices lower.
Home equity loans and auto loan delinquencies are abnormally high. Credit card delinquencies have stabilized. This oddity is attributed to the high interest rates associated with the cards and with the fact that Americans are preserving their charge cards in case of emergencies.
Student loan applications are at their highest level with demand up 15%. Students are staying in school longer and working part-time to help foot the bills. Student loan delinquencies have not faltered like other credit markets.
According to Equifax, the American consume is now delinquent on multiple credit advances. In the past, the consumer was likely to default on one segment.
This concern was echoed by Citigroup, who was successful in overseas markets, but suffered big losses in American credit markets. The American consumer has trimmed debt by 3.8% or $440 billion in year-over-year comparisons. Meanwhile, the consumer has increased savings to 3.71%, well above the 2008 mark of 1.30%.
