Banking analyst Meredith Whitney lowered her profit estimates for investment bank Goldman Sachs (GS) for the second time in less than a month. Shares of Goldman rose $3.06, to $176.14.
Although no reason was given, Goldman’s recent announcement of their plans to enter the crowded ETF market is generating questions about profitability.
And Goldman Sachs has come under increased scrutiny and criticism for its executive compensation practices. The Federal Reserve has embarked on a deeper review of pay at the biggest financial firms, and the Securities and Exchange Commission is trying to empower shareholders with more control over executive compensation.
“The current goal of the compensation vigilantes – more equity, less cash, long vesting and potential claw back of losses – is not a threat to most of the business franchises of the investment banks,” analyst Brad Hintz wrote in a note to clients.
The goal is to encourage compensation structures that align the pay of Wall Street workers with the long-term success of the company instead of rewarding short-term gains.
Executives at Goldman Sachs have long held a substantial portion of their wealth in deferred common stock, Hintz said.
Goldman Sachs said last week it plans to pay top managers their 2009 bonuses in stock, rather than cash, as it seeks to deflect outrage over a near-record pay haul months after it repaid billions of dollars in taxpayer aid.
Whitney expects Goldman to earn $5.50 per share in the fourth quarter, down from her previously downwardly revised estimate of $6.00. She also expects Goldman’s earnings per share (EPS) to be less for the full and subsequent two years.
Whitney’s calls are closely followed by the investment community, as she was one of the few analysts who correctly called the undercapitalization problems at Citigroup (C) in 2007. As an analyst at Oppenheimer at the time, she predicted that the bank would have to raise money, slash its dividend, and oust then-CEO Chuck Prince.
In February, she announced plans to leave Oppenheimer and has since started her own firm, Meredith Whitney Advisory Group.
