Goldman Sachs has had to defend itself from angry taxpayers, regulators, the government – and now its own shareholders.
Some of the US investment bank's largest investors are furious about the New York-based firm paying record bonuses to its staff – bonuses are estimated to be $717,000 (£435,000) each for 2009, the biggest payout in the firm's 140 years.
Investors claim that now profits are back, rewards should go first to shareholders because they suffered the cost of the credit crunch more than anybody else.
"Most of the losses were for equity shareholders," said a fund manager at a large investment firm. "If they had cared about the preservation of equity value, the crisis wouldn't have been nearly as bad as it was. It would be in everybody's interest, the taxpayer and of banks themselves, if management's interests were more aligned with shareholders."
Critics claim that banks' high-paying bonus culture encouraged a short-term vision that pushed institutions into over-lending and taking more risks than they could afford. In October last year, Goldman Sachs received $10bn from the US government to shore up its books – the bank was one of nine recipients of federal aid. Goldman, which repaid the money earlier this year, is still benefiting from government assistance as it can borrow funds direct from the Federal Reserve.
But after the collapse of rivals such as Lehman Brothers and Bear Stearns, Goldman's earnings, as well as those of other banks, have soared to record highs, helped by booming stock, credit and commodity markets.
Goldman has earmarked about $16.7bn so far this year for its staff bonus pool - or 47% of net revenues, along the lines of a 2000-2008 average of 46.7%, according to the firm. That compares with 66% at Merrill Lynch, 47% at Morgan Stanley and 41% at JP Morgan – one of the banks least affected by the crisis.
"Our investors have consistently told us that they expect the firm to set compensation at a level which produces attractive returns to shareholders while maintaining the strength of our franchise, which is the basis for generating returns for the long term," Goldman Sachs said.
Investors, however, complain that bankers' high bonuses did not save Lehman or Bear Stearns. "They were paid a lot and they didn't create value for shareholders," the fund manager said.
Banks often find they are not challenged by their investors when deciding pay structures – if shareholders do not agree with management policies they just sell the stock, instead of instigating change. Only two investors hold more than 5% of Goldman Sachs shares, according to Bloomberg data. "Investors are a dispersed group, the only thing to do to solve this is to get the regulator involved," the fund manager said.
Financial authorities in Britain and Europe are pushing for new regulations to cap bankers' pay.
Some investors, however, say banks should pay its staff as much as possible to retain them. "We want firms to make as much profit as possible, what they have to pay their employees is appropriate," said a fund manager at a hedge fund that holds a stake in Goldman. Another hedge fund manager said that the partially nationalised Royal Bank of Scotland had "lost credibility as an employer" as they cannot pay bonuses following the government's intervention in the bank.
Goldman's chairman, Lloyd Blankfein, publicly apologised this week for the role of his bank in the credit crunch. The bank also said it would donate $500m (or 3% of what it has set aside to pay its employees this year) to help thousands of small businesses recover from the recession.