GOLDMAN Sachs is planning to slash bonuses to almost zero amid growing expectations that the Wall Street bank is about to slide into the red for only the second time in its history.
The market meltdown that began in August has hammered the revenues of all the big global investment banks.
Analysts have been slashing their forecasts for Goldman's third-quarter results, due on October 18, with most now expecting it to report a loss.
Morgan Stanley, its closest rival, could also fall into the red.
Goldman's senior executives are determined to prove that the bank can continue to generate bigger returns for shareholders, despite the market turmoil.
They have made an internal commitment to ensure that no more than 35 per cent to 45 per cent of its revenue is paid to staff -- a lower proportion than any other Wall Street bank. The ratio of staff pay to turnover is the key metric used by analysts to determine the efficiency of an investment bank.
Cutting bonuses to the bone is one of the few tools that Goldman can use to keep the ratio under control. It has already cut salaries for its London partners and is also cutting thousands of jobs.
However, its third-quarter revenues are expected to have fallen by about half compared with the second quarter, putting the ratio under pressure.
New accounting rules forcing banks to defer bonus payments add to the strain. Deferred bonuses awarded last year or the year before, when market conditions were more buoyant, hit the bottom line as the bankers receive the cash.
Banks that went on a hiring spree following the financial crisis, hoping to cash in on the demise of rivals like Bear Stearns and Lehman Brothers, have less flexibility on pay.
Big salaries were offered to tempt bankers to join firms such as Nomura and Barclays Capital, meaning they are now lumbered with higher fixed costs.
Huw van Steenis, a banking analyst at Morgan Stanley, said third-quarter results would be "ugly" for Wall Street.
"On average, we assume fixed-income trading will be down 45 per cent on Q2 and equity trading down 15 per cent.
"Underwriting and merger and acquisition volumes are also down in a big way."
THE SUNDAY TIMES