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Goldman Sachs pads bottom line with frugal hiring

(Reuters) – Goldman Sachs Group Inc has begun staffing up again after years of cutting back, to build up its investment management business and comply with new regulations.

The investment bank is one of the few in the industry that is adding employees now. The workers it is hiring are mainly in lower-cost places like Salt Lake City and Bangalore, Chief Financial Officer Harvey Schwartz said Thursday on the bank’s second quarter earnings call. This strategy helped Goldman to keep a lid on its compensation expenses even as it adds people to its payrolls.

Goldman said its workforce grew 8 percent over the last four quarters, and rose 1 percent between March 31 and June 30. At the end of June, the bank had 34,900 employees.

The bank’s hiring strategy underscores how tentative the U.S. financial sector recovery is: while in previous economic upswings banks spent freely to bring aboard new employees, they are now paying close attention to costs as they hire.

“The economy is better and so banks are hiring but they are being selective about where,” said Jeanne Branthover, a Wall Street recruiter at Boyden Global Executive Search in New York. Banks that see growth opportunities are willing to hire quickly, she added.

Goldman Sachs sees opportunities in investment management because it generates stable revenue, which can offset wild revenue fluctuations in other areas like bond trading. It is also a business less affected by post-crisis regulations regarding capital, which means it is still about as profitable as it was before the crisis, unlike bond trading.

“Investment management has been a big focus for Goldman because it is a capital-light business,” said Devin Ryan, an analyst with JMP Group LLC.

That growth is showing in the bank’s results: Goldman’s investment management revenue increased 14 percent year-over-year to $1.65 billion in the second quarter, representing about 17 percent of total revenue. Last year, investment management was about 16 percent of revenue in the second quarter.

Goldman is also adding staff to help it comply with new regulations that big banks face globally. JPMorgan Chase & Co Chief Executive Jamie Dimon said in his annual letter to shareholders earlier this year that his bank has added 8,000 people to its compliance effort.

Three years ago, Goldman shifted parts of its workforce that handle tasks ranging from compliance to research to satellite offices in cheaper cities. Around 75 percent of new employees are in those locations, Schwartz said.

Putting employees in cheaper cities allowed the bank to cut the amount it spent on compensation in the second quarter by 3 percent to $3.81 billion. So far this year, the bank has boosted total compensation expense by 4 percent, less than its 7 percent revenue growth.

By focusing on hiring in cheaper cities, the bank has been able to cut the average compensation expense per employee so far this year to less than $237,000, from $244,907 for the same period last year.

Other large banks are focused on cutting jobs as a way to save on expenses. JPMorgan, which reported second quarter earnings on Tuesday, said it had reduced its headcount by 3 percent compared to the same period last year.

Bank of America Corp said on Wednesday it had reduced its headcount during the second quarter by 7 percent from a year ago. (Reporting by Olivia Oran in New York; editing by Lauren LaCapra, Nick Zieminski, and Dan Wilchins)

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