Page last updated at 16:22 GMT, Thursday, 15 October 2009 17:22 UK

Q&A: Banking fortunes

Goldman Sachs office
Goldman Sachs is set to pay more than $20bn in bonuses this year

Two major US banks have reported third-quarter earnings.

But while Goldman Sachs saw profits increase four-fold to $3.19bn ((£1.96bn), Citigroup made a much more modest profit of $101m.

Why is there such a marked difference between the two banks' fortunes?

Why are profits so big at Goldman Sachs?

Traditionally, Goldman makes most of its money from its investment banking business.

Investment banks invest money and provide financial services for governments, companies or even in some cases extremely rich individuals.

Services range from advising on takeovers and mergers, to helping clients raise funds through issuing debt in the form of bonds or equity - for example, through the issue of new shares in a rights issue.

Investment banking is still doing well at Goldman, although revenue was 31% lower than a year ago, just before the financial crisis really took hold.

How does Citigroup's business compare with Goldman's?

A Citibank branch - part of Citigroup
Citigroup is more exposed to consumer loans

With the cornerstone of its business coming from investment banking, Goldman has been far less affected by the problems that have battered banks with large High Street presences.

Citigroup, for example, has been more exposed to consumer loans - such as mortgages and credit cards - than Goldman.

Its chief executive Vikram Pandit has warned that the US consumer credit environment "remains challenging".

It has written off more than $100bn of assets since the start of the credit crisis, and reported another $8bn in credit losses in the third quarter, as a result of consumers defaulting on mortgage and credit card payments in the recession.

How can Goldman still pay such big bonuses?

Goldman set aside $5.35bn to cover pay and bonuses in the quarter, an average payout of $172,581 for each of its 31,000 workers.

It brings the total set aside for compensation for the first nine months of this year to $16.7bn, and means the bank is on track to pay about $22bn for the whole year - which would beat the record the bank set for compensation in 2007.

The large numbers have again raised questions as to whether such sums can be justified, so soon after large parts of the banking industry had to be bailed out by taxpayers.

But although the leaders of the G20 agreed to introduce rules limiting bankers' pay, and many banks, including Goldman, have signed up to their implementation, they did not agree to set caps on bonuses.

World leaders, however, are keeping an eye on remuneration in the banking sector.

"Pay on Wall Street can't return to the speculative era that we saw last, specifically right before the economic collapse..." a White House spokesman said on Wednesday. "Pay has to be based on a reasonable assumption of risk, not speculation."

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