Morning Coffee: Goldman Sachs restructuring could hit traders' bonuses. Deutsche Bank MD sacrificed her salary and was cut all the same
Goldman Sachs deserves full plaudits for secrecy. Everyone knows that Credit Suisse is planning a major restructuring announcement at the end of this month, but who knew that Goldman Sachs was concocting a restructuring of its own? No one, until the Wall Street Journal broke the news late last night.
Admittedly, Goldman's is less dramatic. While Credit Suisse is planning changes that may result in 6,000 job cuts and the sale of its securitisation business and some Swiss assets, Goldman's intentions are more moderate. It simply intends to streamline its organization into three divisions: investment banking and trading, asset and wealth management, and transaction banking. This compares to the four "segments" that the firm currently has: investment banking, global markets, asset management, and consumer and wealth management.
Unlike Credit Suisse, Goldman's reorganization isn't explicitly linked to job cuts, and might simply be considered a change in internal nomenclature. And yet it's conceivable that cuts will come as a result: merging divisions is a well trodden route to "efficiencies" and can reduce the need for two sets of staff in some support functions. It can also result in changes at the top: heads of smaller divisions who aren't appointed heads of larger divisions are prone to sudden retirement.
Mostly, though, Goldman's changes look like bad news for anyone at the Marcus consumer banking segment, which has suddenly been subsumed by the far larger asset and wealth management division after racking up cumulative $4bn losses. Conversely, they look like good news for anyone in the transaction banking business, TxB, which has been given a whole division of its own. In investment banking and global markets, Goldman's changes look superficially less significant, but could have a real impact. They will emphasize the extent to which - for all its attempts at diversification - Goldman remains an investment bank: the banking and global markets businesses generated 78% of revenues at the firm in the second quarter.
Goldman's combination of its global markets and investment banking business could weaken the internal influence of the smaller investment banking business at a time when revenues there are plummeting and bonus pools for 2022 are being finalized. Right now, the investment banking business is co-headed by Jim Esposito and Dan Dees, while global markets has is headed by Ashok Varadhan and Marc Nachmann. Nachmann is already moving to the new asset and wealth management division, and one of either Dees or Esposito is likely to go too. Goldman Sachs will announce its third quarter results tomorrow, and in line with other banks, revenues in its investment banking division are likely to have plummeted. The changes could conceivably leave the investment bank more exposed to cuts and heavy bonus pruning. Equally, though, it might be argued that the fixed income traders who've done well this year will now be more obliged to cross-subsidize their investment banking colleagues with whom they're lumped in a single division. Fixed income traders who thought they'd get big bonuses as part of a standalone global markets business could find their bonuses much reduced now that they're in bed with investment bankers whose performance has been dire.
Separately, if a bank is cutting costs and really wants to get rid of you, the sorry story of Elisabeth Maugars at Deutsche Bank suggests that foregoing some pay won't make much difference.
Maugars, who was an MD, is suing Deutsche Bank for gender and age discrimination. Bloomberg reports that DB let her go during a cost-cutting round in early 2020 even though she had just given up a month's pay in an attempt to help the bank save costs. She was 57 at the time. Maugars claims that colleagues at Deutsche also called her Christine Lagarde in reference to her French nationality and white hair.
Meanwhile...
James Gorman at Morgan Stanley says the bank is looking at headcount. "We're obviously looking at headcount...You've got to take into account the rate of growth we've had in the last few years and we've learned some things during Covid about how we can operate more efficiently. That's something the management team is working on between now and the end of the year." (Financial News)
Citi is still hiring bankers. "We continue to invest in building out our teams for long-term growth opportunities, including health care, technology and energy," said Citigroup CEO Jane Fraser. "And I'm really pleased with the high-caliber bankers who are attracted to both our platform and our culture." (Reuters)
Jamie Dimon says JPMorgan won't wait until next year to hire and that the bank is still spending in line with its commitments at investor day. (Business Insider)
KPMG promoted 108 new partners but they won't get to share in the profits. (The Times)
The UK's Financial Conduct Authority (FCA) wants 15 people to work in its wholesale crypto policy unit, including senior people and junior data analysts in digital assets. (Financial News)
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