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Morning Coffee: 30-year-old billionaire probably won’t be buying Goldman Sachs after all. More banks make (tiny) headcount cuts

There are always danger signs of pride coming before a fall, and former Jane Street Capital trader Sam Bankman-Fried had more than a few. He was on the cover of both Forbes and Fortune magazines.  He collaborated with Gisele Bundchen.  He was even called “The Next Warren Buffett”.  He didn’t have time to publish an autobiography in hardback, but he did open up a shiny new headquarters building for FTX, his crypto exchange company, and buy the naming rights for a sports arena.

All of these notorious contrary indicators seem to have chalked up another success, as “things have come full circle” and FTX is about to be acquired by its rival, Binance.  There’s no comment yet about the acquisition price, but given that the circumstances of the deal appear to be that FTX asked for help in a “significant liquidity crunch” and Binance “has the discretion to pull out of the deal at any time”, it seems that Bankman-Fried’s holdings in FTX and its sister company Alameda Research are unlikely to be valued at the levels which saw his net worth top $16bn.  In fact, the phrase “full circle” might be descriptive of what he ends up with (apart from his personal wealth, which could still be a billion dollars).

This is a huge shift for the industry – as well as the new Warren Buffett, SB-F was regularly described as playing a similar role to Pierpoint Morgan, or indeed Jamie Dimon, because of his habit of rescuing troubled crypto industry players.  It appears to some commentators, however, that this might have been done out of a desire to prop up confidence in the overall space, precisely because FTX was vulnerable to a sudden loss of confidence.

Looking through the responses to Boaz Weinstein’s request to “explain it to me like I’m a 65 year old”, it seems that what happened is strangely reminiscent of what used to be called a “note war” in the early days of unregulated banking.  Having spotted that its rival was vulnerable to margin calls or sudden withdrawals, Binance dumped a load of “FTT”, the signature crypto token sponsored by FTX, on the market.  This sent the price spiralling down, eroding the net work of FTX and apparently triggering enough problems to allow Changpeng Zhao to step in.

It will be a shame to see Sam go, if it indeed turns out that this is the last act for him.  Of all the crypto bros, he was arguably the most charming.  He was always prepared to speak plainly about business models and to make constructive suggestions about the industry’s biggest problems.  He deserves a bit better than to go down in history as the guy who said he might one day buy Goldman Sachs, or as the shortest-term “longtermist” in the history of finance.

Elsewhere, there really is only one major program of job cuts going on in the industry at the moment – the one at Credit Suisse.  Other banks are going about their normal processes of culling underperformers, rightsizing franchises and reducing overlaps.  That means that from time to time, there will be multiple redundancies announced at a single bank on a single day, but it’s important to keep a sense of perspective.

Back in September, there were headlines of “hundreds of jobs at risk” at Goldman, even though the truth about this year’s rank-and-yank exercise was that it was comparatively small at 2% of the workforce  This week, Barclays has cut “less than 3%” of its investment banking staff, while “dozens(!) of jobs” have gone at Citi.

In all these cases, it’s not even clear if the overall headcount is growing or shrinking; Citi is still recruiting senior dealmakers, even in the capital markets team which seems to have seen significant cuts.  Banks are always hiring and firing, just like they’re always buying and selling; it’s just that the cancellation of annual redundancies during the pandemic seems to have helped people forget that this is part of the circle of life.  There is certainly reason to worry about the future, if the deal drought continues into 2023.  But at present, the surprising thing about investment banking redundancies is how few we’re seeing, not how many.

Meanwhile …

After six years broadly successfully keeping UBS out of the worst of the market’s troubles, chief risk officer Christian Bluhm is going to have a complete change of pace, setting up a small gallery and studio in Zurich to pursue a career as a photographer.  It’s rare to see someone follow their dream, but it can be done; Damian Vogel will step up from CRO of the wealth management business to take the group job. (FT)

Meta is going to be laying off more employees this week, possibly in numbers that really put any investment banking programs in the shade.  This will be the first broad-based redundancy program in the company’s history – Mark Zuckerberg “appeared downcast” and blamed himself for having been too optimistic about growth. (WSJ)

The most unfortunate traders in London are at the commodities broking business of VTB. The bank has been sanctioned, and they aren’t able to instruct lawyers to file for bankruptcy protection, and that means that salaries haven’t been paid to some staff “for a prolonged period”. (Bloomberg)

Citi has given its London employees an extra four days’ holiday, underlining its effort to differentiate itself on work-life balance. (Financial News)

Balyasny has opened up an office in Dubai, joining Millennium and BlueCrest.  If this trend continues, they’ll start calling the place “Wall Street Middle East”. (Bloomberg)

If you bring in a star employee from outside, put them to work with youngers and less experienced colleagues, keep them away from people who feel vulnerable or are easily discouraged, and tell the star that they need to “defuse negative reactions”.  That way you maximise your chance that the new hire will galvanise the team and raise overall standards, rather than demoralising everyone. (WSJ)

As always, whenever the investment banking industry sneezes, the associated professional services firms catch pneumonia.  Datasite, a provider of secure data room servers to the M&A industry, has had to lay off staff. (Financial News)

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AUTHORAnonymous Insider Comment
  • Fr
    Francis Chin
    12 November 2022

    These people who created money out of thin air and stole the life savings of millions of small time investors are more dangerous than Putin and Xi.

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