Goldman Sachs restructuring could hit traders’ bonuses

Goldman Sachs deserves full credit for its secrecy. Everyone knows that Credit Suisse is planning a big restructuring announcement later this month, but who knew Goldman Sachs was cooking up a restructuring of its own? Nobody until the Wall Street Journal broke the news late last night.

Granted, Goldman’s is less dramatic. While Credit Suisse is planning changes that could result in 6,000 job cuts and the sale of its securitization business and some Swiss assets, Goldman’s intentions are more moderate. It only intends to streamline its organization into three business lines: Investment Banking and Trading, Asset and Wealth Management, and Transaction Banking. That compares to the four “segments” the company currently has: investment banking, global markets, wealth management, and consumer and wealth management.

Unlike Credit Suisse, Goldman’s reorganization does not involve explicit job cuts and could simply be viewed as a change in internal nomenclature. And yet cutbacks are conceivable as a result: the merging of business areas is a well-worn path to “efficiency” and can reduce the need for two different personnel in some support functions. Change can also occur at the top: heads of smaller divisions who are not appointed heads of larger divisions are quickly retired.

Most importantly, Goldman’s changes look like bad news for everyone in Marcus’ consumer banking segment, which has suddenly been subsumed by the far larger wealth management division after posting $4 billion in cumulative losses. Conversely, they look like good news for everyone in transaction banking, TxB, which has been given a whole separate division. In investment banking and global markets, Goldman’s changes look less significant on the surface, but could have real impact. They’ll emphasize the extent to which Goldman — for all its diversification efforts — remains an investment bank: Banking and global markets operations generated 78% of the company’s revenue in the second quarter.

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The combination of Goldman’s global markets and investment banking business could weaken the internal leverage of the smaller investment banking business at a time when revenues there are falling and bonus pools are being finalized for 2022. Currently, the investment banking business is co-led by Jim Esposito and Dan Dees, while global markets are led by Ashok Varadhan and Marc Nachmann. Nachmann is already moving into the new Asset and Wealth Management division, and one is likely to leave from Dees or Esposito as well. Goldman Sachs is due to report its third-quarter results tomorrow, and like other banks, revenue at its investment banking arm is likely to have slumped. The changes could potentially expose the investment bank to more cuts and a sharp cut in bonus payments. Equally, however, one could argue that the fixed income traders that have done well this year will now be more obliged to cross-subsidize their investment banking peers, with whom they are grouped in a single division. Fixed-income traders who thought they’d get big bonuses as part of a standalone global markets business might find their bonuses heavily discounted now that they’re partnered with investment bankers whose performance has been abysmal.

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Regardless of whether a bank is cutting costs and you really want to get rid of the sad story of Deutsche Bank’s Elisabeth Maugars suggests that a pay cut won’t make much of a 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 salary to help the bank cut costs. She was 57 years old at the time. Maugars claims colleagues at Deutsche also called her Christine Lagarde because of her French nationality and white hair.

In the meantime…

Morgan Stanley’s James Gorman says the bank is looking at headcount. “Obviously we’re looking at headcount… You have to take into account the rate of growth we’ve had over the last few years and we’ve learned some things during Covid about how to work more efficiently. That’s something the management team is working on through the end of the year.” (Financial News)

Citi is still hiring bankers. “We continue to invest in building our teams for long-term growth opportunities, including healthcare, technology and energy,” said Jane Fraser, Citigroup CEO. “And I’m very excited about the high caliber bankers who are drawn to both our platform and our culture.” (Reuters)

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Jamie Dimon says JPMorgan won’t wait until next year to hire and that the bank is still spending in line with its Investor Day commitments. (business insider)

KPMG has sponsored 108 new partners, but they will not share in the profits. (The times)

The UK Financial Conduct Authority (FCA) wants 15 people to work in their company Wholesale crypto policy unit including senior staff and junior digital asset data analysts. (financial news)

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