Morning Coffee: "We overhired for the world we're in:" welcome to the cuts era. Goldman partners quietly leave the room
It's an easy mistake to make. You have a good year, maybe two, and in a fatal coupling of blithe optimism and unfettered naivety, you presume that this is what the world's like now. Except it's not and that was just an interlude before reality is reestablished.
This is the situation that Stripe, the payments fintech, finds itself in. Built by precocious Irish siblings, the European unicorn has spent the past few years in growth mode. The Collison brothers have been known to gesture towards more established finance companies and accuse them of being "flabby and lazy." But guess who's carrying the extra weight now?
“We overhired for the world we’re in," declared Patrick and John Collison yesterday. "We were much too optimistic about the internet economy’s near-term growth...We grew operating costs too quickly..." Although it "pains" them, the Collisons are now going to correct those mistakes: 1,000 people at Stripe are being eliminated; 14% of the workforce.
It's all very reminiscent of Coinbase, the crypto exchange, which said something similar in the summer before dumping 20% of its staff, and which is still suffering from saggy revenues five months later. The envisaged conditions have not transpired and the fintechs that had shaped-up for their arrival are finding themselves too obese for the world that's arrived instead.
The big question now is whether it's just fintechs. Why not banks too? Goldman Sachs, for example, increased its headcount by 15,500 people or 45% between the end of 2017 and the third quarter of 2022. Is Goldman not obese too? Has it overhired for the world it's in?
We'll find out soon. In the meantime, and despite Moelis & Co's avowal that a banker is for life, Morgan Stanley has reportedly decided that it doesn't need all the bankers it's got in Asia and is readying to make a painful extraction. In the new world order, those bankers may find it easier to get new jobs than engineers; Moelis, at least, is hiring.
Separately, next week is Goldman Sachs' partner week, and as the firm prepares to promote what is likely to be a very small group of people to its highest rung, some of the existing partners are dropping off to make way for them. Except, partners are never laid-off at Goldman Sachs. Alan Kava and Chris Crampton are 'retiring', much like all the partners before them. They can probably afford to do so. Crampton is only 44, but has spent the past 19 years working for Goldman Sachs' private equity business. Kava is 57 and has had a hefty career in Goldman's real estate investment business. Despite his retirement, Crampton already has a new job.
The bull case for fintech: “Fintech is relatively nascent and today represents just 2% of public financial services market cap. We believe the most recent downturn will separate the winners from the losers.” (Bloomberg)
Coinbase wakes up to a new reality. “Sustained low revenue for multiple years -- that’s a scenario that’s very probable.” (Bloomberg)
Morgan Stanley has drawn up lists for its layoffs. So far, they're mostly in its China-related business. (Reuters)
Deloitte eviscerated eight out of 16 people on its UK executive team. It's going to add six new and younger ones. Only one of the new people will be a woman and two will be ethnic minorities. (Financial Times)
Goldman Sachs' CEO David Solomon says primary markets activity is on a "journey" to recovery and that it's just a question of asset allocators adjusting to the new reality of slowing growth, higher rates and tightening liquidity. (Bloomberg)
Goldman Sachs suddenly increased its legal cover from $300m to $2.3bn. No one knows why. (Bloomberg)
Markets do not force anyone to prostrate themselves before Mammon. So long as there are people who value something other than maximising wealth, markets will respond to their preferences. (Politico)
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