Morning Coffee: Goldman Sachs bankers face two more years of pain. The most uninspired people in finance
Goldman Sachs hasn't reported its second quarter results yet. When it does, tomorrow, a few things are likely to stand out: the excellent year in sales and trading, the terrible year in investment banking, and the enormous loss in the platform solutions division, which includes everything from Marcus, Apple Card, Greensky (a fintech lending firm acquired by Goldman last year), and TXB, the transaction banking business. While Goldman's salespeople and traders are making money for the firm, the platform solutions division is draining it away again.
A regulatory filing seen by Bloomberg and others on Friday revealed that platform solutions at Goldman made $3bn of pre-tax losses in the nine months from January 2020 to September 2022. Losses of up to $4bn are expected when the final three months of 2022 are added in, with $2bn of losses for 2022 alone. Nor is the division likely to turn a profit this year: insiders say it will be 2025, at least, before that happens.
It wasn't supposed to be like this. The Marcus consumer business was supposed to breakeven in 2022 and be adding to the bottom line by now. In October 2019, one year after David Solomon became Goldman Sachs CEO, he released a podcast summing-up his vision for the firm. It was all about platform businesses that would add what Solomon described as "durable, recurring fee based revenues" for the future; the salespeople and traders who have been keeping GS afloat didn't get a mention.
Plenty of partners disagreed with Solomon's vision at the time. Many left amidst the ensuing "transformation." Some are now resurfacing and making awkward observations to journalists. These include suggestions that Solomon can be "nasty" and that the move into consumer banking was a form of arrogance: "What on earth did we know about flogging savings accounts and car loans to Joe Bloggs?” one ex-partner told the Sunday Times.
If the consumer business isn't profitable until 2025, the danger is that Goldman's salespeople and traders face at least one and maybe two more years of pain. This will be worsened if its bankers continue to underperform and if this year's bumper fixed income revenues aren't repeated. The ex-partners are already conducting a whispering campaign. "Usually in a down year there is either a low bonus or lots of layoffs," another told the Sunday Times. "This year there’s both. Some partners are complaining that comp is down 50%. Many are putting the feelers out to go elsewhere.”
Separately, however much disgruntled ex-partners are complaining about Goldman Sachs, the most disgruntled people still employed in the industry may be elsewhere. Bloomberg reports that only 40% of employees at SocGen are happy with the bank's strategy, which is far below the 75% industry average.
It's perhaps fortunate, then, that SocGen has a new CEO in the form of Slawomir Krupa, who's due to replace Frederic Oudea after 15 years later this year. Krupa may want to avoid launching any platform businesses too soon after his arrival...
Meanwhile...
Credit Suisse is cutting 10% of its European investment bankers and bonuses are expected to be close to zero. “It is difficult to know where we will fit in, though it’s clear European activities will be slimmed down over time.” (Financial Times)
Headcount at Binance went from 3,000 to 8,000 last year. This year, it plans to increase headcount by 15% to 30% again. (CNBC)
Colm Kelleher, the former Morgan Stanley banker who's now chairman of UBS, has plans for the bank, but they don't involve buying Credit Suisse. “We will not expand the investment bank,” said Kelleher, but he added that the unit can build on good equities trading and needs to improve its advisory business. (Bloomberg)
Odey Asset Management profits fell 52% in the year to April 2022. The highest paid partner received £5m, down from £15m the previous year. (Financial News)
As elite jobs are cut, it's becoming apparent that a lot of people just didn't do very much. (The Times)
How to discourage hard work: If you say it’s a sucker’s game, or that hard work is a scam, then hard work becomes a lower status activity, and people can signal status by showing how they are “aware” of the game and thus cut corners as much as possible. (Rob Henderson)
A professor says the immediate benefits of time away from work, including decrease in fatigue and an increase in happiness, generally fade within a week, but longer breaks can have a deeper benefit because they build connections between travel partners and give people a bank of positive memories to tap into. (WSJ)
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