Morning Coffee: Goldman Sachs is coming for its $400k salary bankers, Deutsche might hire them. The nicest bankers on Wall Street might have just been pretending to be friends
Can you really call something a “round of layoffs” if it’s more like a “rounding error of layoffs”? The Wall Street Journal and Financial Times are quoting “people familiar with the matter” saying that Goldman Sachs is considering “fewer than 250” job cuts. A quick bit of finger arithmetic suggests that if you take an employee base of just under 40,000, and assume that the average staff turnover time is twelve years, then 250 jobs represents less than a month of normal attrition. In all likelihood, more than 250 people leave Goldman Sachs every year to launch podcasts.
Of course, the fact that a headcount reduction this small is being agonised over by people in journalists’ contact books suggests that these won’t be average employees. The FT article suggests that the jobs eliminated would be “primarily at the senior level including managing directors”. A Goldman Sachs MD, according to the information the company files for the H1-B program, earns a basic salary from $400k to $500k. When you take into account bonus plus real estate and other ancillary costs, that would imply a fully loaded cost per MD of somewhere between $1.5m and the-sky’s-the-limit.
Even if the job cuts were incredibly top-heavy, though, it’s still hard to move the dial. If we were to assume the average person being cut was costing $1m each, that would be about a 1.5% delta in the overall compensation line, going by the Q1 run rate, although it would represent significant progress toward COO John Waldron’s promise at the investor day to “unlock” $1bn to reinvest back in the core business.
The real problem with firing managing directors, though, is that it’s very difficult to ignore the fact that you’re firing revenues as well as costs. At the MD level, most bankers have significant personal franchises, and getting rid of even a single hundred of them would be something that the business would notice. Making cuts at senior levels is usually an indication that top management thinks the deal drought is going to go on for longer, and that it’s better to take the pain early. The FT says Goldman is already considering a third round of layoffs in September.
But as the saying goes, it’s differences of opinion that make horse races. Deutsche Bank is apparently taking the view that the current downturn is an opportunity to build up a franchise that suffered from the cost-cutting years, and has consequently gone on “hiring spree”. Of course, there’s no international standard definition of a “spree”, and in fact corporate and investment banking head Fabrizio Campelli is talking about having hired “close to 50” coverage bankers so far this year, with “investments in technology, selective hiring and additional growth initiatives” to come.
However, at this point in the cycle, any growth is welcome, and Deutsche also pays roughly $500k basic to MDs. It’s even possible that both banks are right, from the perspective of their own business plans and starting positions.
Elsewhere, Centerview Partners used to be famous for its unusually happy juniors, extremely high compensation and general atmosphere of “trusted advisor” banking. It was commonly perceived as the sort of place where people hung around having intellectual discussions with one another and saying “good idea” in wood-panelled offices.
And all that may still be true, but the latest litigation with former partner David Handler has revealed that it’s also a place where people get really aggravated about money and status, just like they do everywhere else. The lawsuit seems to turn on an old Hollywood cliché – that an oral contract isn’t worth the paper it’s written on.
Once upon a time, Handler was recruited to be one of the first non-founder partners of Centerview, on a deal which gave him an extremely lucrative percentage of revenues. A while later, he and Centerview renegotiated that contract to be slightly less lucrative, in exchange for a share in the firm’s equity. But that new contract never got signed, due to wrangling over fairly typical employment contract things. And then Centerview hired a few new tech bankers whose franchise overlapped with Handler’s and things turned into what could fairly be described as “a hell of a mess”.
The lesson learned seems pretty clear – no matter how friendly everything is and how content you feel with a gentlepersons’ agreement, get it all in writing. A little bit of awkwardness now could save a lot more trouble later.
Tyler Dickson, co-head of Citigroup’s banking, capital markets and advisory unit, says that he’s cautiously bullish about an end to the deal drought in the second half of the year, as boards and CEOs get more comfortable with risk levels after the debt ceiling fight in Congress. Of course, talk is cheap and optimistic views don’t count until they’ve turned into a hiring spree. (Bloomberg)
FIG bankers, on the other hand, can’t see much light at the end of the tunnel; the fact that accounting rules require assets to be marked to market on acquisition, combined with a rising rate environment, has probably set things back by two years in Europe. (FT)
An unusual move from UBS/CS in Asia – they’re offering some bankers bonuses based on net new money generation rather than fees, something which private banks are usually reluctant to do for fairly obvious reasons, but which certainly might steady the ship in terms of bringing client money back. (Finews)
Dina Powell is leaving Goldman Sachs, but not exactly leaving the alumni network – she’s going to be vice chair and president of global client services at BDT & MSD Partners, the firm run by fellow former Goldman bankers Byron Trott and Greg Lemkau. (WSJ)
Fred Baba, one of the youngest partners at Goldman and the author of a viral memo around the time of the George Floyd killing in 2020, is leaving the firm. He’s apparently talking to Jane Street and other systematic trading powerhouses. (Bloomberg)
Bankers are choosing to resign rather than comply with five-day office working policies. As long as firms like Deutsche and HSBC remain content with three days, there will always be options. (Financial News)
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