You can’t say that Goldman Sachs didn’t see this coming. Back in 2012, CEO Lloyd Blankfein was talking about the need to invest in technology and electronic trading, to move into credit trading, and to prepare for a world in which revenues are persistently lower. So, what went wrong?
Today’s fixed income trading results from Goldman are nothing short of abysmal. If co-head of securities trading Pablo Salame was “tired of losing” before, he’s going to be exhausted now: after a 50% year-on-year reduction in the fourth quarter, revenues in Goldman’s fixed income trading division were less than half those at J.P. Morgan and Citi, and just 60% Bank of America’s. Goldman’s fixed income trading powerhouse is shriveling. To those who left the firm in the past few years, it’s a travesty.
“The alumni are angry,” says one former Goldman partner from the fixed income business. “The value of the FICC reputation is deteriorating by the quarter.”
Goldman has a detailed plan for rehabilitating its fixed income business, as articulated by co-COO Harvey Schwartz last year. However, the ex-partner says Schwarz’s plan to increase Goldman’s corporate client list and to build relationships with asset managers and banks misses the point: he says Goldman’s issues are symptomatic of internal politics. Historically, Goldman was a collusive place to work, but as revenues deteriorate he claims the firm is turning in on itself. The decision to double external hiring and bring in new senior blood from outside risks worsening the problem in 2018.
“The senior and mid-level people in FICC at Goldman today spend 99% of their time managing their upward images instead of their client reputations,” says the partner. “No one is focused on trading. No one is focused on covering clients. It’s all about survival. They tell their bosses they’re covering clients, but they’re spending more time covering their backs – the senior people are busy putting together Powerpoint presentations for Lloyd and five year plans for the board.
“All the adults have left the FICC business at Goldman,” he adds, pointing to the roster of big names who left in 2015 and 2016. “This is a global problem – you see it London, you see it in New York. Goldman has become all about self-preservation. The senior people are just hanging on for one more bonus, one more vest.”
What’s the solution? He says senior management needs a clear-out. Veteran analyst Dick Bove has long been arguing that Lloyd Blankfein needs to move on. The ex-partner says the rout should be deeper than that: “Clean out the FICC house and start again,” he says. “You need to get rid of the lifers – if someone stole your wallet in 2008, would you trust them in 2018?”
Last year, the New York Times said the battle for the helm of Goldman Sachs is being enacted between co-COOs Harvey Schwartz and David Solomon. The ex-partner is clearly a fan of the latter: “Harvey is about as steeped in FICC trading as you can get,” he says. 2018 may see Solomon succeed: Goldman’s investment bank performed well last year.
In the meantime, someone at GS is going to suffer: spending on compensation in the fourth quarter, often an indication of bonus accruals, fell 32% on the previous year.
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