Goldman Downgraded to Copperman
Germany avoids recession, investors hate Goldman again, and Citi employees begin motivation training
Germany will avoid recession, the Bank of Japan continues to rattle markets and it’s already that time of the year where investors turn on Goldman Sachs. Here’s a recap for all you remote Citi employees who are being forced to return to office for motivation training.
Let’s dive in.
Bottom Line Up Front
- Citi summons unproductive remote workers to office for coaching (BBG)
- Microsoft to cut engineering jobs this week as layoffs go deeper (CNN)
- Billionaire Jim Ratcliffe joins the race to buy Manchester United (Guardian)
- Oil pushes higher on bets Chinese demand will soar this year (Yahoo)
- Fed’s Barkin says it’s too soon to end Fed hikes as inflation lingers (WSJ)
- Nurses on strike say people are dying in the UK’s health service (BBG)
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Deep Dive: Goldman Downgraded to Copperman
It was merely months ago when Credit Suisse was poised to be the next Lehman. So David Solomon made some intern hold his beer.
Wall Street investors are punishing Goldman Sachs for its identity crisis after posting the second-biggest loss in the S&P 500. Let’s discuss the repercussions.
Goldman Sachs posted a worse-than-expected profit decline for the last three months of 2022 yesterday, as revenue from its investment banking and asset management divisions fell sharply.
The firm posted a net earning of $1.33B, or $3.32 per share, on $10.59B in revenue for the three months (ended December). Its quarterly profit was only a third of what it was a year ago. Earnings per share fell over 40%, the largest miss in a decade.
In case you only just got your first coffee break of the new year, Goldman cut 6.5% of its employees worldwide. It marks the biggest wave of layoffs since the financial crisis.
Goldman began the process of cutting 3,200 jobs last week, but a significant proportion of affected bankers were given their marching orders last Wednesday.
Reports accuse the firm of dismissing many employees without paying a bonus for work performed last year. Some junior bankers allege being given less than 30 minutes to gather their belongings and leave.
As the Mass Layoffs Happened
Thousands of employees turned up to work unaware their heads would be the ones to roll. Some employees were reportedly given about half an hour to collect their coats and pack up their desks before their building access cards were deactivated.
According to Goldman’s ex-girlfriend who can’t get over them, The New York Post, the firm’s HR scheduled fake business meetings where they told junior employees they were being laid off. Bankers were emailed calendar invites for meetings on Wednesday morning, some as early as 7:30 a.m. They were then informed they were let go by managers when they got to a conference room.
Many senior staff were told earlier in the week about their roles, while more junior staff weren’t given the courtesy. So any headcount numbers cited at or after Wednesday reflect layoffs of mainly junior staff, whereas lifers and other VPs on the road to nowhere were given a heads up beforehand.
In Goldman’s New York headquarters, 200 West, many of these group firings meant going up one elevator from your trading desk’s floor to the main floor, going up another elevator to get to HR’s floor, and then being escorted back down to yours carrying boxes. In other words, a very classy and discreet strategy you can only expect from HR.
In London, some affected bankers decamped to the Harrild & Sons pub near the bank’s Plumtree Court offices. Guess they spent the bonuses they didn’t receive on pints with co-workers turned ex-colleagues. It wasn’t all bad, though. A quick search on the pub’s Instagram reveals it used the mass of bankers that day to market “Everyone loves a busy bar!”
Why It Matters
The layoffs are the most concrete example of a deep, cost-cutting drive at the Wall Street bank, as CEO David Solomon tries to reduce expenses following several years of expansion and a slowdown in its investment banking business.
The pay-offs on offer to departing staff differed markedly, according to various reports. Many bankers were let go without being paid a bonus for work they performed in 2022. Many managing directors will reportedly be paid until the end of January, and then given three months of paid garden leave. Some junior employees were offered two months of severance pay.
Being the thought-leaders they are, Goldman released a statement last Wednesday that it was a “difficult time for people leaving the firm”.
The dismissals come after the number of Goldman employees grew by almost 30% since the end of 2019, an expansion that reflected a rush of investment banking activity and a pandemic hiatus for annual layoffs.
$3B in Losses Since 2020
Goldman’s push into consumer banking was arguably CEO David Solomon’s biggest (and only?) initiative. That is, unless you count funding celebrity brands just so he can meet JLo or get on the track with McLaren during Grand Prixs.
Given layoffs are yet another easy thing to bash Goldman about, its SEC filing on Friday got relatively swept under the rug. The report revealed just how much Solomon’s initiative failed.
Goldman’s Platform Services unit, which houses Apple Card, GreenSky and some Marcus business, lost nearly twice as much in 2022’s first nine months as in 2020. The unit, which is the remaining branch of Solomon’s consumer play, has hemorrhaged $3B in under three years.
The statement did not include 2022’s fourth quarter — the results of which Goldman only released yesterday. That statement pushed the Platform Solutions’ deficit since 2020 to $4 billion.
The earnings breakdown shows acceleration everywhere in Platform Solutions. Net revenues jumped from $334M in 2020 to $989M in the first nine months of 2022, taking in $640M in 2021 along the way.
Meanwhile, operating expenses roughly doubled in the unit — from $630M in 2020 to $1.26B in 2022 (through September 30). Ditto the bank’s provision for credit losses. The bank held back $942M related to Platform Services businesses throughout the first nine months of 2022, compared with $487M for all of 2020.
What It Means for Solomon
Overall, Solomon’s Platform Services play lost $783M in 2020, $1.05B in 2021 and $1.21B in 2022 (through September 30).
Friday’s figures do not give a complete picture of the health of Marcus, the consumer-banking unit Goldman launched in 2016. Albeit all under Solomon’s consumer push, Platform Services and Marcus are two separate consumer branches. Goldman split Marcus between two of its new divisions in October, with much of it falling under asset and wealth management. That division’s bottom line swayed from $2.9B in 2020 to $10.7B in 2021 and back down to $1.3B over 2022’s first three quarters.
Marcus has been a persistent target of layoff talk. But it may take until April before the full impact of headcount reduction in Marcus is known. That’s when the bank may publish its employee count along with first-quarter earnings.
If it wants to get ahead of the numbers, Goldman may also detail its Marcus job cuts at the bank’s February investor day. But everything Solomon has done in his tenure as CEO suggests he’s the banker-type from Margin Call who got to the meeting late and only heard the last option for how to get ahead.
Is Solomon on Borrowed Time?
Goldman kicked off the next Wall Street earthquake.
Some Goldman employees are predicting that the disappointing bonus round will prompt a wave of resignations, helping the bank reduce costs without having to pay severance. Investment bankers are braced for a 40% reduction, while traders have been told to expect flat or lower bonuses, even after a strong performance last year due to volatile financial markets.
That would also increase Goldman’s chances of losing some of its top performers.
The layoffs at Goldman are the most striking example of the deep cost-cutting measures being taken by Wall Street banks. Morgan Stanley, Wells Fargo, Barclays, Credit Suisse, and BlackRock, among others, have either already laid off employees or announced job cuts. Some smaller companies have had several rounds of layoffs.
Job cuts became apparent when trading and deal revenues at the five largest US banks plunged by nearly half in the first nine months of last year. The least banks later to layoffs can do is pay the tab at the nearby bar for laid off bankers after their fake 7 AM group meeting.
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