Sometimes it makes sense to leave Goldman Sachs. By quitting the firm to join the Trump administration, Gary Cohn has not only enriched himself to the tune of around $284m, he's also leapfrogged Lloyd Blankfein in terms of global influence. As the Financial Times points out, it's starting to look like Cohn is the man driving Trump's financial regulatory reform agenda.
It helps that Steve Mnuchin, another ex-Goldman banker and Trump pick for Treasury Secretary, has yet to be confirmed. In Mnuchin's absence, it was Cohn who stood behind Trump when he signed an order calling for the Dodd Frank law to be scaled back. And it's Cohn who's been acting as Trump's spokesperson on financial reform.
Cohn's statements so far have had implied rather than specific meaning. "We’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year,” he told the Wall Street Journal, implying compliance costs could fall. "It [the regulatory roll-back] has to do with being a player in a global market where we should, could and will have a dominant position as long as we don’t regulate ourselves out of that,” he added, implying U.S. banks could end up less regulated than Europeans.
The market conditions that allowed banks to securitize loans before the financial crisis no longer exist, Cohn went on, implying that stringent regulation of the securitization process is no longer necessary. And he bemoaned that banks' capital measurement metrics are, "so much more strenuous and so much more arduous", implying that capital requirements could be relaxed both in terms of metric and classification.
However, powerful he might now, Cohn isn't able to influence legislation alone. As the Atlantic points out, last Friday's executive order is merely a commitment to review the Dodd Frank regulations over the next 120 days rather than a promise of action. The real power will still lie with Mnuchin when he's confirmed. Mnuchin, rather than Cohn, will be tasked with meeting agencies like the SEC which oversee and implement Dodd-Frank in order to establish what needs to be amended. And once Mnuchin decides to amend something, Congressional approval will then be required to actually make the change. As the Financial Times points out, this approval may not be forthcoming: Republicans will require the vote of at least eight Democrats to get changes to Dodd Frank through the Senate.
Nonetheless, Cohn's statements help bump Goldman's shares 4.3% higher on Friday. If you work on the trading floor of an investment bank, any relaxation in capital requirements would be most welcome. Even more welcome would be a relaxation of the Volcker Rule which has stopped banks trading on their own accounts (prop trading) and relegated traders matching up buyers with sellers. Here, Cohn himself was strangely silent, although Bloomberg spoke to an unnamed official who said "particular attention" will be paid to the Volcker Rule during the review and that administration doesn't feel that the rule has addressed the "real issues." Watch this space.
Separately, if you've been reading all the stuff about banks pooling back office functions in separate companies to share costs, Barclays' latest move should raise some alarm bells. Reuters reports that Barclays has formed a new standalone unit that will provide support services to its investment bank and retail bank when they're formally separated under U.K. ringfencing rules. The move will impact 10,000 people working in technology support, data management, compliance, corporate relations, legal affairs and human resources, and job losses are inevitable. Where Barclays goes, other banks are likely to follow. Ultimately, these units are likely to evolve into distinct companies selling services into multiple banks, significantly reducing the need back office staff in the process.
Goldman Sachs has been shaking things up now that Cohn's gone. Russell Horwitz, former COO of the securities division, has been made deputy chief of staff and secretary to the management committee (WSJ)
Bank of America Merrill Lynch needs to find a new London office (or move elsewhere) by 2020. It's just hired property agents CBRE to find 500,000 square feet in the City, suggesting it might stay post-Brexit. (Telegraph)
There are administrative workarounds that could allow banks based in Britain to avoid the effects of Brexit. Eg. Mirror trades in which products sold by local EU entities are immediately transferred to the UK. (Financial Times)
German finance minister Wolfgang Schäuble sings to Brexitters hymn sheet, says the City of London, "serves the whole European economy” and it's “keep Britain close to us.” (Independent)
Frankfurt trade body says 10,000 finance jobs will move to Frankfurt soon. (Financial News)
2017 has started well for M&A but it might get worse. (Financial News)
Mike Bloomberg on the joys of being fired: "If I hadn’t gotten fired from Salomon, which became part of Citigroup, I wouldn’t have gotten a $10 million severance, used my electrical engineering degree to begin my own information technology company and program a computer terminal for bond traders." (NYTimes)
So, Deutsche Bank has 1,670 people working in fixed income and 1,180 working in equities. (WSJ)
Helena Morrissey, mother of 9 and former chief executive of Newton Investment Management, has written a book called, 'A Good Time to be a Girl: How to Succeed in a Changing World.' (Financial Times)
Ex-Goldman banker forms dating agency to unite people in mutual hatred. (Business Insider)