Morning Coffee: US Banks turn to oblique methods of cutting staff. 30-year old FX trader quits Deutsche and makes billions
December is the month when banks try to put the finishing touches on their “expectations management” with respect to bonus pools. It’s always a time of mixed messages, but this year the mixture will need to be calibrated particularly carefully, because bonus awards are going to be used as a way of communicating tough messages to quite a few bankers.
In order to understand what’s going on, you need to read between the lines of what bankers like Brian Moynihan of BoA or David Solomon of Goldman Sachs are saying about overall market conditions, and how that relates to their own firms’ hiring plans. The last twelve months have been bad, but not so bad as to make anyone think that the capital markets are closed for the long term.
That means that the top banks need to cut costs, but to do so in a way that preserves the overall franchise. This is actually quite easy to do; one of the reasons that mass layoffs are comparatively rare in the bulge bracket is that the investment banking industry has high staff turnover. In an ordinary year, a big bank might see as much as 8% of its front office staff leave organically, meaning that you can make quite big changes to headcount simply by slowing down hiring and maybe pushing a bit harder on the annual performance-related cuts.
This sounds a lot like what Moynihan is doing at BofA. – As he declared yesterday: “We went back and said 'all the job openings are closed, let's start from scratch”. This doesn’t BofA has a formal hiring freeze (although it may have had momentarily) – it does mean that any future hiring will happen to fill pressing business needs. By putting a brake on hiring and letting people leave, Moynihan claimed: "we have an ability to reshape our headcount pretty quickly just by turnover." There won't even be mandatory job cuts: "We don't lay people off," he added.
BofA isn't alone in slowing hiring and letting nature take its course. Goldman Sachs also said it would "slowing hiring velocity" in mid-October. At BlackRock, hiring is fully frozen right now. Even at Morgan Stanley, which has announced cuts of as much as 2% of the global workforce, it's likely that the hiring side is also being flexed downwards.
This makes it easier for banks to cut bonuses with impunity: next year, there may be far fewer jobs to go to. It also means that as banks work to encourage natural staff attrition, bonuses will almost certainly be low for anyone in the tier of performers just above those that get cut, or in teams and divisions that the bank doesn't see as worth investing in. David Solomon said yesterday that Goldman will be paying based on,"performance mindset with a focus on talent retention”, implying that even if you performed you might not get paid if they don't want to retain you.
It might be easier for Goldman to lose staff by virtue of this policy than other banks: “The job market remains surprisingly tight, and the competition for our talent, particularly top talent, is as strong as ever,” Solomon added.
Elsewhere, Alex Gerko of XTX Markets is one CEO who has less to worry about in terms of talent retention than most; his firm has no human traders and only one human salesperson. The rest of the firm’s 170 employees are mainly data scientists and low-latency trading experts.
While this might make for a weird atmosphere if Gerko ever tried to copy his main competitor, Citadel Securities, and hire Coldplay for Christmas entertainment, the human-light model seems to have worked for him. The former FX and equities trader left Deutsche in 2009 aged 30. He founded XTX only seven years ago, but this year it paid a total dividend of $1.6bn.
Since Gerko owns 75% of the company, and may also participate in a $500m profit sharing pool for senior partners, Bloomberg estimates his net worth at over $6bn. That’s not as much as Ken Griffin, but he’s been going for a lot less time, and he has the advantage of not having to waste any of his time listening to traders whining about their bonuses, which is a pleasure that money can’t buy.
Another former trader who made good after leaving a big bank is Ovie Faruq. After a decade on the credit and CDS desks at Barclays, he quit to become an NFT artist, and has sold work to Snoop Dogg among others. He’s this year’s “Most Influential Artist” according to Coindesk’s review of 2022. (Coindesk)
Sara Wechter, the global head of human resources at Citi, has been a sounding board for several of the firm’s chief executives and her advice has shaped some of the firm’s most politically controversial decisions. (Bloomberg)
Ramy Goldstein, the former UBS equity derivatives head and principle of GCW hedge fund, has been accused at an employment tribunal of pressuring his personal assistant to come round to his house and work during the pandemic lockdown. (Evening Standard)
“I went to get a coffee, came back and was locked out [of my laptop] and checked the news and saw it announced on CNBC”. Crypto firm Kraken claims that supporting laid-off staff is its “top priority”, but it seems that tech companies have a lot to learn from traditional finance when it comes to handling redundancies. (Financial News)
And the workers are fighting back – Twitter employees who don’t think they have received the severance packages they were promised are threatening, via a lawyer, to file dozens of independent arbitration cases, racking up so many fees it would be cheaper to just give them what they asked for. (WIRED)
Just because it’s agonizing, doesn’t mean that it has to be uncomfortable – rich people bankers who enjoy competing in triathlons now have the “Ironman XC” (“Executive Challenge”) in which all the admin and logistics are handled by a concierge service so you can concentrate on competing in really scenic surroundings. (NYT)
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