Morning Coffee: Goldman Sachs’ bonus pain by rank and division. HSBC is reaching out to the insecurely employed
“I think we’re going to be worse than the Street”. It won't have been an easy thing for a nameless “senior Goldman banker” to say. For Goldman Sachs to have a bonus pool that’s below the industry average is a rare occurrence. For it to do so in a year in which its market share has actually been pretty healthy (both in M&A revenues and overall investment banking) and where there have been no particularly noteworthy write-offs or regulatory fines is even more so.
Goldmanites looking for culprits might want to alight on the 84% year-on-year drop in equity capital markets revenues or the $1.2bn losses from the consumer business. Nonetheless, the worst predictions might not happen – some senior bankers are very dramatic, and the rest of the Street might feel that if Goldman Sachs isn’t paying up this year, they don’t have to either. But if the claims are correct that GS really is moving in the direction of a 40% decline in the bonus pool compared to last year, then bonuses may well be worse than rivals and there’s going to be a lot of disappointment to be divided up.
Based on leaks coming out of the expectations-management conversations over the last few weeks, it’s possible to make some educated guesses about the people at Goldman that will fare best and worst from the coming bonus cut.
Salespeople and traders in the markets division could get off lightest. They've been told their bonuses will be down only 30%. The FT suggests investment bankers will do worse: their bonuses are likely to be down 'at least' 40%. Worst off of all, though, will be Goldman's partners: their bonuses are expected to be down 50%.
Where's the sweet-spot? Goldman analysts were paid their bonuses in the summer. Associates and VPs will be told their numbers in January. At that level, the blow will at least be softened by increased salaries as they rise up the hierarchy.
Goldman might be taking a calculated gamble. Goldman CEO David Solomon said last week that the war for banking talent is as strong as ever. “People familiar with the matter” are worried about staff turnover, but the firm might be guessing that hiring is going to drop. With private equity firms struggling to raise money, they are not in a strong position to be hiring hungry former rainmakers from the sell side.
That leaves hedge funds. And hedge funds tend to look for sales & trading employees, and for high performers who aren’t on the management track – exactly the people who are most likely to get paid this year.
Elsewhere, although the bulge bracket might feel that they don’t have to worry so much about retention at the moment, there are plenty of banks in the tiers immediately below who seem keen to remind them that even a calculated risk is still a risk. It’s been noticeable over the last couple of months that firms like Jefferies and BNP Paribas see unsettled conditions as an opportunity to staff up at their competitors’ expense, and now HSBC seems to be stepping up too.
According to Bloomberg (who have seen the email), HSBC’s recruitment team have been sending emails to staff at rival banks who are going through layoffs, saying things like “Whether you were personally affected, or have colleagues that lost their jobs, layoffs are stressful and can be overwhelming” and “We want to make it easy for you to find your next role”. How very kind of them.
This is usually considered to be an aggressive approach. Sending love letters to other firms’ staff is a game that can get out of hand. It invites retaliation if and when relative fortunes change. But for the time being, HSBC should probably be praised for making some people’s worst afternoons of the year a little bit more hopeful.
Meanwhile …
In a kind of Pyrrhic victory, the group of employees of AIG Financial Products who have spent the last decade in litigation over the company’s obligation to pay their deferred bonuses will now be claimants on its bankruptcy estate as (having largely resolved the litigation) the parent company is finally putting the company that nearly broke capitalism into insolvency. (FT)
Eight stock-picking influencers (like real influencers, but not as good looking) have been charged with a pump-and-dump conspiracy by the SEC. (WSJ)
Banks and law firms in London are using a piece of software called “Hemisphere”, which asks you to grade a series of videoed interviews, then gives you (thankfully confidential) feedback on the likelihood that your assessments displayed unconscious bias. Apparently 80% of bankers were found to have some sort of bias, although the company’s founder is keen to emphasise that this is “completely understandable” and doesn’t mean you’re either a bad person or a compliance risk. (Financial News)
The losses on the Twitter acquisition debt are going to be taken before the year end, apparently, and may cast an unpleasant pall over a few bonus conversations. Looking at the amounts sold and the apparent bids, it’s hard to see how the big banks in the syndicate will keep them to eight figures. (Reuters)
It's sadly predictable that the executive responsible for Amazon’s “best employer on earth” initiative, the Chief of Human-Centred Science Justine Hastings, has now herself been investigated for allegations of creating a hostile work environment. (Business Insider)
With Tim O’Neill’s retirement, there are now only eight of the 221 Goldman Sachs partners at the time of its flotation left. (Bloomberg)
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