Morning Coffee: Goldman Sachs' secret strategy. Anti-elitism at Barclays
Remember Harvey Schwartz' presentation on Goldman's strategy in September 2017? The one where Schartz said the firm is chasing $1bn in additional fixed income currencies and commodities (FICC) revenues over a three year period, partly by increasing its penetration with corporate clients, partly by focusing on selling on other banks and asset managers, and partly by hiring new salespeople and strats? It transpires this was only part of the story: Goldman's FICC revenues are also supposed to piggy-back on Marcus - its new consumer lending operation.
Launched in late 2016 and with around $20bn in deposits and $3bn in loans so far, Marcus' benefits to Goldman had previously been posited as a more diversified funding stream and a cushion against the ups and downs of earnings in the investment bank. It turns out, however, that there's more to it than this. Marcus is intended as the canary in the consumer credit coalmine.
Stephen Scherr - the Goldman partner who runs Marcus - says part of the joy of the new consumer lending operation is the fact that it, "allows Marcus to learn more in real time about the product, pricing, and credit with this group and apply this to the overall credit model." Business Insider parses this as meaning that Goldman, 'is lending to subprime borrowers because it thinks they'll be the first to stop paying when the credit cycle turns.' In this way, will Goldman be ahead of the rest of the market and able to dodge the next financial crisis in the same way it dodged the last.
It all sounds very cunning. For the moment Marcus is small. The Financial Times points out that Goldman's $3bn of Marcus loans are just a tiny proportion of its overall loan book of $72bn; 20% of them are subprime. This could grow: Goldman sees Marcus' lending opportunity as up to $13bn over three years.
There are clearly a few problems with Goldman's vision though. Firstly, what about all the other banks with far bigger consumer lending arms? What about J.P. Morgan and Citi and Bank of America? Won't they have real-time warnings of the turning cycle too? And then there's the question of what happens if Goldman's made $2.6bn of subprime loans that turn sour? - Maybe the firm's decided this is an acceptable price to pay in the context of the tens of billions in its larger loan book.
Separately, the ongoing Barclays' LIBOR case continues to throw up insights into the reality of working for a bank. Last week we had an ex-trading VP drawing parallels with working for McDonalds. This week, we have a flash of the traditional jargon used to describe people doing the most entry-level jobs.
Bloomberg cites the testimony of Colin Bermingham, a former Barclays trader who joined the firm in 1974 in a paperwork position known as a, 'rough.' Bermingham's role was to keep track on paper of at least 20 different traders’ positions. His defence is that having joined the bank straight from school and worked his way up, he was proud of what he did and now feels manipulated by the better paid and better educated traders allegedly perpetrating the fixing of Euribor. If Bermingham's vindicated, Barclays might want to hire a few more roughs in future.
It was David Solomon who selected Ashok Varadhan to be the sole head (for the moment) of Goldman's securities business. (New York Post)
Credit Suisse hired Jack Tierney, a senior equities sales trader from Goldman Sachs. (The Trade)
Sean Bates, head of emerging market debt, left Deutsche Bank. (Bloomberg)
Life is getting better for Jes Staley and bankers at Barclays: the British High Court dismissed an investigation by the Serious Fraud Office into the bank's emergency fund raising during the financial crisis. (Financial Times)
Quit your equtiy trading job and become a racehorse owner instead. (Horse & Hound)
Quit your banking job and pay yourself less than an intern. (Business Insider)
It's a great time to be a FIG banker in Saudi Arabia. (Bloomberg)
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