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Something nasty may be coming at Goldman.

Morning Coffee: Goldman Sachs’ new CFO said this frightening thing on the conference call. Are poison-pen letters coming back into fashion in finance?

Goldman Sachs’ management had a bittersweet day yesterday – their own results were surprisingly good, but Morgan Stanley’s, reported on the same day, were surprisingly better.  Not only that, but the shape of the relative performance was one that is bound to keep alive the questions everyone is asking about future strategic direction under their new CEO, David Solomon.  There were positive surprises for Goldman in Solomon’s old stronghold of Investment Banking and in Equities Sales & Trading (which has typically been a bit of a Cinderella division), but in Goldman’s core franchise in fixed income currencies and commodities (FICC) revenues was below estimates (again) while the competition prospered.  So, what are they going to do about that?

One clue might be an ominous thing Goldman Sachs' incoming CFO Stephen Scherr promised during yesterday's investor conference call.  "We are reviewing all of our businesses front to back to ensure that our people and our financial resources are optimally deployed,” declared Scherr. This sounds a bit scary. When did you ever hear of a front to back review that decided that there were too few people and more needed to be hired?  If you want to hire people, you just do it; if you have a review, then it’s usually because there are some businesses that you think are not performing and need radical surgery.

James Mitchell, an analyst at Buckingham Research, thinks Goldman's fixed income traders have reason to be afraid. "We sense this could include further expense initiatives, reallocation of capital (from FICC to commercial banking?), and areas of new or accelerated investment (particularly in consumer)," says Mitchell, adding that any big changes are unlikely to happen until next year. Even so, this year's annual job trimming at Goldman could be more enthusiastic than usual - particularly given recent heavy hiring.  

Scherr was only briefly present on yesterday's call before ceding to still-current CFO Marty Chavez. Chavez also had plenty of interesting things to say. Key among these was Goldman's big emphasis on people and technology and on giving clients access to Goldman's digital tools.

"We're leading in those extremely competitive businesses with content, scale, and making it all client centric and investing to modernize it with digital access, digital formats of many kinds, digital user experiences over the web, same tools that our people use deploying them to clients; also giving clients the abilities to plug in directly into our platform through APIs, which is very much a theme for us as well as all companies that are building and deploying technology for their clients,” said Chavez. He was, of course referring to the rollout of SecDB and other Goldman risk management products in the form of the Marquee client interface.  In the long term, this might be good for Goldman shareholders if it locks the client into a GS franchise; it’s bad news for anyone who was previously making their bonus from delivering the bank to the client.

For the moment though, Chavez is all about people and technology.  "This is and remains a people business and at the same time, we want to give our people tools, so that they do the things that people can do best and always will do best,” he said, adding that Goldman aspires to a ,"tool-driven culture, putting those tools in the hands of our people and clients, that's what's going to drive margin efficiency and scale.”

It's worth remembering that the idea that you can automate an industry to gain efficiency, but maintain the same pricing and so build back margins is what destroyed profitability in equities trading to begin with.  It appears that Goldman Sachs wants to bring the same approach to FICC trading, and to drive it as far into capital markets business as it can go.  Only the IBD guys are safe …

Separately, the financial sector seems to have recently developed a nasty habit of writing anonymous letters.  First, some unnamed senior bankers at HSBC decided to air the firm’s dirty laundry in a letter to the board complaining that their boss had been “rewarded for persistent failure”.  Now Sacha Romanovitch has resigned as chief executive of Grant Thornton in the wake of another green ink special from a group of partners who accused her of pursuing a “socialist agenda”.

It hardly seems like a sensible or even a polite way to pursue your feuds.  What happened to saying things to someone’s face?  It is hard not to notice that at both HSBC Investment Banking and Grant Thornton, it is unlikely that the authors of the notes are particularly impressive performers themselves; perhaps that’s why they wanted to stay anonymous.


Credit Suisse, along with JPM and HSBC, will not be appearing at the Future Investment Initiative in Saudi Arabia.  This is perhaps a little more difficult a decision for Tidjane Thiam to have made, as CS have a big wealth management franchise in the region and were meant to be one of the main sponsors.  But the trend had begun, and nobody wants to be the last CEO to say they’re not going … (Bloomberg)

… and the list of refusees now looks significantly more prestigious in terms of investment banking fees earned than the list of people who are still, as of yesterday, planning to attend. (Financial News)

Fidelity (perhaps surprisingly, rather than an investment bank without a retail brand to risk) has taken the leap to be the first major financial firm to offer custody and brokerage services to asset managers wanting to invest in crypto assets.  Fidelity Digital Assets is set to launch in 2019, starting with bitcoin and Ether and potentially expanding to other cryptocoins. (The Block)

Hiring is hot in the Canadian M&A and advisory space as local and global banks and boutiques look to staff up ahead of an anticipated boom in cannabis stocks after legalisation.  It’s described as “a chance to play a unique part in Canadian business history” although cynics who remember the junior mining boom and the Chinese reverse merger fever might ask whether it’s really all that unique for the Canadian stock market to fill up with a load of really speculative IPOs, many of which turn out to go nowhere. (Bloomberg)

Sign of the times – after utterly lacklustre performance in the sector this year, AXA Framlington are rebranding their Financials Fund as a Fintech Fund in the hope of bringing in a few investors (Investment Week)

Real estate firm Cushman & Wakefield is suing a janitor who went to work for a rival for breach of a non-compete agreement, in a case which is potentially bringing the whole concept into more public attention than it can necessarily stand (FT)

In a case which might have ominous implications for London post-Brexit, the talks between Switzerland and the EU over the equivalence agreement in respect of the SIX exchange are still going on, with the EU side threatening to remove the equivalence status (Finews)

Barclays has a fund to make small grants of up to £550 for graduates to cover their expenses for attenting interviews (Cosmopolitan)

Recruitment firm Haigh Associates have inadvertently gone viral after hiring an editor for their corporate promotional video who might have been a little too influenced by the opening scenes of The Apprentice. Twitter users claimed to be unable to tell if it was a parody or not. (The Poke)

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AUTHORDaniel Davies Insider Comment

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