Morning Coffee: Co-heads will roll in new UBS layoffs. Should Goldman Sachs traders worry about life post-Marty Chavez?

It seems there's some bad news to come at UBS's town hall meeting later today, with “hundreds” of job cuts likely in a reorganisation of the investment bank.  After having spent some time earlier in the year seriously considering various business combinations with Deutsche, it appears that Piero Novelli and Rob Karofsky’s first strategic plan is to try to execute a “merger without a merger” – an exercise in combining functions, removing duplication and looking for cost synergies, but without another bank actually being involved.

For this reason, the suggestion seems to be that the redundancies will be weighted toward the top levels of middle management.  Not the very top – as well as two heads of the overall division, there will be two global heads of trading (Jason Baron and George Athanasopoulos) and two global heads of IBD (Ros Stephenson and Javier Oficialdegui).  But below that on the org chart, equities sales & trading will be merged with FICC, and debt and equity capital markets will be brought together into one division and presumably various of people at the top of each division today will not be there tomorrow. 

There are plenty of reasons why trading desks, coverage teams and even back office divisions might have two people managing them rather than one, not all of them good.  The most common reason for the structure is that one of the co-heads is the person who actually manages things, while the other is a massive revenue producer with an ego who wants the title.  Possibly paradoxically, that’s the most stable version of the structure.  All too common, though, are “co-heads” consisting of one young and hungry manager and a popular but ineffective old-timer who nobody can face telling to retire.  Or co-head structures resulting from a senior management committee that couldn’t agree and decided to fudge the decision by telling both candidates that they’d won.  We might see some thinning out of the ranks in these situations.

Even so, it's arguable how much actual duplication UBS will eliminate from its merger-without-a-merger. FX and equities trading, for example, have hardly any overlap in their client base and can’t share salespeople, computer systems or even compliance staff to any great degree.  That would suggest to us that if you’re generating revenue at UBS, or directly supporting someone who does, then you might be at less risk in the current cost-cutting round.  It’s in the layers of management at two or more removes from the P&L that more overlaps might be found – Debt and Equity Capital Markets can’t share their bankers very well, but they don’t necessarily need separate events planners, PR teams or procurement functions.  Well-paid jobs with reporting lines to a divisional COO look like they’d be most at risk, as well as potentially regional and country heads.

Just because UBS is having an internal dead-wood removal exercise, don't presume it’s necessarily given up on mergers completely.  Sergio Ermotti has said in the past (and repeated at a Handeslblatt conference this week) that the future may lie in investment banks combining back office and settlement functions into “financial utilities” and concentrating on the revenue-creating tip of the spear.  So even the survivors of the current cost cutting round may find themselves with new battles to fight a few years down the line.

Over at Goldman Sachs, on the other hand, it seems like Marty Chavez’ exit interviews with the media are giving some clues about the future direction of the Securities business.  Apparently, “David [Solomon] and John [Waldron] and Stephen [Scherr] have been incredible backers and allies of the securities division specifically, and how the securities division is evolving” (emphasis added).  In context, “how the securities division is evolving” is into a more tech-focused operation built around the Marquee platform and the “strat” coder-traders.  Improving the stature of engineers and ensuring that tech projects would be adequately supported and funded were the projects Chavez was especially “passionate about”, and these are precisely areas he feels he has secured for the future.

This is great, but what about the people in the securities business who do … securities business?  With the arrival of Marc Nachmann, Goldman’s securities unit now has three co-heads, two of whom (Nachmann and Jim Esposito) have careers almost entirely spent in investment banking.  Ashok Varadhan is the last remaining trader at the top.  The memo sent out from “David, John and Stephen” yesterday said that Goldman intended “to grow our securities franchise with more of our corporate clients and expand our financing capabilities more broadly” (emphasis added again).  Goldman’s traders, analysts and salespeople could be forgiven for thinking that with this messaging, it seems like simply buying and selling securities for investors and making a profit out of doing so isn’t as much of a strategic priority as it used to be.  And Goldman is often among the early adopters of trends that arrive elsewhere on the Street in a few years.

Meanwhile …

“Within five years, nobody cares” – advice on what to do if your degree grade isn’t high enough for the graduate programs (FT)

You might not need a degree at all though – here’s a “cynic’s guide” to making just enough tech and VC connections in your first year at Stanford University, so that you can drop out and join the startup scene (New York)

Credit Suisse has made a big play for impact investing, taking people from UBS and Lombard Odier, as it appears that the socially-responsible niche of wealth management is hotting up as a recruitment market (Citywire)

An analysis of the incipient turf war that might break out in UBS Wealth Management in the future, as Iqbal Khan has been brought in to bring some dynamism to the franchise, but most of the real problems are located in North America under Tom Naratil (Euromoney)

How US investment banks brought the financial system to the edge of disaster, but then came back to take over the world (WSJ)

JP Morgan’s long-serving head of EMEA equity sales, Michael Wilson, has moved on (The Trade)

Fired by text message while accepting a “Politician of the Year” award – British MPs get a taste of what it’s like to be a banker during a merger integration (Daily Mirror)

Photo by 🇨🇭 Claudio Schwarz | @purzlbaum on Unsplash

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