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Morning Coffee: Citi is quietly cutting more jobs than Goldman Sachs or Morgan Stanley. The hedge fund that won by sharing the wealth

It’s sometimes easy to forget exactly how big an investment bank Citigroup is; as of its last annual report there were nearly 75,000 employees in its Institutional Clients Group.  That’s almost as many people as the entire workforce of Morgan Stanley, and significantly more than Goldman Sachs.

Of course, the ICG includes securities services, treasury services and corporate lending, all quite labour-intensive industries which don’t have similarly sized direct counterparts at the other big US banks.  Nevertheless, it feels like it might be significant that at an investor conference yesterday, CFO Mark Mason said that “As I sit here in the second quarter, we have, at this stage, year-to-date, but between now -- between the first quarter and now, we have incurred costs, severance costs associated with about 5,000 head count that we will be reducing across the firm, largely in banking, markets and functions”.

In terms of the severance expenses, 1,600 of those reductions were “funded” in the second quarter, implying that 3,400 were in Q1.  That’s a lot.  If you simply divide the number of redundancies by the divisional headcount, it’s a total reduction of a bit more than 6.5%.  Both the numerator and the denominator of that calculation are wrong, of course, because not all the redundancies are in that division, and not all ICG staff are investment bankers.  But even allowing for that, it seems quite probable that if the like-for-like figures were available, they’d show bigger proportionate cuts at Citi than the roughly 4% carried out at the houses of Goldman and Morgan Stanley, where cuts this year number 3,450 and 3,000 respectively. 

And Citi doesn’t seem to have attracted anything like the same degree of attention. They don’t even have a catchy (if somewhat exaggerated) nickname for the cuts like “David’s Demolition Day”.  This might partly be because they have been eking them out across different teams and geographies, rather than having a big single announcement and hoping to be “one and done”.  It’s a matter of taste which strategy is better for employees; the Citi approach is likely to be a source of constant low-level stress, and tends to leave more of a stigma on the people being fired because it looks more like a cull of underperformers.  On the other hand, the big demolition days are more stressful to anticipate, harder on managers and, apparently, they attract significantly more publicity.

Another explanation, though, might be that people just don’t think about Citi at all, or at least, not as much as the specialist investment banks of the bulge bracket.  Although the cost of “Fraser’s Frequent Firings” of investment bankers is big enough to warrant highlighting on a conference, it was only one moving part among many, along with the IPO of a Mexican subsidiary and the effect of exiting a number of emerging markets.  One advantage of very big banks is that the sense of drama is always slightly muted.

Elsewhere, if you work in European equities and are closer to your fiftieth than fortieth birthday, you might hold a vague sense that Landsdowne Partners and Marshall Wace are two roughly equally-sized hedge funds.  As a longread in the Financial Times points out, this is very much not true any more; over the last decade, MWAM has grown to the point where it can be referred to as “the Citadel of Europe” without too much mockery, while Lansdowne has shrunk to a third of its peak size.  And there seems to be widespread agreement about what the difference is attributable to.

As many people interviewed point out, if a business is going to grow, it needs to add people.  In the case of a hedge fund, that means bringing in new partners, which means diluting the ownership stake of the existing partners.  This is a fundamental problem for every kind of partnership; as one rival says, the “percentage of the economics going to non-producing owners” can be a huge drag.  It appears that successive attempts to grow Lansdowne ended up being rejected because the existing owners couldn’t quite face giving up so much of the business, while Marshall Wace partners consistently went for the smaller slice of the bigger pie.

Meanwhile …

There seems to be an equivalent of Murphy’s Law which ensures that a successful investment banker will suddenly hit an appalling run of luck the moment they start getting involved in deals as a principal rather than an agent.  And so, it seems that Alasdair Warren, who must have been involved in scores of successful equity capital markets transactions at Goldman Sachs and Deutsche Bank, has found that as CEO of WE Soda, his IPO has fallen to “extreme investor caution in London”. (FT)

If Josh Hosie achieves his dream of becoming an investment banker, it will be a slightly unusual route into the industry – after not making the cut for the EPL at the youth academy of Everton FC, he got a full scholarship to an American university. (Everton FC)

It’s a good question for a slightly specialised trivia quiz – what’s Goldman Sachs’ biggest office outside New York?  The answer is that it’s the campus of Goldman Sachs Services Pvt in Bengaluru. (Bloomberg)

The managers of the Eudaimonia Fund claim that employee happiness is a significant driver of share price performance and (possibly more surprisingly) that it can be ascertained by sufficiently assiduous algorithmic scraping of Glassdoor and LinkedIn. (Albany Business Review)

When a bank says that it plans to take advantage of conditions to hire top talent, that’s not great news for the talent already working there.  At Perella Weinberg, up to 50 employees (7% of the total) could be fired in order to free up space for rainmakers who might be coming available. (Bloomberg)

A survey of over 40,000 Reddit “AITA” threads suggests that the behaviour that’s most likely to get you judged negatively in the office is to be excessively judgey of other people.  No wonder (according to the same authors) most professional feedback is “overly positive, noncritical, basically useless”. (WSJ)

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AUTHORDaniel Davies Insider Comment

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