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Late Lunchtime Links: Harvey Schwartz explains why Goldman won’t lay off fixed income traders

Harvey Schwartz

Harvey Schwartz, the new CFO at Goldman Sachs, has been talking to Brad Hintz, an ex-CFO at Lehman Brothers turned banking analyst at Sanford Bernstein. Schwartz told Hintz that 2013 is unlikely to be a great year for Goldman, reports Bloomberg.  However, Schwartz said he was ‘cautiously optimistic.’

We have our own copy of Hintz’s Schwartz-related note. Therein, Hintz also imparts that: Schwartz doesn’t foresee an M&A boom this year, that Schwartz thinks rival banks got over-excited by the “head fake” of strong fixed income performance in 2009 and hired too many people – only to have to cut them back again as equity investors demand higher returns, and that Schwartz doesn’t rule out the possibility that Goldman will make some small acquisitions of asset management or technology firms.

Most interestingly, it seems that Schwartz is prepared to play the long game with regards to Goldman’s fixed income currencies and commodities (FICC) trading business.

FICC trading is in the midst of a period of “evolution,” said Schwartz. Fixed income trading is being automated and rivals are dropping out. During this period of evolution Schwartz said it would be wrong to judge the performance of particular FICC businesses based upon ‘discrete short term return on equity (ROE) targets’.  ROE in FICC is dynamic, said Schwartz: it will change as competitors exit the business and as new regulations affect capital allocation.

Rather than focusing solely on short term ROE as a determinant of the viability of a FICC business, Schwartz said Goldman therefore looks at a variety of measures, including: “ROE relative to competitors”, “services clients need”, “synergies with other businesses” and whether or not a business has competitive advantages. In this sense, Goldman’s commitment to FICC looks balanced than Credit Suisse’s. The Swiss bank indicated this morning that it’s judging the viability of its business areas based mostly upon its own market share and the returns that each business generates. If you work in FICC it’s easy to see which firm is likely to offer the more stable future.

Meanwhile:

This is the third time in seven months that Credit Suisse has raised its cost reduction target. (Bloomberg) 

Credit Suisse will pay smaller asset-linked bonuses this year than in the past. (Bloomberg) 

Aryeh Bourkof, former head of investment banking for the Americas at UBS, set up a boutique and immediately won a role advising on the Virgin Media deal. (Financial News) 

It seems Barclays has been letting go of fixed income bankers in New York and equities derivatives bankers in London. (Bloomberg)  

If Cantor Fitzgerald buys Seymour Pierce, that may mark the end of its equities hiring. (Financial Times)  

Deutsche Bank has suspended 5 rates traders in Frankfurt. (Financial Times) 

RBS alleged-Libor-manipulators named here. (Bloomberg) 

After RBS recruited two Yen Libor traders in 2006, revenues went from a small loss to by 2010. (Financial Times) 

The Glaswegian chairman of HSBC says banking bonuses can be a force for good. (Herald Scotland) 

Things you should never assume when managing older employees. (Daily Muse) 

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