Goldman Sachs’ fixed income salespeople and traders are in the doghouse. After consistently under-performing rivals for much of the past year, the business that produced the likes of Lloyd Blankfein, is unlikely to give birth to the next generation of leaders. With competition heating up between potential Blankfein replacements, early indications are that the next leader or leaders could come from equities trading instead.
During the call accompanying the release of Goldman’s second quarter results last week, new CFO and man of the moment Marty Chavez, noted that Goldman increased revenues from equities client execution by an impressive 17% year-on-year in the first half. This was the result of the firm’s long term investment in equities execution, said Chavez. Invigorated by success, he claimed that Goldman is now rolling out the same approach to its fixed income sales and trading business. – The equities execution strategy has already been applied to U.S. corporate credit, and is now being “extended” to Europe, Chavez added.
Reading between the lines, the implication is that Goldman’s equities execution strategy, implemented by Chavez and his lieutenants since 2015, is seen as a potential panacea for the poor performance in fixed income.
Goldman is by no means the only bank to reach this conclusion. As fixed income trading increasingly moves onto electronic systems, most banks are looking to electronic equities businesses to lead the way. The successful reinvention of Morgan Stanley’s fixed income business is attributed to Ted Pick, Morgan Stanley’s former head of equities trading, whose remit was expanded to include FICC in 2015. Pick immediately set about making 25% of Morgan Stanley’s fixed income traders redundant, and the rest is history.
Are Goldman’s fixed income traders in for their own Morgan Stanley moment? Maybe so – while Morgan Stanley now boasts of earning higher revenues with fewer staff, Goldman Sachs has resisted calls to make deep cuts to its fixed income division, but this could be about to change.
If it does, the axe-wielders will almost certainly come from Goldman’s aptly-named equities execution team. Alongside Chavez, the main man to know at Goldman now therefore looks like Raj Mahajan, hired by Chavez in 2015 to sort out the electronic trading business. Mahajan is based in New York, but his man in Europe – also hired in 2015 (from Morgan Stanley) is Ben Coward Talbot, who’s tasked with revivifying the electronic trading business in Europe along with Justin Brickwood. If you work in sales, you might want to get to know Andrew Philipps, based in New York, who’s head of the equity sales strats team behind Goldman’s Marquee system.
Meanwhile, Goldman’s European equities business has been hiring. Headhunters say it recruited Timo Tatzel, an electronic equities trader from Barclays in May, plus Pierre Cornet d’Elzius and Tom Groothaert, salesmen from Credit Suisse.
This isn’t to say that Goldman’s equities business has been performing that well compared to rivals. Insider point out that Goldman was always bigger than Morgan Stanley in equities sales and trading historically, but that Morgan Stanley took the lead in 2014 and has held onto it ever since. Moreover, this year’s strong performance in equities execution doesn’t obscure the fact that revenues in the business were substantially higher before Mahajan et al set to work.