As you may be aware, Gary Cohn, COO of Goldman Sachs gave a long and important interview to the Sunday Telegraph yesterday.
For those of you unfamiliar with either man's pronouncements and in the interest of quick and easy accessibility, we’ve summarized what Gary and Jamie said, and looked at the implications, below.
As we were the first to report last year, Goldman Sachs has cut salaries for its staff in London.
Now, Cohn appears to have told the Telegraph that the bank is also capping salaries for, “many Goldman Sachs employees earning over £100k.”
What’s not clear, however, is at which level salaries are being capped. Last year, some Goldman staff in London were rumoured to be on salaries of £1m.
In an echo of Marcus Agius at BarCap in 2009, Cohn appears to imply that Goldman is paying its staff as little as it can.
"I walk in every day and say, 'How can we pay our people enough that they will stay?,” he informed the Telegraph.
"We are highly committed to London," Cohn informed the Telegraph. "We have a big footprint, we have two buildings, we have the opportunity to build a third building, we've got a major hub, we've got a major capital commitment, we have a major human commitment.
"We are cautiously optimistic that from a regulatory and government standpoint, Londonwill be the right place to be.”
While London looks safe, the aspirations of Paris and Frankfurt to become financial hubs look shaky.
“I think those countries [GermanyandFrance] have at some point tried to entice people in, with different incentives,” says Cohn. “Right now I would say it is so unpredictable what is happening in Europe that it is better off to do nothing and stick with where you are.” [AKA London.]
This also implies, however, that Goldman will be doing limited hiring in Europe until the regulatory situation is clarified.
"The bigger long-term risk to me is that many of the financial firms leave Europe completely – whether it be the UK or continental Europe – because it is such a tough regulatory environment that you move to other places in the world and try and cover Europe from a third location,” Cohn said.
As we have mentioned previously, the Volcker Rule as outlined in October, is incredibly punitive.
Cohn says it would be especially disastrous for the sovereign debt market, where market making rarely occurs as smoothly as the rule currently envisages and it’s normal for banks to take positions.
"Someone is going to find a way to fill that void," he said, adding: "I look at all the broker dealers that are out there in theUS– shadow banking, quasi-unregulated and not affected by Dodd-Frank because they are too small. They will find this too profitable not to be in. It will move from the highly regulated to the unregulated.”
“I see three or four banks trying to sell their equity business. No one is going to buy it, those guys are just not going to be there,” Cohn pointed out.
“Sarkozy is clearly telling SGand BNP that they don't want them in the derivative businesses they have been in," Cohn thinks.
Anyone displaying any deficit of enthusiasm in Goldman interviews seems likely to be dismissed. Best to emulate Cohn: "Am I ashamed of where I work? Absolutely not. Am I proud of Goldman Sachs? Absolutely."
Meanwhile, in last week's conference call, Jamie Dimon iterated:
Dimon appeared to imply that compared to other ‘knowledge workers’ bankers aren’t paid too much. “We get an awful lot of pressure for our bankers and traders to increase our payout ratio to about what newspapers and media have, which is a little bit higher,” he said.
In the fourth quarter, Asian revenues in JPMorgan’s investment bank were down 47%. “We're not building Asia for the next quarter,” said Dimon, although there has been no change of outlook for the region longer term.
Dimon says it’s best to ignore the Vocker Rule in its current state: “I'm going to put Volcker aside, okay, because that's really hasn't been written yet,” he said.
With this caveat, he reiterated his message that investment banking is a long term growth industry: “If we have 16,000 clients around the world, the amount of money they're going to need to invest in the next 10 years is going to double,” he said.
Before Christmas, the ECB deployed its ‘big bazooka’ and lent €489bn for three years to 523 banks at an interest rate of 1%, without being particularly stringent about the collateral.
Dimon said this has made a big difference to the state of the European banking system – implying the risk of a meltdown and consequent evisceration of employment has been avoided.
“What the ECB did was a very, very powerful thing, okay?,” he said. “So powerful, in fact, I think you could probably make the statement that eliminates bank liquidity or funding problems for at least next year.”
Last December, JPMorgan said it had increased its private banking salesforce by 13% in 2011. Last Friday, Jamie Dimon said they’re still, “adding private bankers.”
Also last December, JPMorgan declared its intention to keep growing the corporate bank. Also last Friday, it revealed record syndicated loan fees and a $40bn increase in non-interest bearing deposits over the previous three months. Dimon didn’t say so, but additional hiring in the corporate bank looks very justified.