Goldman Sachs has put forward Gary Cohn, president and chief operating officer, to speak at the Sanford C. Bernstein Annual Strategic Decisions Conference. The presentation is available here and outlines how the firm sees its business developing going forward. The more interesting elements predictably came from the Q&A session afterwards. Here are the more salient points.
1. Goldman will be cutting compensation, but not changing it
Goldman Sachs doesn’t start deferring pay until $250k, and even then its deferral schemes are relatively light in comparison to its peers. Nonetheless, the bank is keen to point to the fact that it’s started being less generous this year and that it’s keeping tabs on expenses. Its “compensation philosophy” will remain the same, however, and this means “paying for performance”. In other words, as revenues have declined, so has pay.
2. Goldman will continue to focus on “higher value” locations
India, Salt Lake City and Dallas are all offshore and nearshore locations where Goldman has been shifting tech and ops functions over the past few years, and this isn’t changing. The first two are significant and the Dallas office is growing, says Cohn, as it “leverages those locations to provide a service for the firm at a lower price”. The bank currently employs around 4,000 people in Bangalore, India and 1,400 in Salt Lake City.
3. Technology will continue to “drive efficiencies” and “replace human capital”
Goldman has been spending big on technology and bringing in technology talent, while its CIO Marty Chavez is really “thinking outside the box to drive efficiencies” through technology, says Cohn. This, however, is an upfront cost designed to save the firm money in the long run, and this means being able to “replace human capital with computer capital”. In other words, a machine will continue to take your job.
4. Fixed income is still proving difficult to digitise
While around 90% of the equity market is traded electronically, doing the same to the fixed income markets and therefore reducing the need for human interaction is proving tricky. Cohn says he can’t envisage a time any time soon when more than 20-30% of the fixed income universe will be trade electronically because of the enormous complexity of the business.
5. Goldman is planning no big exits
There are no plans to exit commodities like other major investment banks, notably JPMorgan, nor will it be exiting business lines in the same vein as Barclays, RBS, Credit Suisse and UBS. Goldman is looking after its “client franchise” and for as long as clients are continuing to demand their services, it needs to make a “commitment to stay in the business”, says Cohn.
6. FICC headcount hasn’t declined significantly
Goldman says that FICC headcount has declined by 10% since 2010 as it keeps an eye on costs. This may seem significant, but compared to the thousands of staff cut at their competitors, this is nothing.