Given that Morgan Stanley did so much better than Goldman Sachs in the first quarter, it seems a little ironic that a senior banker hired from Morgan Stanley has been blamed (possibly wrongly) for Goldman Sachs’ undoing.
Bloomberg suggests that Adam Savarese, a former Morgan Stanley trader whom Goldman Sachs hired directly into a partner role in 2015, had something to do with Goldman’s Q1 slump. As head of Goldman’s distressed debt trading business, it claims Savarese was on the wrong side of several trades involving energy companies and retail companies. The resulting losses allegedly contributed to the stasis in Goldman’s fixed income trading business, which experienced a year-on-year revenue growth rate of just 1% compared to 17% at J.P. Morgan and 96% at Morgan Stanley.
Goldman’s denying Bloomberg’s allegations. It says the distressed debt trading desk had a stronger quarter than a year earlier. Earlier, CFO Marty Chavez said misplaced commodities and FX trades were behind the poor quarter.
The allegations do, however, draw attention to the riskiness of banks’ distressed debt trading businesses. This time last year, Credit Suisse made $1bn in writedowns after being caught with illiquid distressed investments. The Swiss bank subsequently exited the distressed debt trading business in Europe.
GS hired Savarese from Morgan Stanley in 2015. The U.S. bank doesn’t usually recruit externally for senior positions, but Savarese’s arrival followed the exit of several big names from Goldman’s distressed desk for hedge funds. In the event that Savarese was linked to the losses, Goldman may well revert to growing its own in future.
Separately, Credit Suisse’s equities business has suffered a blow. Matt Mallgrave, a former Goldman partner who joined Credit Suisse as head of U.S, equity flow trading almost exactly one year ago, is off again. Mallgrave has seemingly had a better offer from J.P. Morgan, which has hired him into a similar role starting from June. Credit Suisse gave 148 of its key staff retention bonuses averaging $1.5m for last year. Assuming one Mallgrave was one of the recipients, this clearly wasn’t enough to persuade him to stick around.
Credit Suisse chairman Urs Rohner says he was surprised by investors’ objections to the bank’s executive pay deal: “It was more than I expected, and particularly among UK and professional or institutional investors and proxy advisers,” (Financial Times)
Don’t blame Tidjane Thiam for all the upset over executive pay at Credit Suisse. It was, ‘mainly a misjudgement by chairman Urs Rohner and the board, rather than by Thiam and his executives. But Thiam would have been well-advised to follow the lead of Cryan who waived his bonus at Deutsche, so pre-empting any investor concerns.’ (Financial News)
French investment firm Tikehau Capital just hired an ex-Goldman banker and will be growing across private debt, real estate and private equity in London. (Financial News)
Deutsche hired two healthcare bankers in NYC. (Businesswire)
Barclays has built a temple of fintech in London’s Shoreditch. (The Memo)
What better way for Mr. Cohn to repay his former colleagues than by endorsing a plan that would virtually eliminate Goldman’s remaining competitors and cause them to spend years, and billions of dollars, going down the rabbit hole of separating their commercial and investment banking businesses? Goldman Sachs would love nothing more than a return to a form of Glass-Steagall. (New York Times)
MBAs get down with fintech. “The subpar quality of financial services is a massive problem. Fintech, at its core, is about improving the system as a whole, furthering financial inclusion. And yeah, there’s also an element of making things cooler while we’re at it.” (Financial Times)