Richard Gnodde, chief executive of Goldman Sachs International, has released a podcast on the state of play at Goldman with regards to Brexit. It supesedes his previous assurances last month that there's nothing for anyone at Goldman to worry about. - There will be changes, albeit not immediately. They'll start in 2018. And although Gnodde didn't say so, the implication is that for traders at least they could be dramatic.
Gnodde's podcast includes the clearest statement yet made by any bank on the structure of European markets business after Brexit. Fundamentally, Goldman's London CEO said European trading businesses should not be split into EU and non-EU entities.
In the post-Brexit world, it would make little sense to segment Goldman's trading operation, suggested Gnodde. He said Goldman wants to, "continue to be able to allocate our capital and manage our capital and our liquidity in an optimal way. And as soon as you start to fragment pools of liquidity or fragment capital bases, it becomes less efficient."
In the ideal world, therefore, Goldman wants a "common pool" of capital and liquidity to be regulated by the Bank of England and the European Central Bank. The two should work in a "coordinated joined up fashion." Gnodde said this common pool, "could be used for the business right across Europe."
And if this doesn't happen? Gnodde says costs will rise and that ultimately they will get passed on to Goldman's clients.
By framing the argument in terms of capital and liquidity, Gnodde didn't address trading jobs directly. However, the implication is clear: Goldman doesn't want two big trading businesses in Europe.
If the "common pool" ideal doesn't come off, will Goldman therefore focus on one main European trading platform (based in Frankfurt?)? And will it be more willing to shift traders out of London and into Frankfurt if doing so makes European regulators more willing to entertain the idea of the unified pool of capital managed in conjunction with London? It's early days, but prospects don't seem entirely promising for London traders.
Elsewhere in the podcast, Gnodde said Goldman remains very committed to Europe. The continent has huge growth potential due its historically low reliance on capital markets. - In the U.S. 75% of capital is raised from capital markets and just 25% is raised from bank lending, said Gnodde. In Europe, it's the other way around. As this changes, there will be big growth opportunities - especially for debt capital markets businesses.
The client-facing bankers who bring in debt capital markets deals, M&A deals, and equity capital markets deals certainly won't be staying in London post-Brexit though. Gnodde said they'll be dispersed: "We'll have more people in Madrid, more in Milan, more in Paris." The French Goldman banker who lives London and travels to clients in France is, seemingly, on the way out.
None of this will happen until 2018, though. And even then, initial moves will be minimal: "It's like buying an insurance policy. You hope you're not going to have to use it, but if you do, you're pleased you've got it in place," said Gnodde.
Gnodde's still expecting a minimum two year bridging period after Brexit happens. The real action will therefore take place in 2021, or beyond.