There’s something wrong when you hire thousands of new people but your revenues shrink.
This is what has, unfortunately, come to pass at Goldman Sachs.
Between 2007 and 2010, the bank built its headcount fairly consistently – from 30,522 in Q407, to 34,500 in 2008, to 35,700 in 2010. Admittedly, there was a blip in 2009 when headcount was cut back to 32,500, but this was more than compensated for the following year.
2012 may be the year in which Goldman does more than a little paring back of its headcount. The firm ended 2011 with 33,300 staff - a reduction of 2,400 on 2010, but a modest cut in the circumstances. Since 2007, revenues per head have fallen 42%; but profitability per head has fallen 80%.
Something clearly needs to be done. Something is: pay is being slashed. This year, the average person at Goldman will earn $367k. In 2007, they were earning $661k.
However, pay can only be cut so far. What happens next depends on the extent to which last year’s revenues are seen as secular or temporary. Back in November, Blankfein said he thought the global decline wasn’t structural and that things would “snap back”. And yet, in 2011 profits at Goldman fell 67% year-on-year and the return on equity plummeted to 3.7% - the lowest level since 1999. The ‘snap-back’ hasn’t happened. Time, surely, for some more serious redundancies?
More than anything else, Citigroup executives said fears about the European debt crisis made clients increasingly risk-averse during the quarter, which concluded with a “very, very weak December,” according to John C. Gerspach, the bank’s chief financial officer. (Dealbook)
Vikram Pandit: “Market activities this year so far have been significantly better than fourth quarter.” (Seeking Alpha)
Last year, Citigroup increased spending on its securities and banking business by $1bn. (Seeking Alpha)
After last year overtaking JPMorgan Chase as the American bank with the biggest market capitalisation, Wells’ equity is now worth more than Barclays, BNP Paribas and Goldman Sachs combined. (Financial Times)
Star dims for Goldman's youngest partner. (Fortune)
A report by Oliver Wyman suggests FX swap trading would cost 18 times more than present under a financial transaction tax. (Financial News)
If banks cut bonuses by £1bn they can lend small business £20bn. (The Sun)
“Global heads and senior managing directors are among those that will get nothing. They’re the expensive staff, and they’ll be living off their higher salaries.” (Scotsman)
Nomura has named Steve Ashley, global head of macro products, who joined from RBS as global head of rates in the fixed-income division in May 2010, global head of its new fixed income division. (Bloomberg)
Walid Chammah, chairman of Morgan Stanley International, who’s spent 19 years with the bank, is the latest senior banker to retire. (Financial News)
Man Group suffered a 9% drop in funds under management and is now planning aggressive cost cuts. (Financial Times)
Sumitomo Mitsui is taking a 5% stake in Moelis. (Financial Times)
These are the (US) business schools most likely to reject you. (Poetsandquants)