Morning Coffee: Citi executive was venting about one error when a much bigger one occurred. Goldman Sachs has too many VPs

Sometimes, what might otherwise be a slightly dry story about operational risk in payments processing can be elevated by a few beautifully euphemistic turns of phrase. Like “audible frustration”, or “bittersweet relief”.  In the latest story about a nearly-disastrous Citi error, the audible frustration was expressed by Andy Sieg, the head of wealth management at Citi, as he discovered that a manual copy-paste instruction had nearly caused $6bn to be sent to a client account by mistake.  And the “bittersweet relief” came when, just as Citi was discussing this problem with the regulators, news came in of the even larger $81 trillion error elsewhere in the bank.  It might have sounded at the time like one of CEO Jane Fraser’s famous practical jokes.

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Andy Sieg does seem to have quite a lot to be audibly frustrated with.  He was brought in from Bank of America (where the wealth management tech apparently works pretty well) with a mandate to cut costs.  But how can he do that while basic functions are dependent on so much manual intervention?  While his former employer is issuing press releases boasting about their AI patents, Sieg still has to deal with people typing things into boxes and occasionally doing so very wrongly.

Of course, dealing with this kind of problem is a big part of Citi’s strategic plan; as well as restructuring the management, they need to repair a complex network of data systems and get out of what analyst Mike Mayo calls “regulatory purgatory”.  That’s the job of COO Anand “Selva” Selvaskari, who has come in for a bit of criticism internally over the last year, and of Tim Ryan, a former PwC partner who has direct responsibility for the data transformation team and is hopefully the great saviour.

In that context, it’s interesting to note that the system which caused Andy Siegel to briefly use his outside voice has now been automated, and so has the one that caused the other error (so has the one which caused a $1bn fat-finger error a few years ago). It seems that the Citi digital transformation team are getting their act together to fight the fires.

But fire fighting is a thankless job, and made considerably more difficult if you don’t have a stable management structure and if staff morale is low.   Citi has reviewed the resources that it needs to allocate to its system problems, so people working on these projects probably have better job security than many other Citibankers, but repeated news stories and leaks suggest that it’s not a happy ship.

It also seems unfortunately reminiscent of the last big bank to run out of regulatory patience with its IT problems.  Deutsche Bank showed us that systems problems which took decades to create aren’t easy to solve in a few years, and they have a habit of taking down more than a few C-Suite careers before they are finally slain.  There might be a lot more audible frustration to come before any relief that’s better than bittersweet.

Elsewhere, more details are coming out about the Goldman Sachs job cuts that we reported first earlier this week.  The size is still small at 3-5% of the staff, and the company is still referring to them as “part of our normal annual talent management process” (albeit a little earlier in the year), but it seems that they are being specifically targeted on the Vice-President (VP) ranks.  According to people familiar with the matter, Goldman “hired too many in recent years in relation to its overall hiring”.

So it appears that Goldman now has a structure which is neither top-heavy nor bottom-heavy but rather sort of pear-shaped.  Vice-President is a funny sort of “non-commissioned officer” rank – you’re expected to make a measurable contribution to the franchise and paid accordingly, but you don’t necessarily have to show personal revenue production. 

As a result, it tends to be a transitional stage in the front office; people either step up to Director or move on.  But in operations and mid-office roles, it’s more common for people to top out at VP. Since Goldman did hire a lot of people into its engineering and platform teams, and might very well have done so at VP rank in a lot of instances, any review of what might be needed in the long term is quite likely to have concluded that there are a few too many of the equivalent of sous-chefs.

Meanwhile...

Just to emphasise how hard it is to put the past in the past, Deutsche Bank is still dealing with legacy compliance issues (albeit in much smaller size).  Mis-selling of interest rate derivatives in Spain in the 2010s, plus slowness in investigating and correcting them, plus a few other issues have led to a EUR23m fine. (FT)

JPMorgan with some good news for hiring; it’s brought in Robert Verdier from Deutsche and John Bishai from BoA to join its healthcare investment banking team, both as MDs.  The announcement memo said that they see an opportunity to increase share of wallet, so there ought to be some follow-on hires to build out the franchise. (Bloomberg)

It’s a tough world in multistrat risk management; at one point in the past, Balyasny must have liked Ignacio Perez-Cossio enough to open a special satellite office in Madrid for him and his three analysts. But now the pod has been closed, and so Balyasny will also no longer have a Madrid base. (Business Insider)

SEC employees are being offered $50,000 to retire or resign, and being told that the leases on their offices will be cancelled, although apparently “these lease terminations are not associated with any reorganization or reduction in force plan regarding SEC personnel” (Reuters)

Peter Curong Franklin was an investment banker for 15 years, including working for Morgan Stanley, but decided his passion was elsewhere and now runs Saigon’s only Michelin starred restaurant. (Boss Hunting)

Apparently “California Sober” means “not drinking any booze, but taking ketamine, mushrooms and cannabis”. Perhaps people who don’t take drugs will be allowed to show up on the trading floor “New York Sober”, which is to say, drunk. (WSJ)

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