Morning Coffee: If you thought Citi was done cutting jobs, you were wrong. Goldman hints that it might have too many MDs
If you thought your job at Cit is safe, think again. Citi always planned to make 20,000 layoffs and only around half of them were executed last year under the “Project Bora Bora” tag. That would imply that there are still another ten thousand to go. And that indeed still seems to be the plan; CFO Mark Mason confirmed on the conference call that accompanied Citi's results that he expects to spend $600m on redundancy payments in the next financial year.
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This is double Citi's standard annual spending on severance of $300m. It is, however, 14% less than last year, which suggests that fewer jobs might be cut - unless you presume that last year's cuts mostly involved expensive people on big severance packages (they did).
This year's Citi cuts might be more targeted toward more junior staff and/or people in the middle and back office. If Citi wants to spend $600m on severance and to cut 10,000 people, the implication is that the employees at risk are probably earning $100k with five years’ service and $20k in deferred comp.
The conference call suggested that the investment bank will be expected to deliver at least some of the job losses.
Despite the inevitability of the cuts, optimists might have thought they'd be scaled back as conditions improved. Deutsche Bank, for example, pared back its cutting aspirations in 2022 when it discerned that revenues were growing faster than expected. When a bank isn’t satisfied with its cost/income ratio, the best solution is to have more revenue, not less costs. Take Goldman Sachs, which yesterday reported its lowest ratio of compensation costs to revenue for years, despite growing headcount by 3% on last year.
There are already complaints that Citi has cut all the wrong people. If the bank wants to continue cutting heads in an up turn, it needs to be careful. There aren’t many pure middle managers left. Executive assistants have already been removed. Who else is dead weight at Citi?
Elsewhere, on the Goldman Sachs conference call, David Solomon said, intriguingly and opaquely, that “we are optimizing our organizational footprint by expanding our presence in strategic locations and calibrating our pyramid structure”. When someone who’s usually quite plain-spoken uses euphemisms of this thickness, you can guess the subject is potentially very touchy.
“Expanding our presence in strategic locations” could mean any one of a number of things – greater use of the Indian back- and mid-office processing hubs, an even bigger Saudi office, reversing past cuts in Greater China, to name a few. But “calibrating our pyramid structure” seems a lot more specific. Although “calibrating” in principle is a neutral word, you wouldn’t need to use such careful language if you were communicating the message that next year’s promotion classes were going to be really big.
It could be argued that it makes quite a bit of business sense to put ambitious Directors on notice that not everybody who thinks they deserve to be a Managing Director this year will get what they want. It means that they will hustle even harder to demonstrate their ability to generate revenue.
“Calibrating the pyramid” is a tricky but very necessary aspect of bank management. Weak franchises tend to try to smooth things over by giving people what they want, but this is mortgaging the future – Deutsche Bank is arguably still trying to work through the consequences of an absurdly top-heavy title structure resulting from decisions taken years ago. Banks like Goldman are in the enviable position of being able to keep the top titles scarce, so that they’re even more precious. It makes sense that they’re going to use that ability.
Meanwhile …
Historically, it has always been a reliable contrary indicator if lots of Harvard MBAs are immediately getting jobs in finance. But at present, an unusually high number of them (and MBAs generally) seem to not be getting jobs at all. One graduate of a highly-ranked program has now applied to 1,000 jobs over the course of a year. Business school career offices are doing their best to provide support, but you can only say “have you considered a coding boot camp” so many times. (WSJ)
Once upon a time, making “principal investments” for Goldman Sachs was one of the best and most prestigious jobs in the bank. The portfolio is currently being wound down because of the volatility it brought to reported earnings, but in doing so, GS has realised some windfall gains as it sells things for more than their carrying value. (Bloomberg)
Retiring early from your high-pressure banking job is not all it’s cracked up to be. (Business Insider)
That’s one less Wall Street succession battle to worry about; although John Zito has been promoted and possibly joins Jim Zeltner and Scott Kleinman as possible successors at Apollo, Marc Rowan has signed another five year contract. (FT)
Danielle Pheloung worked at Morgan Stanley and Goldman Sachs before quitting to become a full time influencer showing off stylish business outfits. Now TikTok is being banned, she’s considering a move back to wealth management. (Daily Mail)
Spare a thought for colleagues in Los Angeles – asset management firms with over $4trn under management are having to activate their disaster recovery plans after their offices fell to the wildfires. (NY Post)
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