As we noted yesterday, Goldman Sachs had a good second quarter. Bank charges increased. Sales and trading income increased. Profits rose 150% to $3 billion, which the Financial Times points out was more than the $2.8 billion expected by analysts. CEO David Solomon stated, “From what we’re seeing, we’re at the beginning of a capital markets and M&A recovery.” Things can only get better. Except…
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The Wall Street Journal notes that Goldman’s transformation is being hampered by its poor performance in last month’s stress test and the resulting higher demand for capital.
In theory, the Journal says, Goldman is supposed to move to a lower-cap model as it replaces volatile trading income with more stable fee-generated income. As part of this transition, Goldman is focusing on asset management and moving assets from its balance sheet into managed funds for outside investors, who will pay a fee for the satisfaction.
Revenue at Goldman’s asset management business rose 22% in the second quarter, but the Federal Reserve doesn’t seem entirely convinced by the firm’s transformation. Instead of cutting Goldman’s capital requirement as hoped and planned, it raised it from 13% to 13.9%. Solomon said yesterday that the increase “does not appear to reflect the strategic evolution of our business” and that the bank is “engaging with our regulators” on the matter.
The Financial Times previously suggested that the reason for Goldman’s higher capital requirement is not so much the shape of its business, but the regulator’s belief that if things turn sour, Goldman will not be able to cut costs as much as it thinks. This applies in part to compensation, which increased by an average of 15% per person in the first half of the year. If the Fed eases, Goldman will have to cut compensation just as diligently if the recovery ends.
Separately, an observation by former Goldman Sachs associate-turned-academic Alexandra Michel is that as bankers leave banks and continue to work as hard as before, banking work habits are permeating other industries.
The same can be said about bankers’ holiday habits. The Wall Street Journal reports that people in all kinds of professions have a hard time taking time off because it’s seen as too much of a luxury. Instead, like bankers, they are taking time off and still working. “It feels abusive to use it,” says a customer support professional who works during the day while on vacation. “I feel guilty using my vacation days,” admits a 37-year-old with a contact-tracing job.
Some of those the WSJ spoke to are taking a slightly different approach: taking vacations, working a little, and pretending to their employers that they’ve done a full day of remote work. Perhaps this method of non-banking holidays will seep into banking again, although that seems unlikely now that more people in financial services are in the office almost all the time.
Meanwhile…
Private equity firms’ use of net asset value loans, which are secured against their own funds’ investments and used to pay dividends and have been criticized, fell 90% in the second quarter. (Financial Times)
HSBC Innovation Banking, which contains the remnants of SVB UK, now has 800 employees, up from 600 at the point of acquisition. “We have been aggressively hiring for several key roles and many of these roles are customer facing. When you expand, you need relationship managers to serve those customers. We will have specialists focused on innovation in different geographies.” (Financial news)
DE Shaw’s Valence Fund — the firm’s statistical arbitrage fund — is up 12.3% through the first half of 2024. In June, the fund was up 3%, this person added. Renaissance’s largest fund available to investors, Institutional Equities, is up 11.4% during the first half of 2024 thanks to a 3.7% gain in June. (Business Insider)
Stripe’s valuation has hit $70 billion as Sequoia Capital is buying up to $861 million in shares from investors looking to cash in. (Bloomberg)
SocGen has some problems. Costs are stubbornly high relative to revenues at around 70 percent. Although the CEO sees this falling below 60% in 2026, the market consensus has the metric above 63% at that point. This is well above the European average of close to 50%. (Financial Times)
JPMorgan hired Terry-Ann Burrell as vice president for investment banking in its healthcare team. She worked for JPMorgan for a decade until 2019 and later served as chairman at Beam Therapeutics. (Bloomberg)
SMBC hired Abdul Haleem Al Balooshi from SocGen to lead its Saudi Arabia coverage. (Bloomberg)
Rahul Chawla, head of Deutsche Bank’s financial sponsor for Asia, is leaving to do his own thing. (Bloomberg)
Thierry Le Palud, global head of industries in investment banking at Barclays, and another senior Lehman banker, has joined Jefferies. (Bloomberg)
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