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Morning Coffee: Goldman Sachs pay fell, but it wasn't Goldman Sachs' fault. Ermotti returns at UBS as Michael Klein could get paid to go away

Obviously, nobody’s going to claim that 2022 was the greatest bonus year Goldman Sachs has ever seen, anywhere in the world.  But, at first sight, the newly released numbers for the London subsidiary, Goldman Sachs International, look particularly bad.

Goldman's spending on total compensation at its London subsidiary seems to be down 40% for 2022 on basically unchanged headcount.  That compares to a 15% average cut across the firm as a whole, and suggests that Europe bore a disproportionate share of the pain from the overall decline in deal revenues. Figures for average pay per head seem to reflect that: Financial News notes that the average person at Goldman Sachs International in London earned $490k last year, compared to $829k in 2021 and $687k in 2020. Ouch.

Except … as we’ve warned before, the official financial statements of the subsidiary companies of a global group can tell a partial picture.  Not only is the mix between front-, mid-, and back-office jobs very different at GS International versus the firm globally, but intra-group charges and other adjustments can change the story a lot.  Unfortunately, in the case of Goldman Sachs International, the old proverb might be true – the more interesting a number is, the less likely it is to be accurate.

In particular, more than half of the decline in the compensation number in the accounts (a fall of $1,279m, from $,3185m in 2021 to $1906m last year) was attributable to “changes in the fair value of share-based payment awards”.  If you adjust for that, the fall in compensation per head was more like 19%.  There would probably have been a similar item to adjust for in the group accounts, but apparently this wasn’t so big that it got special emphasis in the management discussion, and since GSI is comparatively front-office heavy compared to the overall group, it would be natural to expect that there was proportionately more deferred comp to be revalued.

Taking into account the fact that the year saw a big fall in Investment Management staff and small increase in support staff, the underlying number starts to fall well within the corridor of uncertainty. When painful and market inflicted falls in the value of deferred stock bonuses are excluded, it’s likely that Goldman paid its staff in GSI a little worse on average, but not so much that the effect would be large compared to the normal variability between individuals. So yes, - pay fell - but it wasn't really Goldman's doing and was more the fault of the falling value of Goldman shares.

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Source: Goldman Sachs International, headcount 

Indeed, recent moves suggest that it's America rather than London where Goldman people are feeling hard done by. There have been three departures, all in tech banking, all in the same week.  We have Rob Chisholm going to Qatalyst Partners, Colin Ryan retiring and Nick Pomponi heading for Evercore.  If it was just one, it might be seen as potentially an agreed “de-partnering” of someone who needed to move on.  Two might be a coincidence.  But three, all in similar sectors and including one (Chisholm) who was only bumped up in November last year … this looks more like a group of bankers who had enjoyed a lot of success together, looking out to the near future and deciding it was time to break up the band. Speaking at Goldman's recent investor day, CEO David Solomon said partners weren't leaving in greater numbers than usual. That pronouncement may need to be revised. 

Elsewhere, Sergio Ermotti is unexpectedly back to wield the hatchet as CEO of UBS, while another would be leader is seemingly on his way out.  Michael Klein is unlikely to see the great IPO payday for First Boston, but he still has the money that CS paid to acquire his boutique, and there are suggestions that the break fee for the FB deal might be as high as $20m.  So although dynastic wealth might not be created, he’s still getting paid what by most standards would be considered a lot of money.

Others might not be so lucky.  Two weeks ago, Credit Suisse sent out invitation to its Annual Meeting, including an agenda which, among other items, invited shareholders to approve a one-off “Transformation Award” of CHF30.1m split among the Board of Directors.  Now it’s two weeks hence, things have developed somewhat and, probably unsurprisingly, all the main proxy firms are advising shareholders to vote against this item.  As the man said, don’t count your money while you’re sitting at the table.

Meanwhile …

Having announced the hiring of Jason Auerbach yesterday, Moelis has now confirmed that it is picking up an entire team of seven Managing Directors from the former Silicon Valley Bank, potentially with more hires to come. (Bloomberg)

Bank of America has made appointments to replace the retiring Manuel Ebner – Thorsten Pauli will be the country chief executive for Switzerland, while Markus Meier will be head of ECM for Germany and Kristijan Krstic will be branch manager of its post-Brexit entity in Frankfurt. (Financial News)

The McKinsey layoffs have started – about 3% of the global workforce, hoping to achieve a large proportion of them through voluntary departures.  McKinsey's global managing partner said “we will have to say goodbye to some of our firm functions colleagues, while helping others move into new roles that better align to our firm’s strategy and priorities”.  He is definitely a management consultant.  (Bloomberg)

JPMorgan had previously tried to keep Jamie Dimon away from being deposed in the Virgin Islands litigation over Jeffrey Epstein, but he is going to have to give a statement, behind closed doors in May after Jes Staley has done his deposition in April. (FT)

Sam Bankman-Fried is going to be allowed a phone (but not a smartphone) and a laptop that’s restricted to a subset of approved websites.  Who knew that being on bail was so like having middle-class parents? (Coindesk)

Thanks to “empowering” self-service technologies which allow people to handle their own expenses, travel and even tech support, we are all secretaries now.  Apart from the secretaries, they’re office managers, executive assistants and even chiefs of staff. (FT)

Is it a source of comfort, or the opposite, for bankers to know that the regulators are as miserable as they are?  Nearly a third of staff at the European Central Bank say their work is having a harmful effect on their mental health, although 84% are nevertheless proud to work there. (Financial News)

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AUTHORDaniel Davies Insider Comment

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