For a few months now, and certainly peaking with its miserable second quarter earnings release, it felt like something about Goldman Sachs had changed. Not just its aura, but other quantifiable cogs in the business.We wondered, is the era of Goldman Sachs over?
An early sign — which seems to have been repaired for the time being — was that the bank’s vaunted M&A practice was struggling for the first time in a decade, and in the biggest quarter in M&A since the crisis hit in 2008.
There were other signs of deterioration — the long term decline of its asset management business, for example.
Even recruitment — never a problem for a bank considered to be the cream of the Wall Street crop — was facing challenges.
Regulation, specifically the Volcker Rule, was not only going to cost the bank $3.7 billion in annual revenue, it appeared it was going to begin to affect talent recruitment. While Goldman and competitors like Morgan Stanley are implementing more stringent compensation practices, trading firms that like Glencore face no limits on compensation.
Or for that matter, limits on leverage and proprietary trading, which appears to be have already claimed a few trading lives at the bank. Yesterday Lauren Tara LaCapra at Reuters reported that there’s been an Exodus of traders from Goldman, and those who left “complained they were hamstrung by aggressive risk managers who limited position sizes and second-guessed trades.”
Glencore, and its familiars — Noble Group; Trafigura Beheer; hedge funds — “can take bigger trading risks in the commodities markets, helping to make them more profitable and more appealing as employers for top traders,” Bloomberg reported earlier this year.
High-level employees are moving to competitors like JP Morgan, and hedge funds. There is a feeling of paranoia and insecurity within the firm, we are told.
But something else is going on that’s less empirical: there’s been a change in the aura of Goldman Sachs.
What we continue to hear from our Wall Street sources is that the Goldman cachet has gone. Or, is no longer relevant in today’s business environment. Several have used the word “prestige” to describe what has been lost recently.
“Goldman used to be the place to be. People used to work with Goldman just because it was Goldman, even if it was more expensive to do so,” one source said, who did not want to be named due to relationships with people who still work at the bank. “Now people will work with whoever will get them the best deal. That prestige is gone.”
Even Goldman employees, across different divisions, are saying that business that used to pour in just because they were Goldman Sachs, is no longer a guaranteed. That layoffs have been in effect since last year, and have escalated recently, is testament to this. As was the Q2 earnings report, showing the usually golden FICC division is floundering.
LaCapra’s Reuters report yesterday emphasised this issue:
“Working for Goldman is no longer different than working for anybody else,” said one former Goldman trader who left this year. “At the same time, if you have Goldman on your resume, that’s still a premium. People are monetizing the Goldman premium now because two years from now you won’t be able to.”
That many of the recent losses were junior traders described as “rising stars at Goldman,” is not a good sign for the bank.
One source within the bank said that such a characterization is not true: Goldman is still considered “the best”. However that same source admitted things have been “quiet.” Another Goldman insider rejected the idea that it is just another investment bank on Wall Street, and said while of course the firm isn’t impervious to the current industry slump, clients will stay because of the quality of its services.
We wonder if this means another bank will rise to take Goldman’s previously hegemonic place? Or whether Wall Street is simply becoming a more multipolar world.