Archive for  June 2014

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(FOX) To cut or not to cut?

That is the question Goldman Sachs (GS) executives are preparing to answer when the firm unveils second-quarter earnings next month, and investors will be focused on the shrinking profitability of the firm’s once-mighty traders, the FOX Business Network has learned.

Goldman is weighing whether to make a formal announcement about the size and scope of potential cuts among traders, amid a sharp decline in revenue — particularly in the fixed-income business, according to people with knowledge of the matter.

This announcement could be made during the firm’s second-quarter earnings announcement, scheduled for July 15.

FOX Business earlier reported that a sharp reduction in trading revenue has sparked a panic inside Goldman Sachs as executives there brace for additional layoffs in the firm’s trading ranks unless business conditions improve. The cuts would go beyond the 10% staffing reductions that usually take place at the big bank.

At a recent investor conference, Goldman Sachs president Gary Cohn conceded that the trading environment — squeezed by post-financial crisis regulations that reduce Wall Street risk taking — is difficult and could lead to head-count reductions. But people close to the firm say there is still no agreement on whether larger cuts are needed. The firm’s chief executive, Lloyd Blankfein, is hesitant to make large cuts fearing that the trading slowdown is cyclical and the business could bounce back.

“Every time I talk to them, they say if things continue we are going to have to reevaluate,” said one Wall Street analyst who spoke on the condition of anonymity.

Dick Bove, an analyst at Rafferty Securities, say larger cuts in trading are inevitable at Goldman and elsewhere on Wall Street. “As they move more towards electronic trading and outsource more of their (market-making) activity there is no question that they will be reducing traders,” Bove said. “Goldman will not have as many traders next year as they do this year.”

The big problem for Goldman and other banks is that volatility levels remain low, meaning there is less opportunity to profit from trading in and out of stocks that are gyrating. Trading revenue at Citigroup (C), for instance, could fall more than 20% for the second quarter, the firm recently indicated.

But a similar decline at Goldman would hit the firm harder because it’s considered the premier trading outfit on Wall Street, with one of the biggest trading desks in banking. A Goldman spokesman declined to comment on the matter.

(Dealbeaker) Former Goldman Sachs trader Deeb Salem was awarded $8.25 million in 2010. He wanted $13 million and continues to fight for the extra 5 mill four years later because 1) While at Goldman, he was the Michael Jordan of investment professionals in the mortgage industry and had to fend off highly appealing offers from other firms on a near daily basis and 2) He had told his mother to expect 13.

Salem said in an arbitration hearing that he was led to believe that his 2010 bonus would be $13 million, down from a $15 million award for 2009 when he was paid more than Chief Executive Officer Lloyd C. Blankfein. Instead, Salem said his bonus was unfairly docked because of a written warning he received about his 2007 self-evaluation. Salem, 35, said the $8.25 million bonus for 2010 didn’t reflect his contributions, while Goldman Sachs argued he was aware that the firm could pay him whatever it wished and that the company considered his conduct in determining compensation. Salem said promises from executives kept him around for another year before a $3 million bonus led him to jump to a hedge fund. “Let’s be very clear: I was one of the most sought-after investment professionals in the mortgage industry,” Salem said during the Feb. 25 hearing. “I had the opportunity throughout the course of my career and throughout — from that day, from almost every month that I was at Goldman, to leave for other opportunities.” […]
In January 2011, Salem told his mother, who was staying with him because her house had burned down on Christmas, that he expected at least $13 million for 2010, according to the transcript. That was based on the fact that his mortgage-trading desk generated about the same amount of revenue in 2010 as it did the previous year and that Justin Gmelich, a credit trading executive, told him at a cocktail hour that he was a “steal” at $15 million, Salem said. Salem received an $8.25 million bonus after getting the warning for “extremely poor judgment” in discussing a short squeeze in his self-evaluation. Goldman Sachs executives told him the firm would make it up to him and encouraged him to stay, he said. That came after President Gary Cohn persuaded him to remain in 2008 rather than leave with colleague Josh Birnbaum to start a hedge fund, Salem said. No promises were made, Andrew Frackman, a lawyer at O’Melveny & Myers LLP who represented Goldman Sachs, said at the hearing.

(CNBC.COM) U.S. investment bank Goldman Sachs is the employer of choice for those working in the financial services sector globally, a new survey shows.
JPMorgan was ranked second followed by asset manager Blackrock according to the survey published on Tuesday by careers website eFinancialCareers.
According to the report, the most common reason for picking Goldman was perceived career prospects, followed by company reputation.

The survey polled almost 8,800 professionals in the financial sector globally between April and May in countries including the U.S., the U.K., Singapore, Australia, France and Germany.

“Financial services professionals are regularly exposed to employer branding in a multitude of forms,” said George McFerran, global sales and marketing director at eFinancial Careers.

“Our research suggests employers that are able to project corporate stability and history as well as career development prospects will best appeal to financial services professionals. As a result they will be in a much stronger position to attract top talent,” he added.

The world’s biggest banks have in general have had a tougher time competing for talent amid tighter regulation in the wake of the global financial crisis and the growing appeal of other industries such as technology.

According to the report by eFinancial Careers, Goldman and JP Morgan are among the few investment banks that have not reduced their staff numbers significantly in recent years and kept their compensation structure weighted towards cash and away from deferred stock options unlike European peers.

Among other banks on the top ten list HSBC was ranked fourth, followed by BNP Paribas, Deutsche Bank, McKinsey, UBS, Barclays and Citigroup.

The report highlighted some areas of concern for the financial industry in terms of hiring and retaining staff.

Of those surveyed globally, just 11 percent of respondents said they are not looking for a new position, while the remaining 89 percent said they were either actively searching for a new job or were open to new opportunities.

“Finance professionals are poised to take flight – a reality employers cannot afford to ignore,” eFinancial Careers said.

In terms of geographical breakdown, the survey showed 34 percent of finance industry professionals in London and 36 percent in Hong Kong were actively looking for new jobs.

That number rose to 41 percent in Singapore, one of Asia’s main financial hubs, 43 percent in New York and 53 percent in the Middle East.

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Barclays’ top-ranking banks analyst is to leave the group, the latest in a line of senior departures. Simon Samuels, who has headed Barclays’ European bank research team for the past five years, after a 12-year career at Citigroup, is expected to move into a range of non-executive and advisory positions within the financial and regulatory sphere.
Mr Samuels, rated the top European banks analyst over the past three years in investor surveys such as Thomson Extel, has been an influential figure in the regulatory debate. He has long been a vocal critic of the shortcomings of the risk-weighted asset system of calculating banks’ capital requirements and more recently sat on the financial reporting task force established by international regulators at the Basel Committee and Financial Stability Board.

Over the past few months, Mr Samuels has backed away from his bank research role, undertaking an informal secondment to advise senior Barclays’ management on the group’s strategic overhaul.
Mr Samuels, who will retire from Barclays in the autumn, will be replaced by his number two, Jeremy Sigee.
In a note to clients over the weekend, Mr Samuels said his time as a banks analyst in recent years had been like “sitting on the grassy knoll as the Kennedy motorcade entered Dealey Plaza. It was a front seat at a piece of history”.
He also confessed that after 20 years as an equities analyst he was still mystified by what drove share prices. “‘Mr Market’ remains as much the elusive beast now as it did then.”

(Bloomberg) London’s investment bankers at firms including Bank of America Corp., Deutsche Bank AG and Goldman Sachs Group Inc. (GS) get bonuses 37 percent higher than counterparts at smaller firms, according to

Managing directors at large firms in the U.K. capital typically receive bonuses of 400,000 pounds ($670,000) and base salary of 275,000 pounds,, a compensation research firm, said in a statement. Directors are paid bonuses of about 192,000 pounds and fixed pay of 170,000 pounds, it said.

“For those who make it to top-tier institutions, it is worth aiming for the senior jobs at managing director level,” said Robert Benson, chief executive officer at “Outperforming banks are particularly open to profit sharing with their managing directors.”

European regulators are preparing to outlaw bonuses that are more than twice fixed pay to prevent a repeat of the risk-taking that helped spark the 2008 global financial crisis. Banks are looking for ways to sidestep the European Union rules, which will apply to awards given in 2015 based on this year’s performance.

The survey examined the median pay of 719 bankers and traders working in areas including mergers, trading, debt and equity markets at banks such as UBS AG, JPMorgan Chase & Co. (JPM) and Morgan Stanley.

To contact the reporter on this story: Ambereen Choudhury in London at

To contact the editors responsible for this story: Keith Campbell at Jon Menon, Steve Bailey

(bloomberg) Wall Street firms are starting to bet on an end to the profit-eroding boredom in credit markets by building out their trading desks.

Nomura Holdings Inc. (8604) has added 10 to its U.S. corporate debt team this year, an increase of about 10 percent, and plans to expand further, according to Michael Guarnieri, the bank’s global head of credit products in New York. The latest hires are high-yield debt traders Daniel Frommer and James Incognito, who joined this month.

Debt trading hasn’t been what it was before the 2008 crisis from a profit point of view for two main reasons: New rules have reduced the wagers banks can make with their own money, and near record-low yields are eroding returns. But with interest rates forecast to finally go up sometime soon, it’s poised to become more lucrative.

“Volatility and the so-called tail risks always sneak up on you and are always something you don’t think is coming,” Guarnieri said today in a phone interview. “We’re not blind to the fact that volumes are low, but we are investing over the long term.”

Others are trying the same tack. Deutsche Bank AG (DBK) just raised $11 billion in capital in part to bolster its debt-trading business, after earlier this month announcing four new members for its credit unit. Guggenheim Securities LLC this year hired a corporate-debt team from Lazard Capital Markets.

Trading Revenues

When the Federal Reserve starts raising benchmark rates as soon as next year, corporate-bond yields figure to move higher with them. The current 3.6 percent average yield on corporate debt is about 2 percentage points below the norm over the past decade, according to Bank of America (BAC:US) Merrill Lynch index data.

Here’s why more volatility may translate into bigger profits for banks: Investors will probably pull money from bond funds as prices fall, leading managers to sell securities to come up with the cash. In that scenario, brokers stand to earn bigger commissions because there’s usually greater risk — and potential reward — involved in an unstable market.

Credit’s not a bad place for securities firms to hire in the meantime, anyway, because traders give a boost to teams of investment bankers trying to nab bond offerings. Banks need to maintain groups of traders and salespeople if they want to win lucrative assignments shepherding company debt into the hands of insatiable investors.

Underwriting Fees

Underwriting corporate debt has been one of the bright spots on Wall Street, with firms earning about $10.6 billion to underwrite $1.5 trillion of the notes last year, according to data compiled by Bloomberg. That’s up from $7.6 billion in 2011.

Nomura’s latest hires include Frommer, who joins as a managing director in high-yield trading and is formerly of UBS AG. (UBSN) He was registered at the Japanese bank as of May 12, Financial Industry Regulatory Authority records show. Incognito, a speculative-grade loan trader, began at Nomura as of May 19 after joining from BNP Paribas SA, according to the Finra records.

Credit trading may have lost some of its luster for the world’s biggest banks, but Wall Street is betting a bigger payday isn’t far away.

To contact the reporter on this story: Lisa Abramowicz in New York at