Goldman Sachs restructuring could hit traders’ bonuses

Goldman Sachs deserves full plaudits for secrecy. Everyone knows that Credit Suisse is planning a major restructuring announcement at the end of this month, but who knew that Goldman Sachs was concocting a restructuring of its own? No one, until the Wall Street Journal broke the news late last night.

Admittedly, Goldman’s is less dramatic. While Credit Suisse is planning changes that may result in 6,000 job cuts and the sale of its securitisation business and some Swiss assets, Goldman’s intentions are more moderate. It simply intends to streamline its organization into three divisions: investment banking and trading, asset and wealth management, and transaction banking. This compares to the four “segments” that the firm currently has: investment banking, global markets, asset management, and consumer and wealth management. 

Unlike Credit Suisse, Goldman’s reorganization isn’t explicitly linked to job cuts, and might simply be considered a change in internal nomenclature. And yet it’s conceivable that cuts will come as a result: merging divisions is a well trodden route to “efficiencies” and can reduce the need for two sets of staff in some support functions. It can also result in changes at the top: heads of smaller divisions who aren’t appointed heads of larger divisions are prone to sudden retirement.

Mostly, though, Goldman’s changes look like bad news for anyone at the Marcus consumer banking segment, which has suddenly been subsumed by the far larger asset and wealth management division after racking up cumulative $4bn losses. Conversely, they look like good news for anyone in the transaction banking business, TxB, which has been given a whole division of its own. In investment banking and global markets, Goldman’s changes look superficially less significant, but could have a real impact. They will emphasize the extent to which – for all its attempts at diversification – Goldman remains an investment bank: the banking and global markets businesses generated 78% of revenues at the firm in the second quarter.

Goldman’s combination of its global markets and investment banking business could weaken the internal influence of the smaller investment banking business at a time when revenues there are plummeting and bonus pools for 2022 are being finalized. Right now, the investment banking business is co-headed by Jim Esposito and Dan Dees, while global markets has is headed by Ashok Varadhan and Marc Nachmann. Nachmann is already moving to the new asset and wealth management division, and one of either Dees or Esposito is likely to go too. Goldman Sachs will announce its third quarter results tomorrow, and in line with other banks, revenues in its investment banking division are likely to have plummeted. The changes could conceivably leave the investment bank more exposed to cuts and heavy bonus pruning. Equally, though, it might be argued that the fixed income traders who’ve done well this year will now be more obliged to cross-subsidize their investment banking colleagues with whom they’re lumped in a single division. Fixed income traders who thought they’d get big bonuses as part of a standalone global markets business could…