Goldman Sachs (NYSE:GS) is taking a step away from trading in securities and derivatives for its own account, focusing instead on client trading. But weak trading has made it hard for the firm to earn profits from clients, many of whom are pulling out, and it no longer has its own market bets to fall back on.
So, Goldman (NYSE:GS) has begun rewarding sales staff over traders, resulting in a large exodus of traders who have seen their typically large bonuses dry up. “The client franchise is paramount,” said David Hilder, an analyst for Susquehanna Financial Group. “You need sales people to deal with and talk to the clients. Over the long term, that’s more important than a few guys trading bonds.”
Brian Mooney, who spent 22 years at Goldman trading in interest-rate derivatives, is just one of many to jump ship, joining Bank of America Corp.‘s (NYSE:BAC) Merrill Lynch this week. Glenn Hadden, former head of Goldman’s U.S. Treasury bond trading desk, left last year for a job at Morgan Stanley (NYSE:MS). BofA competitors UBS AG (NYSE:UBS), Nomura Holdings Inc. (NYSE:NMR), Jefferies Group (NYSE:JEF), and JPMorgan Chase (NYSE:JPM) have been among the beneficiaries of Goldman’s new strategy, gaining both experienced traders and up-and-comers.
However, not everyone decided to leave Goldman Sachs (NYSE:GS) on their own. Beginning in March, Goldman began helping them along, laying off traders when the dozen or so voluntary exits weren’t enough. Those remaining at Goldman have been given additional responsibilities, and others have been promoted to fill vacancies, but many seats have been left empty as Goldman looks to keep staffing levels low.
Some traders leaving Goldman (NYSE:GS) said they were worried the firm would lose its prestigious reputation, and wanted to get out while the name still meant something on their résumés. They also said that Goldman’s risk managers were limiting their position sizes and second guessing their trades while asking them to accept less pay and more responsibilities. CFO David Viniar says Goldman will lay off 1,000 people in order to cut $1.2 billion in spending this year if things don’t pick up. Those lucky enough to keep their jobs will be looking at reduced salaries.
Goldman’s (NYSE:GS) rates-trading desk is one of the largest in the firm’s fix income, currency, and commodities trading business known as FICC. The firm’s recent earnings report showed that FICC revenue declined 53% in the second quarter. FICC revenue has dropped by 46%, on average, in each of the last four quarters.
And Goldman isn’t the only firm hard-hit by the lagging securities and derivatives business (NYSE:XLF). Revenues at the world’s largest investment banks (NYSE:KBE) — including all of the above as well as Barclays (NYSE:BCS), Citi (NYSE:C), Credit Suisse (NYSE:CS), Deutsche Bank (NYSE:DB), Royal Bank of Scotland (NYSE:RBS) and many others — fell 5% in the first quarter of 2011, and weakening FICC desks were responsible for a large share of those losses.