As we’ve pointed out in the past, as the biggest banks look to boost profits during an era of NIRP and ZIRP, when net interest margins have been squeezed to levels that some believe are threatening the viability of the banking system, headcounts will inevitably be reduced – and senior employees won’t be immune.
We saw it with State Street earlier this year, which laid off a swath of senior managers while touting its efforts to “structurally compress” management with the help of automation. Deutsche Bank has launched a restructuring that will ultimately involve laying off some 18,000 employees, the largest mass layoff since the death of Lehman.
And this week, the spotlight has been on Goldman Sachs. The Vampire Squid’s CFO and co-head of trading Marty Chavez revealed earlier this week that he would retire at the end of the year. Jeff Nedelman, a senior partner in equity trading, also quit on Wednesday.
And on Thursday, WSJ reported that Goldman CEO David Solomon is negotiating the exits of at least a dozen Goldman partners, which will likely be announced during the coming weeks.
Among the more high-profile names: Elisha Wiesel, Goldman’s chief technology executive, and Steven Strongin, who runs the firm’s research operation.
Goldman CEO David Solomon
All told, roughly 15% of Goldman’s partners might depart the firm this year. Meanwhile, the overall pool of Goldman partners – once one of the most coveted titles on Wall Street – is shrinking. Last year, the firm named 69 new partners, its smallest class in two decades. Goldman initiates a pool of new partners every other year. The practice is most vestigial, left over from the days when the firm was a true partnership, and partners had to risk their own money by owning a piece of the firm.
According to WSJ, Solomon sees the bank’s partner caste as a bloated drain on resources. Goldman partners command some of the most generous pay packages on Wall Street. Goldman’s partner pool peaked at roughly 500 last year, up from 221 when the firm went public 20 years ago.
As the ranks of the investment bank’s partnership have expanded, some believe it has tarnished the brand, making the job less attractive.
But that’s not the only reason why Solomon wants to cull the ranks: As Goldman shifts away from sales and trading and toward the more consumer-oriented businesses, it’s going to need to promote more people with experience in those businesses. The bank has already spent more than $1 billion on its pivot toward main street. The founder of the personal-finance app that Goldman bought this year joined the firm as a partner, as did the CEO of a wealth-management firm that Goldman recently bought.
Ideally, more partners will read the writing on the wall, and leave of their own accord. Longtime investment banker Joe Todd moved over to Evercore earlier this year, with the benefit of a six year contract. That wasn’t entirely unwelcome.
Last year, Goldman set up a new program connecting partners with nonprofits, with the tacit hope that some will find a new calling in ‘helping others’, and leave.
And for those that stay, the message is clear: Don’t expect to collect a massive payout unless you’re pulling your weight. From now on, the real ‘rainmakers’ will need to earn their keep.
After a few years at the helm, Solomon might even join them, leaving Goldman to focus on his ‘side hustle’: Working the midtown club circuit as DJ D-Sol.
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