Morning Coffee: Upset as Citi ditches ambitions to be Goldman or JPM. How to be a star at Goldman Sachs?

Some people, as one executive quoted in the latest FT story about Citi put it, just refuse to admit that their baby is ugly.  That’s their view of what’s driving internal resistance to CEO Jane Fraser’s new business plan, ready to be presented to investors on March 2 but seemingly widely leaked externally and internally.

The ugly baby in question is the investment banking business at Citi.  In recent years, Citi executives have been publicly highly ambitious – aiming at knocking JPMorgan off the top of the European league tables and building out an equities sales & trading franchise to rival the bank's global top tier FICC operation.  According to Dealogic, in 2021 Citi was fourth in global DCM, fifth in global M&A and fifth in ECM.  This is a tantalizing position to be in – on the face of it, it looks like a reasonable basis to make a push for the top three.

But just like in the Olympics, getting into the medals is something of a quantum leap.  In order to gain market share, you need to hire lots and lots of major players, and at every step of the rankings, the stakes get higher. At some point, questions have to be asked about whether it’s really as achievable as everyone wants it to be, and at what cost.

Ms Fraser seems to have reasoned that the war for talent can’t turn into a forever war – somebody has to drop out from the rush for the top slots. Citi will still be a big player in investment banking; it can hardly be anything else given its size and synergies between FICC and its core global payments and commercial banking business. However, the future might have to be a matter of what Jefferies analyst Ken Usdin calls “maintaining relevance across the product set” rather than challenging for top spots.

Employees might think this is a bitter pill. If Citi doesn't want to become a Goldman Sachs or a JPMorgan then their dreams of big bonuses are dashed for the future as effectively as they were this year.  But … here’s a thought.  - Maybe the baby isn’t all that ugly after all.  Maybe Jane Fraser, a new CEO who isn’t anything like as well paid (yet) as her mega bank CEO peers, realizes that she needs to build wealth over the long term and has a plan.

A revenue year like 2021 is unlikely to be repeated.  A bonus pool that’s mortgaged away to lots of MD-level hires isn't going to benefit the rank and file.  If the age of diminished expectations keeps Citi out of a destructive zero-sum game on the cost side, while helping to turn round its relative share price performance, Jane Fraser might end up having the last laugh.

Elsewhere, Goldman Sachs might have hoped that they had seen the last of Tim Leissner, their swashbuckling and headline generating former chairman of Southeast Asia, when he pled guilty to a raft of criminal charges in the 1MDB case.  No such luck at all – having struck a co-operation deal with the US government in the hope of getting a lighter sentence, he’s back as a prosecution witness in the trial of Roger Ng, the former head of investment banking in Malaysia.

On the basis of testimony so far, Mr Leissner is still inclined to flex about his dealmaking prowess; his estimate that he generated $700m of revenue from 1MDB for Goldman Sachs is actually substantially higher than alleged by his prosecutors.  Leissner said that this was “unprecedented” and “celebrated” within Goldman Sachs, giving him “hero status”.  For his part, Mr Ng denies the charges and other witnesses have noted that he was not quite as “insistent … in terms of tone talking to people”.  Malaysian DCM banking in the 2010s must have been quite a place to work.

Meanwhile…

There might be a bit of nervous wriggling in some of the best appointed seats on trading floors in Manhattan.  The SEC is investigating equity trading desks’ communications with hedge funds with respect to big block trades, and it has been confirmed by “people with knowledge” that Pawan Passi (Morgan Stanley’s head of equity syndicate, on leave since November).  It’s still not quite clear exactly what the regulators are looking for, though, so it’s hard for anyone to feel safe.  There are some hints that things were accelerated by the liquidation of the Archegos portfolio. (Bloomberg)

“I would never make anyone a loan if it puts their art collection at risk”.  John Arena, recently poached from Bank of America to be Deutsche Bank’s “Subject matter expert for fine art lending”, has a job that plenty of people would envy.  He travels from art fairs to dinners to exhibitions, looking for billionaires with $400m of Impressionists on their walls, who weren’t previously aware that their assets can be made to sweat a bit without selling them.  His own office is decorated mainly with paintings by his wife.  (Euromoney)

Whatever its ambitions in other areas, Citi continues to ace its targets for diversity in its management.  Black employees now make up 8.1% of roles at assistant VP or above, while women account for 40.6%.  The company is now considering future goals, which might vary by region. (Bloomberg)

Crypto world is different – a VC firm has hired an anonymous software developer called “Transmission”, who claims in his bio that he attends a Californian high school “in his spare time” (The Block Crypto)

The old joke used to be “we pretend to work, and they pretend to pay us”.  Now you can start pretending even before the interview stage.  So many companies are using automated resume-reading software that there’s a cottage industry in the equivalent of search engine optimisation techniques to get around them. (WIRED)

Dubai is OK, but if you’re really serious about the ultra-rich, there’s one place to go.  Goldman Sachs has hired Arnaud Cassin and Thibaut Lambert from Barclays to re-open its Monte Carlo office. (Bloomberg)

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