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Morning Coffee: Citi explained exactly what happens when it cuts jobs now. Banker makes no apologies for his “golden age” of hiring

When you fire somebody, you save the cost of paying them, but you now have the problem of who is going to pick up the work they used to do.  It sounds pretty obvious, but in fact a lot of banks have come to grief over the years by forgetting that the equation has two sides, and that you need to have an answer to the question (even one as simple as “nobody, we’re closing that business line down”) before you make the redundancy announcement.  In the case of Citi’s current reorganisation, CFO Mark Mason has put some thought in, and he spelled it out quite clearly at the Goldman Sachs conference yesterday.

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The full quote from his presentation makes it clear that as Citi de-layers its management and reduces the number of direct reports to its C-Suite, a lot of the work is going to be picked up by....Mason himself:

“Before we announced the reorg, I had an ICG CFO, and a PBWM CFO, and a Latin America CFO, as well as an EMEA CFO and an Asia CFO," Mason declared. "And underneath them they all had CFOs for the five core businesses. By eliminating those roles, those businesses are now sitting at my table, the CFOs for those businesses”.

He notes that as well as getting rid of those roles, Citi has been able to lose the support staff that went with them, so it’s potentially quite a material cost saving.  But he goes on to say that as well as saving money in itself, the reorg is “the efficiency that allows us to run the business more effectively”.  In other words, Mason (and his peers in the C-Suite) can run things better themselves by having direct access to the revenue generating business units themselves. 🤔

When you think about it, that’s quite a flex.  Mason is saying that not only can he quintuple the number of financial controllers he deals with directly, but that in doing so, he can do all five of the eliminated divisional CFO jobs better than those five people and all their support staff. In other words, he’s not just better than the level of management below him, he’s many multiples better.

It could be true.  Even ignoring the possibility that the divisional managers might have dissipated a lot of their energy on bureaucracy, internal politics and self-promotion (something that’s not exactly unknown in the investment banking industry), the simple fact that Mason is going to be personally responsible for so many business units implies that he’s going to do a lot less active management of any of them.

Which is to say, the benefit Citi is hoping to reap is going to come from delegating decision making to the lowest possible level, so that it can happen quickly and with fewer communication difficulties.  Most of the business units ought to be able to run themselves pretty well, allowing top management to concentrate on the few that have problems.  Which might mean that Citi employees could hope to be left alone by the corporate centre, as long as they’re delivering results.

Elsewhere, Ken Moelis is clearly a believer in the old Warren Buffett adage that in a cyclical industry, the way to get rich in the long term is to be “greedy when others are fearful and fearful when others are greedy”.  When Silicon Valley Bank collapsed in the middle of a revenue slump, he immediately saw it as “one of the greatest opportunities of all time” to recruit bankers and reinforce a tech industry franchise, picking up talent that simply wouldn’t have been available in normal conditions.

This meant taking a hit to earnings, but Moelis robustly defended the decision against investors questioning his judgement.  Of course, it helps in making these decisions to have the credibility that comes from having built franchises over multiple market cycles – that might be why Ken decided to delay his succession planning in order to ensure that he would be the one holding the wheel this year.

Meanwhile …

Quite a major change for ambitious people at BlackRock – deputy COO Stacy Mullin has been appointed to be Larry Fink’s chief of staff (with Willie Alford being moved into a “strategic partnerships” role).  This seems to be signalling that going forward, the chief-of-staff role is not going to be a two-year placement for high-flyers to get a bit of top-level experience; it’s going to be more of a longer term posting with a consistent position in the management structure. (Business Insider)

The McKinsey partnership class of ’23 will see about 250 consultants hit the top level.  That’s 30% down on 2022, and the smallest cohort for several years. (WSJ)

Perhaps not the hugest of personnel moves, but it’s an indication of the direction of travel; “at least four” bankers in HSBC’s mid-market origination team in Hong Kong have been made redundant, as the revenues from Greater China deals have continued to dry up. (Bloomberg)

Fans of error-strewn Python code and satirical limericks about PowerPoint will have a new toy with which to bore their colleagues, as Google announces its new AI client, which will be made available for free in the Bard chatbot.  If you have an expensive Google phone and don’t live in the EU, it can compose WhatsApp messages for you (really don’t try that out on a work device!). (WIRED)

After a tough year for his hedge fund, TCI’s Sir Chris Hohn will have to get by with a dividend payment of only $346m this year. (Bloomberg)

BNP Paribas is opening an office in Wall Street South.  The new Miami location is meant to serve institutional clients (presumably mainly Citadel) with credit, equities and macro product. (Citywire)

It may not be a coincidence that BNP has timed the opening ceremonies for the new dealing floor to coincide with Art Basel Miami.  If you’re planning on attending the festival that’s been nicknamed “Burning Man for trust fund kids”, here’s a list of the kind of parties that you will probably like. (Business Insider)

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AUTHORDaniel Davies Insider Comment

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