Morning Coffee: The only new problem at Goldman Sachs. Bankers' holiday habits hit the mainstream

As we noted yesterday, Goldman Sachs had a good second quarter. Banking fees were up. Sales and trading revenues were up. Profits were up 150% to $3bn, which the Financial Times points out was more than even the $2.8bn expected by analysts. CEO David Solomon declared, “From what we’re seeing, we are in the early innings of a capital markets and M&A recovery.” Things can only get better. Except...

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The Wall Street Journal notes that Goldman's transformation is being hamstrung by its poor performance in last month's stress test and its resulting higher capital requirement. 

In theory, says the Journal, Goldman is supposed to be moving to a lower capital model as it replaces volatile trading income with steadier income generated by fees. As part of this transition, Goldman is focusing on asset management and on moving assets from its own balance sheet to funds managed for outside investors who will pay a fee for the pleasure. 

Revenues at Goldman's asset management business rose 22% in the second quarter, but the Federal Reserve doesn't seem entirely convinced by the firm's transformation. Instead of cutting Goldman's capital requirement as hoped and planned, it's increased it from 13% to 13.9%. Solomon said yesterday that the increase,"does not seem to reflect the strategic evolution of our business,” and that the bank is “engaging with our regulators,”on the issue.

The Financial Times suggested previously that the reason for Goldman's higher capital requirement isn't so much the shape of its business as the regulator's belief that if things turn sour, Goldman won't be able to cut costs as much as it thinks. This applies partly to compensation, which increased 15% per person on average in the first half of the year. If the Fed is to be appeased, Goldman will need to cut compensation with equal zeal if the recovery fizzles out.

Separately, one observation of former Goldman Sachs associate turned academic, Alexandra Michel, is that as bankers leave banking and continue to work just as assiduously as before, banking work habits are permeating other industries. 

The same might be said for bankers' holiday habits. The Wall Street Journal reports that people in all kinds of professions are finding it difficult to take time off because it's seen as too much of a luxury. Instead, like bankers, they are taking time off and working still. "It feels abusive to use it," says one customer support professional who works during the day while she's on vacation. “I feel guilty using my vacation days,” agrees a 37 year-old with a contact-tracing job.

Some of those the WSJ spoke to are taking a slightly different approach: going on vacation, working a bit, and pretending to their employers that they've done a full remote work day. Maybe this non-banking vacation method will seep back into banking, although this seems unlikely now that more people in financial services are in the office almost all the time. 

Meanwhile...

Private equity firms' use of net asset value loans, which are secured against their fund investments and used to pay dividends and have been criticised, fell 90% in the second quarter. (Financial Times) 

HSBC Innovation Banking, which contains the remains of SVB UK now has 800 employees, up from 600 at the point of acquisition. “We have been hiring aggressively for some key roles and a lot of these roles are client-facing. When you expand, you need relationship managers to serve those clients. We will have specialists focused on innovation in different geographies.” (Financial News) 

D.E. Shaw's Valence fund — the firm's statistical arbitrage fund — is up 12.3% through 2024's first half.  In June, the fund was up 3%, this person added. Renaissance's largest fund available to investors, Institutional Equities, is up 11.4% through the first half of 2024 thanks to a 3.7% gain in June. (Business Insider)  

Stripe’s valuation has edged up to $70 billion as Sequoia Capital is buying up to $861m in shares from investors looking to cash out. (Bloomberg) 

SocGen has some issues. Costs are stubbornly high relative to income at about 70 per cent. Though the CEO sees this falling under 60% in 2026, market consensus has the metric above 63% at that point. That is well above the European mean near 50%. (Financial Times) 

JPMorgan hired Terry-Ann Burrell as a vice chair for investment banking on its health-care team. She worked for JPMorgan for a decade through to 2019 and has latterly been chair at Beam Therapeutics. (Bloomberg) 

SMBC hired Abdul Haleem Al Balooshi from SocGen to lead its coverage in Saudi Arabia. (Bloomberg) 

Rahul Chawla, Deutsche Bank's financial sponsor head for Asia, is leaving to do his own thing. (Bloomberg) 

Thierry Le Palud, global chairman of industrials in investment banking at Barclays, and another Lehman vintage banker, has joined Jefferies. (Bloomberg) 

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