Dark clouds descend over Goldman Sachs

One thing to start: Four US senators have questioned whether top Wall Street law firm Sullivan & Cromwell could properly investigate possible wrongdoing at FTX as its bankruptcy counsel given its past work for the cryptocurrency exchange.

In today’s newsletter:

• Goldman’s big cost review

• The roadblocks to a Toshiba takeover

• Elliott’s London exodus

Goldman bankers brace for turbulence

Being the boss of a Wall Street behemoth isn’t all DJ sets and Gulfstream jets. Sometimes you have to fire thousands of people and manage mayhem.

Such is the reality faced by Goldman Sachs chief David Solomon, who, under pressure to cut costs after net profit slid 44 per cent in the first nine months of 2022, is rolling out the most severe cost-cutting drive at the bank since the financial crisis.

That includes more than 3,000 cuts, with many employees in London and New York set to learn their fates as early as today. Investment bankers at the storied New York financial institution are also bracing for a reduction of 40 per cent or more in their annual bonuses.

Solomon isn’t acting alone, though. Goldman’s chief administrative officer, Ericka Leslie, has emerged as a critical figure in the review under the direction of Goldman president John Waldron, multiple people briefed on the matter told the FT’s Josh Franklin and Stephen Morris.

The purge hardly comes as a shock. Solomon has been struggling to close a valuation gap between rivals, including Morgan Stanley, which earn more of their revenue from steadier businesses, such as fund management, as opposed to Goldman’s heavy reliance on peddling M&A advice (which last year was less lucrative than usual given the sharp drop in deal activity). 

And while Solomon has taken steps to get with the times, the bank’s costly push into consumer banking, asset management and transaction services has yet to yield the same riches as the past two years’ dealmaking boom, when Goldman’s profits and share price hit record highs. (Staff in the consumer unit could be particularly at risk.)

One of the more sensitive areas Leslie is probing is Goldman’s spending on two Gulfstream jets, according to the FT’s sources. Despite the bank’s history of renting private planes from NetJets, the bank bought two Gulfstreams after Solomon took the helm. He even had a hand in choosing the decor, said a person familiar with the matter.

At the time, the bank said the move would lower costs. Financial metrics notwithstanding, Goldman told the FT this week that “it’s ridiculous to focus on any single segment or line item”. DD will let our readers decide whether or not it’s ridiculous.

Nonetheless, the process will be more comprehensive than that. Leslie will work closely with fellow Goldman executive Stephanie Cohen to set up a consumer and technology unit called “Platform Solutions” with a particular focus on controlling the unit’s costs.

For many who make it out of the review unscathed, sunnier skies lie ahead. The bank is still planning to go ahead with a Miami off-site meeting next month for several hundred of its new and existing partners, according to people familiar with the matter.

Solomon has made the rounds DJing in Miami’s nightclub scene before. But the upcoming retreat is expected to be strictly business.

Besides, the cost overhaul hasn’t exactly left staff in a party mood. Some managers have expressed reservations about holding the event weeks after firing thousands of staff.

Japan’s leveraged buyout market faces a short circuit

When a decade-long buyout boom entered a slump last year, it clipped the ambition of buyers studying takeovers and carve-outs exceeding $20bn in size.

Megadeals have faded away amid quickly deteriorating financing conditions, but one continues to slowly inch forward: Toshiba’s plan to sell itself to a consortium of buyers led by domestic private equity fund Japan Industrial Partners in a $16bn deal.

But JIP is finding it difficult to finance the takeover, the FT’s Kana Inagaki reports.

Toshiba was put into play in 2021 after CVC bid $20bn in a failed takeover effort that led to the resignation of the conglomerate’s then-president and triggered a bidding war among domestic buyers and overseas investors, including Bain Capital and Brookfield Asset Management.

It became an emblem of brewing private equity interest in Japan as boardrooms embraced a more shareholder-friendly tilt.

In October, as global credit markets hit a low point for 2022, the deal progressed when JIP was granted preferred bidder status by Toshiba. But JIP has struggled to secure financing from Japanese banks to complete the deal, according to people close to the talks.

“There is no question that banks are turning conservative. On average, the financing conditions for deals are deteriorating,” said a Tokyo-based executive at a US private equity group.

The conditions may frustrate private equity buyers hoping to take advantage of attractively valued Japanese companies facing succession challenges, or owning troves of non-core business units to carve out.

Whether JIP, or any other buyer, can pull off the Toshiba takeover will offer a new signal on the health of Japan’s nascent leveraged buyout market.

Private equity-led deals in the country reached $20bn in 2022 — up 22 per cent from a year earlier, according to Refinitiv.

What’s happening at Elliott in London?

The senior ranks of Elliott Management’s London office are looking a bit slimmer these days.

After a number of high-profile departures, the remaining senior portfolio managers in London are now Nabeel Bhanji and Gordon Singer, who leads the office and is also the son of Elliott’s founder Paul Singer.

There are other two senior investors in the office: Paul Best, who works on private equity, and James Stott, who works on real estate deals.

The latest senior executive to leave is Sebastien de La Riviere, the investor behind activist campaigns at UK healthcare giant GSK and Germany’s Fresenius, who joined the firm in 2008.

His departure follows those of Mark Levine, a close ally of Singer who spent more than two decades at the firm, and Mark Wills, who left in the summer of 2022. Giorgio Furlani left to run Elliott-backed AC Milan football club. And, Sarah Rajani, who was the firm’s director of communications, has departed.

It begs the question as to what is going on inside Elliott’s London office, which employs more than a quarter of the firm’s workforce and is responsible for investments across Europe and Asia.

Job moves 

• EY has named Jamie Miller as global chief financial officer. She will serve in the same role at the firm’s spun-out consulting arm if its partners vote for a historic split from the audit division. Miller joins from agribusiness group Cargill.

• Blackstone has promoted Brad Marshall to global head of private credit strategies, adding to his role as chair and co-CEO of the firm’s private credit fund and secured lending fund. Jonathan Bock, formerly the CEO of Barings BDC, has joined the firm as his co-CEO.

• Private equity firm Advent International promoted Tricia Glynn and Shonnel Malani to managing partner in Boston and London, respectively, and David Chen and Rafael Patury to managing director in Shanghai and São Paulo, respectively.

• Uniper chief Klaus-Dieter Maubach is leaving the German gas importer in the biggest casualty of a management shake-up after a multibillion-euro bailout by the federal government.

• Cathal Deasy has left Credit Suisse just months after being promoted to regional co-head of its investment banking and capital markets business, per Financial News.

• Jefferies has lured former Barclays banker Sam Dean out of retirement to become vice-chair of investment banking in London, per Bloomberg.

Smart reads

Damage control As China imposed strict Covid lockdowns, a different kind of isolation was playing out in Beijing as its relations with the west grew increasingly strained. Now Xi Jinping’s government has a plan to fix the economy and win back alliances, the FT reports.

Second thoughts First Abu Dhabi bank chair Sheikh Tahnoon bin Zayed al-Nahyan may not be done with Standard Chartered after all. The potential deal could be a strategic move for the businessman-slash-Emirati spy chief, Reuters Breakingviews writes.

Royal pains Prince Harry’s memoir Spare is arguably the most insightful, if not petty, royal book in a generation. But readers are still left with many questions about the monarchy’s inner workings, the FT’s Henry Mance writes.

News round-up

Microsoft eyes $10bn bet on ChatGPT (Semafor)

US lawyers’ billable hours hit low point amid deal drought (FT)

Ex-Citi banker Michael Klein expected to lead 9-figure payday in Credit Suisse deal (Bloomberg)

BioNTech buys UK AI start-up InstaDeep in £562mn deal (FT)

Britishvolt rescue deal set to slash battery maker’s valuation by 90% (FT)

Coinbase cuts jobs in latest repercussion of crypto crisis (FT)

Fund manager Terry Smith blames central banks for poor performance (FT)

Southwest Airlines meltdown prompts questions from big investor (Wall Street Journal)