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'Friction' and 'awkwardness': Inside the 'culture shift' in Goldman Sachs' markets business
(REUTERS/Natalie Behring)
Goldman Sachs CEO Lloyd Blankfein and COO Gary Cohn.
A culture shift is underway inside Goldman Sachs' sales and trading business, and it's causing a bit of tension within the firm.
At a housing finance conference the firm hosted earlier this week, Goldman Sachs' global cohead of sales, Tom Cornacchia, was surprisingly blunt about a shift in the fixed-income division that is causing some "awkwardness" and "friction."
"There's a lot of denial that exists up front, and that denial is something that we're trying to push through our system internally," Cornacchia said.
Essentially, he said, the equity sales and trading model has transformed over the past decade from a pure service-providing business to more of an "agency."
But now the same thing is happening to the fixed income, currencies, and commodities, or FICC, business as regulatory changes push the sell-side dealer community to become more agency-like, he said.
"It's always been a client business, but there's a difference," Cornacchia said.
Today, it's much more about "understanding that your bread and butter is a business that you do on a continuum every single day — it's not positions you put on your balance sheet. And that's a big culture shift for the fixed-income businesses."
A permanent shift
"Ultimately, once you embrace the change and embrace the fact that the business model is permanently shifted, permanently changed, it's not a cycle that you sit and wait for it to come back," Cornacchia said.
He said that recognizing this shift was still a "contentious" issue within the firm but that he and his coheads were trying lead the conversation around what changes must be put in place in fixed income.
(Bloomberg/Getty)
"We're not stepping out of any business — we're going to reshape every one of our businesses to adapt to the changing environment," he said.
To tackle it, Cornacchia said, the FICC team will need to hold more one-on-one meetings with clients to better understand their needs.
While equities sales teams are constantly on the phone with clients and servicing them however they can, he said, in the FICC world "there is an expectation every time we're on the phone that something's going to happen."
FICC salespeople expect to make a sale every time they speak to a client, but Cornacchia wants his FICC team to develop long-term relationships with clients the way the equities team has.
"We are pushing that agenda internally so that you guys can get can get the best of Goldman Sachs without having to worry about what you've got to deliver on the phone call," Cornacchia told conference attendees.
"Ultimately it's the overall length of the relationship — the continuum of the relationship — that's most important to us," he said.
Focusing on clients
The comments shed a bit more light on a broader shift underway at Goldman Sachs. Business Insider reported earlier this week that the bank was focusing on cross-selling.
Its securities cohead, Pablo Salame, recently met with Deutsche Bank analyst Matt O'Connor, and he said one long-term goal was to sell more products to existing clients.
The firm in February promoted Jim Esposito to chief strategy officer of the securities division and assigned him with growing the client franchise.
(Goldman Sachs)
Securities cohead Pablo Salame.
In a note announcing that appointment, Salame and securities coheads Isabelle Ealet and Ashok Varadhan said the industry was "undergoing extraordinary change" and that many of Goldman's competitors were retrenching from businesses and regions.
"The ability to deliver the full range of products and services we offer to our clients is more valuable today than any other time that we can recall," the note said.
Over in London, Joseph Mauro, head of FICC and European hedge fund sales and cohead of European macro rates sales, clued into the "angst" in the fixed-income division and sent a note to his junior staff addressing it earlier this month.
"Based on the number of you reaching out to get on my calendar or grab a coffee … there is clearly angst on the floor," his memo read.
"You are 'clapping' your mentors off the floor for the last time. People you respect are telling you the industry will never be the same. Peers are leaving for tech startups and swapping Goldman bags for backpacks."
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