Goldman Sachs's investment banking division (IBD) in Tokyo has cut around 10% of its workforce, market sources report, including four managing directors, three vice-presidents and six associates. The cuts were made last week. Goldman Sachs Japan would not comment on the reports.
Of note is the dismissal of Naomi Matsuoka, MD, who headed the equity capital markets team. Matsuoka has reportedly been at Goldman for over 20 years and is known as a successful banker.
“It's remarkable she was let go. She was very loyal to Goldman, and very good at her job. We tried hard to poach her, but she always said she was very happy at Goldman,” says a source who is the head of equity at a rival bank in Japan.
Matsuoka excelled at the privatisations that the Japanese government has carried out over the past several years, including that of NTT in 1998 and East Japan Railway in 2000. Former prime minister Koizumi also pushed privatisation after coming to power in 2001, including that of Japan Post (but in a multi-year process) and the Japan Highway Public Corp. However, other areas Koizumi was keen on privatising, such as health and education, have proved unattractive to his political successors.
One of the other MDs to be retrenched was involved in M&A, a second was on the “capital markets and execution side”, and another one was active in technology, media and telecoms. A fifth MD was moved sideways into an administrative role, according to one source.
A second source says the market should not read too much into the news, given that Goldman worldwide has announced a plan to reduce staffing levels by 10%, to the levels they were at in 2007. The number of global layoffs amounts to 3,200 of which Asia accounts for around 300, is the unconfirmed speculation. Hong Kong and India have been hard hit, say sources, while Singapore has been less affected.
“This is the first time Goldman has made such deep cuts in Japan. But other banks have been cutting for months,” adds the second source. Indeed, the Japanese markets have been weak since 2006 in terms of equity issuance and Goldman Sachs has resisted making cuts – until now. “Goldman was always conscious of the more conservative employment practices in Japan and tried to abide by them,” continues the source.
The sharp reduction in total equity issuance can be gleaned by looking at the activities of Nomura. As the number one equity house over the past three years, Nomura has acted on $3 billion of deals so far this year, according to data provider Dealogic, compared to $10.4 billion in 2007 and $21 billion in 2006.
Ironically though, the cuts come as the Goldman IBD team has clawed its way back in the league tables from 13th position in calendar year 2007 to fourth position year-to-date in “all ECM bookrunners” as calculated by Dealogic. In announced, Japan-targeted M&A, Goldman is fifth year-to-date, up from sixth in 2007. In 2006, Goldman was second.
Thus, the timing of the current downsizing could be intended to save Goldman from paying bonuses to the employees for what has been a relatively good year.
The number of IBD staff fired appears top heavy in terms of the number of MDs. According to the firm’s corporate brochure for Japan, Goldman Sachs Japan has a total of 134 MDs, spread out over 1,200 staff in Tokyo in the securities arm in total. The IBD comprises 100 bankers.
The fact that Goldman has downsized at senior levels is further confirmation of how aggressive the cost-cutting drive is across the investment banking industry. For investment banks, whose business is people-driven, revenues per head is a critical contributor to profitability. And senior resources are obviously the most expensive. The subprime-sparked downturn shows no signs of abating and indeed some specialists are predicting it could even be prolonged further than initial indications. Investment banks are initiating cuts with an eye to paring their cost base to ensure they go into 2009 with a headcount their revenue projections can support.
The move by Goldman to reduce employee count over the last few days follows similar moves made by Merrill Lynch and Morgan Stanley. Speculation is rife that HSBC and Citi will be following suit shortly.
On top of the weakness in Japan's capital markets, Goldman's share price is under severe pressure in the US, where it is speculated it may need to carry out another capital raising exercise. Goldman shares closed at $71.21 on Monday, down 8.4% on the day. The share price has fallen from a 52-week high of $240 on November 14 last year.
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