Despite large profits, 6th largest FX dealer cuts staff pay by 20%

The past few years have heralded a very interesting set of results for Tier 1 banks with regard to their market share in the FX Prime Brokerage sector, especially the recent situation that has arisen, placing a non-bank market maker, XTX Markets, in the number one global slot, ahead of all of the major FX dealing banks.

What used to be a very stable hierarchy with Citigroup having been the largest FX dealer in the world via its single dealer platform for over 15 years until 2014, has varied tremendously over the past five years with the BARX platform, owned and operated by Barclays, having briefly risen to supremacy before corporate losses and regulatory censuring in other areas of the bank’s operations blighted it and relegated it from the top ten, let alone top three.

In FinanceFeeds opinion, XTX Markets has arived at the top because its business is completely dedicated to handling FX order flow, ergo, unlike banks which have to shoulder very inefficient retail banking operations, and have gone through financial and credit crises with low-value lending divisions bearing the brunt of bad retail debt such as mortgage and credit card defaults, XTX Markets does not have to deal with such operational liabilities and therefore does not have the risk averse nature of the Western markets’ battered and bruised banks.

Today, Goldman Sachs, the world’s sixth largest FX dealer by market share, has announced that it is to reduce its staff’s pay by 20%, despite still turning a profit, further demonstrating the ‘glass half empty’ perspective that exists within banks.

The investment bank made a £2.1 billion profit in the first three months of 2019, down 20% on a year earlier, citing a reduction in share trading due to less active markets as the reason. As a result, the bank has slashed bonuses in a bid to boost profitability, setting aside £2.5billion for its workers, down from £3.1billion in the same period last year – a totally different corporate action compared to the pre-Lehman Brothers collapse halcyon days of large bonuses in which Goldman Sachs wrote a $80,000 check to all of its employees regardless of grade or occupation as a means of sharing profits.

The 20% pay cut that is about to be foist upon Goldman Sachs staff means that average Goldman employee is now set to earn £69,219 for the three months, down from £90,985 a year earlier.

The profit fall is a blow for chief executive David Solomon, who took charge in October, particularly as Wall Street rival JP Morgan made a record £7 billion in the first quarter. Goldman launched a consumer arm called Marcus in the US in 2016, and brought it to Britain with a top-paying savings account last year.

A strategic review of where the bank is heading will be published at the start of 2020, a year later than first planned.

This pessimistic stance by Goldman Sachs which effectively makes its staff – whose efforts contributed toward turning what is still a very large profit in a highly competitive and risky market – responsible for turning less profit than last year by curtailing their salaries.

Usually, this creates an exodus of talent to firms that respect their abilities and subsequently a ‘brain drain’ which weakens their current employer.

Meanwhile, the non-bank market makers are gearing up and hiring the best, remunerating them well and taking the banks top slots in FX market share.

Even Euromoney, which is well recognized as an industry benchmark for measuring FX and electronic trading market share among large institutions, has created figures that have caused analysts around the world to state that the biggest banks in the global foreign exchange markets are seeing their influence and control over the sector dwindle.

By creating a profit in difficult market and then penalizing those who created that profit, banks such as Goldman Sachs are paving the way for further moves down the market share scale and for the lithe and lean non-bank institutions to step up.