Key Takeaways
- • Deutsche Bank is recruiting senior trading talent from Goldman Sachs and Morgan Stanley, including a promoted managing director from Morgan Stanley's executive ranks, as part of a strategic push to strengthen its investment banking and trading operations.
- • Goldman Sachs faces significant headwinds in Q2 2023, with Deutsche Bank analyst Matt O'Connor forecasting a 31% year-on-year decline in fixed income sales and trading revenues, an 18% drop in equities revenues, and overall revenue decline near 20%.
- • Goldman Sachs is burdened by substantial one-time charges totaling approximately $1.5 billion in Q2, including commercial real estate losses, a $500 million goodwill impairment from the Greensky fintech divestment, and severance costs for departing managing directors.
- • Deutsche Bank's fixed income, currencies, and commodities trading operations have gained competitive momentum, with CEO Christian Sewing noting improved "mood music" in sales and trading revenues, positioning the bank to capitalize on rival underperformance.
- • Goldman Sachs' cost structure is proving inflexible; analyst O'Connor expects non-compensation costs to fall by less than 1% despite revenue declines of nearly 20%, creating acute pressure on profitability and earnings per share.
Summary
Deutsche Bank is actively recruiting senior trading talent from major Wall Street competitors, particularly Goldman Sachs and Morgan Stanley, as the Frankfurt-based lender strengthens its investment banking and trading franchises. The bank has hired a Morgan Stanley executive director and promoted the recruit to managing director, signaling an aggressive talent acquisition strategy. This recruitment push comes as Deutsche Bank's own trading operations, particularly in fixed income, currencies, and commodities (FICC), have gained momentum following strategic initiatives under CEO Christian Sewing.
Goldman Sachs faces a sharp contraction in its trading and investment banking revenues during the second quarter of 2023, according to analysis from Deutsche Bank's US banks analyst Matt O'Connor. O'Connor forecasts Goldman's Q2 earnings per share at $2.97, substantially below consensus estimates of $7.51. Fixed income sales and trading revenues are expected to decline 31% year-on-year, while equities revenues are projected to fall 18%, and investment banking fees are anticipated down 18%. Overall revenues are predicted to decline nearly 20% in the quarter.
The earnings pressure stems from multiple headwinds. Goldman faces approximately $1.5 billion in combined charges and losses in Q2, including substantial commercial real estate-related losses, weaker banking and trading revenues, and a $500 million goodwill impairment related to the divestment of Greensky, the fintech firm championed by CEO David Solomon in 2021 but being divested less than two years later. Severance payments to departing managing directors add further pressure.
Critically, Goldman's cost base has become less flexible than historical norms. O'Connor projects that non-compensation costs will decline by less than 1% despite the 20% revenue contraction, indicating limited operational efficiency gains. Even with aggressive, unspecified cuts to compensation spending, overall costs are forecast to fall by only half the rate of revenue decline, creating substantial earnings compression.
In this context, Deutsche Bank's recruitment of Goldman Sachs and Morgan Stanley traders represents a strategic opportunity to capture talent amid competitive weakness at rivals. With Deutsche's own trading operations gaining traction and improved market conditions in FICC, the bank is positioned to attract experienced professionals departing from underperforming competitors facing cost pressures and reduced compensation opportunities.
Goldman Sachs faces a sharp contraction in its trading and investment banking revenues during the second quarter of 2023, according to analysis from Deutsche Bank's US banks analyst Matt O'Connor. O'Connor forecasts Goldman's Q2 earnings per share at $2.97, substantially below consensus estimates of $7.51. Fixed income sales and trading revenues are expected to decline 31% year-on-year, while equities revenues are projected to fall 18%, and investment banking fees are anticipated down 18%. Overall revenues are predicted to decline nearly 20% in the quarter.
The earnings pressure stems from multiple headwinds. Goldman faces approximately $1.5 billion in combined charges and losses in Q2, including substantial commercial real estate-related losses, weaker banking and trading revenues, and a $500 million goodwill impairment related to the divestment of Greensky, the fintech firm championed by CEO David Solomon in 2021 but being divested less than two years later. Severance payments to departing managing directors add further pressure.
Critically, Goldman's cost base has become less flexible than historical norms. O'Connor projects that non-compensation costs will decline by less than 1% despite the 20% revenue contraction, indicating limited operational efficiency gains. Even with aggressive, unspecified cuts to compensation spending, overall costs are forecast to fall by only half the rate of revenue decline, creating substantial earnings compression.
In this context, Deutsche Bank's recruitment of Goldman Sachs and Morgan Stanley traders represents a strategic opportunity to capture talent amid competitive weakness at rivals. With Deutsche's own trading operations gaining traction and improved market conditions in FICC, the bank is positioned to attract experienced professionals departing from underperforming competitors facing cost pressures and reduced compensation opportunities.
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