Big Cuts are Coming to Goldman Sachs

The ax falls at Goldman

Job cuts have begun at Goldman Sachs. A wave that’s expected to grow to as many as 3,200 layoffs, one of the largest by the bank since the 2008 financial crisis, started on Tuesday, including at its premier equity capital markets division, sources told DealBook. More across-the-board cuts are expected to be announced on Wednesday.

They may be the biggest cuts on Wall Street — an unusual situation for the elite bank, which has struggled for months to revamp its operations and stem a fall in its stock price. They’re also part of an expansive effort to review and cut costs across the firm, The Financial Times reports. It’s a tall task that has fallen in large part on Ericka Leslie, Goldman’s chief administrative officer, in close consultation with David Solomon, the C.E.O., and John Waldron, the firm’s chief operating officer.

Who is Ms. Leslie? She grew up in Clifton Park, in upstate New York, where she worked for her father’s small light-fixture sales company. She credits that experience for teaching her how to be self-reliant in business: In an interview for Infosys, she said, “I remember very vividly when I first came to Goldman Sachs, and I called my father and said, “‘You’re not going to believe this, but when the light goes out, someone comes in and fixes it.’”

Ms. Leslie joined Goldman in 1996, starting in the firm’s finance division, before making partner in 2012. She became global head of operations for the securities division in 2018 and then administrative chief last January.

Spending on nearly everything is under review, according to the F.T., from Goldman’s embattled consumer-finance operations to travel. A particularly sensitive focus is the firm’s two Gulfstream jets, which the bank bought in 2019 in a reversal from a previous reliance on the NetJets rental service. (Mr. Solomon has been criticized for his repeated use of the corporate planes.)

Ms. Leslie’s biggest concern may be dealing with anxious bankers. A year ago, Goldman paid out hefty bonuses to retain talent; now employees are expecting steep cuts to their bonuses, or worse. One banker told DealBook he immediately checked his phone when he woke up yesterday to see if he still had a job.

Others are speculating whether the traders who moved to Goldman’s outpost in West Palm Beach, Fla., have made themselves vulnerable — particularly since Marc Nachmann, until recently the co-head of that division, will now spend more time in New York overseeing the firm’s newly merged asset and wealth management division.

We may learn more about what Leslie is up against later this week. Goldman is set to release a regulatory filing restating its finances for the past three years, under a sweeping restructuring it announced in October. We’ll be looking out for possible losses in the firm’s consumer and asset-management division, as well as more insight on the costs Leslie is seeking to rein in.

HERE’S WHAT’S HAPPENING

U.S. flights are grounded amid an F.A.A. computer outage. The agency said it was trying to fix a service that publishes essential information for flight-operations workers and cautioned that it had “no estimate for restoration of service.”

Vince McMahon wrests back control of W.W.E. The pro-wrestling franchise’s directors installed him as executive chairman, less than a week after his return to its board. In a story line as dramatic as any in W.W.E., his return led to the departure of his daughter, Stephanie, as chairwoman and co-C.E.O. — and could pave the way for the company’s sale.

The Trump Organization’s ex-C.F.O. is sentenced to jail. Allen Weisselberg, who worked for the Trump family for a half-century, will serve five months at Rikers Island for his role in a tax fraud scheme. He had testified against the Trump Organization, helping lead to its fraud conviction last year.

The World Bank cuts global growth forecasts. It said it expected worldwide G.D.P. to grow 1.7 percent this year, half what it predicted in June. That leaves the global economy vulnerable to a recession this year, the World Bank warned.

Wells Fargo retreats from mortgage lending. Once one of the largest U.S. home lenders, the bank will limit itself to loans for existing customers, wealth management clients and borrowers in minority communities. The move comes amid pressure from regulators and higher interest rates that have cut into mortgage-lending profits.

Shake-up at LVMH

A new year brings a leadership reshuffle to the ranks of Louis Vuitton Moët Hennessey, the world’s largest luxury goods group by sales, as Bernard Arnault continues to promote his children to key posts within his empire, writes the Times’s Elizabeth Paton.

The management changes were announced Wednesday morning, and the stock rallied. Mr. Arnault, the world’s richest person, appointed his daughter Delphine to run Dior, LVMH’s second-largest brand. Pietro Beccari, who has been Dior C.E.O. since 2018, was named the chief executive of LVMH’s flagship brand Louis Vuitton, which accounts for almost two-thirds of the company’s annual operating profit.

Michael Burke, the longtime Louis Vuitton CEO and one of Mr. Arnault’s longest-serving executives, will remain at the group and continue to work alongside the 73-year-old Arnault, without detailing his new role.

The appointments were first reported by the Business of Fashion. They are the latest moves by Mr. Arnault, LVMH’s chairman, to secure a succession plan at the luxury group by putting his children in key executive roles.

The luxury conglomerate has become a family affair. Antoine Arnault, 45, is C.E.O. of Christian Dior SE, the holding company through which the Arnaults control LVMH. Alexandre Arnault, 30, is the executive vice president of product and communications at Tiffany & Company. Frédéric Arnault, 27, is the chief executive of TAG Heuer. Jean Arnault, 24, was promoted in November to the role of watches director at Louis Vuitton.

“Succession planning in strategic roles has been instrumental to the success of LVMH’s key brands over the past 20 years, hence today’s moves are significant,” said Thomas Chauvet, analyst with Citi.

LVMH stock gained nearly 2 percent in Paris this morning, and is up more than 11 percent in 2023, adding nearly $40 billion in market capitalization. Demand for LVMH handbags, shoes and designer clothes has proved robust, even with the global economy in a downturn and Covid hurting sales in mainland China, one of its most important global markets.

Crypto moguls spar over millions in frozen assets

The crypto industry is turning on itself, with Cameron and Tyler Winkelvoss, co-founders of the exchange Gemini, publicly accusing their one-time business partner and his firms of committing a massive fraud that’s costing their customers millions.

The twins say Digital Currency Group, the crypto conglomerate that’s been hit hard by the collapse of Sam Bankman-Fried’s FTX and the wider drop in crypto asset values, should force out its founder and C.E.O., Barry Silbert.

Gemini says it was misled by Silbert and DCG. Tyler Winkelvoss told DealBook that DCG failed to come clean about the financial health of its crypto lending outfit, Genesis Global Capital — a Gemini trading partner. Genesis froze withdrawals in the days after FTX went bankrupt in November, leaving about 340,000 customers of one of its most popular offerings, Gemini Earn, unable to get their money, as the funds were tied up in Genesis. The Winkelvosses calculate customer losses at about $900 million.

Gemini has been negotiating to get that money back. But those talks have now turned nasty, with the Winkelvosses saying Silbert and Genesis deliberately duped them and are obstructing a resolution. Adding to the turmoil, Gemini Earn investors have filed a proposed class action lawsuit in federal court against Gemini and the Winkelvosses. Gemini has argued that the case should be aimed at Genesis and DCG instead.

The troubles began last summer when DCG swooped in with a $1.1 billion lifeline to save the cash-strapped Genesis. The deal was presented as a capital infusion, Tyler Winkelvoss told DealBook, but it was actually a promissory note, due in ten years. “The problem is it’s not worth $1.1 billion, and they led us to believe it was,” he said. The note was “stuffed and hidden in the balance sheet in a place it’s not supposed to be,” he said, and they didn’t make the discovery until after the collapse of FTX.

“It has been challenging to have my integrity and good intentions questioned,” Mr.Silbert wrote in a letter to DCG shareholders on Tuesday. He did not address claims that the deal with Genesis was mischaracterized, saying only that the promissory note was “recommended by our financial and legal advisors.”

In other crypto news:

• The world’s biggest crypto exchange, Binance, is bleeding assets, and Coinbase, the only publicly listed exchange in the U.S., is laying off employees.

• New court documents reveal the now-likely worthless stakes of FTX shareholders, including Peter Thiel, Tom Brady, Gisele Bündchen and Robert Kraft, the billionaire owner of the New England Patriots.

• Four U.S. senators are questioning whether the Wall Street law firm Sullivan & Cromwell has a conflict of interest in serving as counsel for the FTX bankruptcy.

• There’s a new revelation that Sam Bankman-Fried invested $20 million in a crypto venture capital fund that then took an investment in his FTX.

• Puck’s Theodore Schleiffer interviewed Bankman-Fried at his parents’ home in Palo Alto. They covered Bankman-Fried’s vegan burgers and video game habit, and his claim that he’s given away up to $300 million to various charitable causes.

“We are not, and will not be, a ‘climate policymaker.’”

— Jay Powell, the Fed chair, at a conference in Sweden, pushing back against calls for the U.S. central bank to take a more active role in mitigating climate risk.

Behind Microsoft’s bet on ChatGPT

News that Microsoft is reportedly weighing an investment of as much as $10 billion in the parent company of ChatGPT, the A.I.-powered chatbot whose natural-sounding interactions have entered mainstream culture, has become the talk of the tech world.

If Microsoft goes through with an investment in OpenAI, it could give the software giant a leg up on its archrival, Google, in a technology that Google itself sees as “a code red” challenge to its cash-cow search business. A deeper partnership with Microsoft could give OpenAI a major advantage over competitors in this disruptive tech field.

Microsoft may double down on an already successful bet. In 2019, the company invested $1 billion in OpenAI in exchange for the right to integrate the start-up’s work into its own products. It has since incorporated OpenAI technology into a coding tool, but new reports suggest that much more consequential team-ups are in the offing: putting the tech in the search engine Bing and widely used productivity software like Word.

“The next wave is really right up on us, which is definitely A.I.,” Satya Nadella, Microsoft’s C.E.O., told investors last month, specifically citing ChatGPT. “We are very, very well structured to capitalize on this wave.”

The cost of a new deal could very well be worth it. The potential transaction would be among the biggest Microsoft has ever struck. (One question is whether it would be caught up in antitrust scrutiny, as Microsoft’s $69 billion takeover of Activision Blizzard has.)

Microsoft is trying to engineer a deal devoid of financial risk, according to Semafor. The potential alliance would give it the bulk of OpenAI’s profits until it recoups its investment, and Microsoft would own nearly half of the A.I. start-up. More important, a deal would further tie the data-intensive OpenAI to Microsoft’s Azure cloud service (more on that later).

Processing ChatGPT queries isn’t cheap: OpenAI’s C.E.O., Sam Altman, put it at several cents apiece. Microsoft’s Azure is providing the vast computing power needed to power OpenAI’s technology. To produce and improve their output — which now extends to code, poems, translations and more — A.I. systems like ChatGPT need to suck up and process huge amounts of data. Microsoft’s Azure is among the few services that can deliver that kind of power, The Times’s Cade Metz told DealBook.

There are still risks for Microsoft. OpenAI’s products aren’t necessarily that much more advanced than rival offerings from other start-ups and efforts by tech giants like Amazon, Google and Meta.

There’s also the chance that the shortcomings of A.I., including ChatGPT’s frequently wrong answers, could anger users if the tech is incorporated into mainstream products like search engines. Microsoft will have to address those risks to avoid having a new crown jewel quickly lose its gleam.

THE SPEED READ

Deals

• The oil tanker operator Frontline called off a $4.2 billion deal for a rival, Euronav. (Reuters)

• Sebastien de La Riviere, who oversaw Elliott Management’s campaigns against GlaxoSmithKline and Fresenius, has left the activist hedge fund. (Bloomberg)

Policy

• Representative Katie Porter, the California Democrat known for her sharp scrutiny of financial firms, will run for the Senate seat held by Dianne Feinstein. (NYT)

• The bond market is worried about a potential fight over the U.S. debt ceiling this year. (Bloomberg Opinion)

• What’s behind efforts across the U.S. to ban gas stoves? (WaPo)

Best of the rest

• Disney lowered many of the costs of visiting its theme parks, after drawing criticism for soaring prices. (NYT)

• The Golden Globes returned to T.V. Steven Spielberg’s “The Fabelmans” won for best dramatic film, while “The Banshees of Inisherin” won for best comedic or musical film. (NYT)

• Tesla filed for approval to expand its Texas factory with a $776 million investment; meanwhile, several top executives have left Rivian, a rival electric carmaker. (Reuters, WSJ)

• The parent company of Parler, the right-wing social network, has reportedly laid off most of its staff. (The Verge)

• The publisher of “Spare,” Prince Harry’s tell-all memoir, said the book had become the fastest-selling nonfiction title in British history. (Guardian)

Our condolences to the family of our treasured colleague Blake Hounshell, the editor of The Times’s On Politics newsletter, who died yesterday. He was 44.

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