Automation at Goldman, The Computer takes out four people

Today, nearly 45 percent of trading is done electronically, according to Coalition, a U.K. firm that tracks the industry.

Pay:

Average compensation for staff in sales, trading, and research at the 12 largest global investment banks, of which Goldman is one, is $500,000 in salary and bonus, according to Coalition. Seventy-five percent of Wall Street compensation goes to these highly paid “front end” employees, says Amrit Shahani, head of research at Coalition… Investment bankers working on corporate mergers and acquisitions at large banks like Goldman make on average $700,000 a year, according to Coalition, and in a good year they can earn far more.

Automating those $700,000+ meat-sacks:

Goldman Sachs has already begun to automate currency trading, and has found consistently that four traders can be replaced by one computer engineer, Chavez said at the Harvard conference. Some 9,000 people, about one-third of Goldman’s staff, are computer engineers.

Finding the things to automate:

Though those “rainmakers” won’t be replaced entirely, Goldman has already mapped 146 distinct steps taken in any initial public offering of stock, and many are “begging to be automated,” he said.

To be all double-turns-out about the grim automation stuff, in theory, this could mean hiring more programmers and people who support those robots, bringing down those big chunks of cash from “rainmakers” and spreading it down to “lower” grade staff. Of, you know, the bank can just keep that money and trickle it up to execs and share-holders.

Source: As Goldman Embraces Automation, Even the Masters of the Universe Are Threatened

Cash repatriation could inject $850bn, post-tax

If Congress enacted such a deal, of course, only a fraction of the $2.6 trillion would reach shareholders. It’s important to note that much of the UFE is not actually in cash; it’s invested in overseas plants or provides working capital for foreign subsidiaries. At press time, specifics of a plan hadn’t emerged, and figuring out which assets will ultimately get taxed, and at what rate, will be thorny. But based on Trump’s earlier proposal and on past holidays, investing pros estimate that about 40% of the UFE, or around $1 trillion, will come back to the U.S.—and that companies would net at least $850 billion after taxes.

Tech and health care companies would get most of that.


I think most people believe that cash would be used in stock buybacks and dividend to raise share prices and give cash to investors. Trump would probably want it for creating new jobs, and it could be used for domestic acquisitions.

See the rest from Shawn Tully at Fortune.

One in three tech IPOs now trading below their starting price

Around 33 per cent of the technology companies to enter the market in the last ten years are currently valued at a price lower than their IPO mark.

This according to researchers with analytics house Geckoboard, who studied 100 software, hardware, and social networking companies that have undertaken IPOs since 2006. Of those 100 companies, 67 are trading above their IPO valuation and 33 are below.

Link

Living life one quarter at a time, maybe it’s fine

Tyler Cowen suggests that we shouldn’t be freaked out by the emphasis on quarterly returns. Many public companies companies blame making quarterly numbers as a reason for short term planning, versus long term (one assumes) innovative strategies. The pieces suggests that that short sightedness may have a reason:

In information technology, the average life of a corporate asset is about six years, in health care it is about 11 years, and for consumer products it runs about 12 to 15. Very often it is hard for a company to plan its operations beyond those time periods, as the U.S. economy is no longer based on durable manufacturing machines. Production has shifted toward service sectors with relatively short asset lives, and that may call for a shorter-term orientation in response.

And, throw in all the “change or die”, digital transformation stuff and who knows what tomorrow will look like? As a counter, re-jiggering a company to be “digital” can take time. But, as Coleen suggests, investors don’t always seems to punish that (I’d add, if they have faith in management and the culture of the company):

Equity markets do not seem to neglect the longer run. Amazon has a high share price even though its earnings reports have usually failed to show a profit. Possibly the market judgment is wrong, but it’s hardly the case that investors are ignoring the long-run prospects of the company.

Further more, if I doesn’t work out:

If public shareholders are placing too much short-term pressure on their companies for a good quarterly earnings report, companies have the option of boosting their value by going private, as has been the trend. By 2012, the number of U.S. public corporations was less than half what it had been in 1997, in part because many companies went private. This is possible evidence that there have been problems with corporate short-termism, but on the other hand it shows that a market response is possible. Good governance is a scarce resource, and it may be that markets concentrate it in the places that need it most.

Source: Is corporate thinking too short-term?

The media doesn’t know what they’re talking about w/r/t Yahoo, a study in i-banker rhetoric

The notion that some in the media – who usually have no specific knowledge about Yahoo – have recklessly put forward that Yahoo is “unfixable” and that it should be simply “chopped up” and handed over for nothing to private equity or strategies is insulting to all long-term public shareholders.

This presentation is an example of many things we discuss on Software Defined Talk around large, struggling companies and the way they’re covered. Among other rhetorical highlights:

  • Check out how they make their case
  • Use visuals and charts
  • The informal nature of their language, e.g., they use the word “stuff” frequently
  • Their citations, e.g., citing themselves (I always love a good “Source: Me!”) and citing “Google Images”

These things, in my view, are neither good or bad: I’m more interested in the study of the rhetoric which I find fascinating for investment banker documents/presentations like this.

Not only that, it’s a classic “Word doc accidentally printed in landscape.” The investment community can’t help themselves.

As another note, no need to be such a parenthetical dick, below, to prove the point of a poor M&A history, just let the outcomes speak for themselves, not the people who do them.

img_4051

They actually do a better job in the very next slide, but that kind to pettiness doesn’t really help their argument. (Their argument is: she’s acquiring her friends.)

This is a type of reverse halo effect: we assume that tree standing goofiness has something to do with the business: an ad hominem attack. But, I think most billionaires probably have picture of themselves in trees, wearing those silly glove shoes, roasting their own coffee, only eating meat they kill themselves, or any number of other affectations that have nothing to do with profit-making, good or bad.

HFT tech

To illustrate this point during the opening keynote, George Kledaras, CEO of FIX Flyer, which creates algorithmic trading platforms, talked about how impossible it is for people to keep up and used the day when the statements from the Federal Open Markets Committee of the US Federal Reserve Bank are put out. The entire cycle, from the nanosecond that the FMOC statement was released, including the transmission of trading instructions from Chicago, where the report came out, to the exchanges in New York, took 150 milliseconds. After that, most of the trading was done.

Well, index funds it is for us normals I guess.

HFT tech

Companies get worse at truly innovating the more financial analysts cover them

They did a study! The number of patents filed (an easy, cross-industry measure of innovation, though not perfect) went down the more scrutiny there was overly quarterly performance:

[The study] demonstrated that companies produce fewer, and less-significant patents the more financial analysts cover them.

I’m fascinating by this quandary at tech companies. Some like Google and Apple seem fine, Microsoft who has generally had stellar financials over the past decade nonetheless gets punished (for not being Apple and Google, basically), and then folks like Dell feel the need to go private to escape this problem. It’s a wicked problem.

Companies get worse at truly innovating the more financial analysts cover them