Goldman Sachs Group Inc. is going ahead with its plans of eliminating around 3200 jobs this week. This is one of the largest layoffs by the Bank as its leadership goes further than rivals to cut jobs.
The Bank is expected to roll out the process this week, and the total number of employees affected will not exceed 3200. They will be mainly from core banking and trading divisions. It is also expected to disclose its new division’s financials that deal with installment lending and credit card businesses. These units are estimated to show a pre-tax loss of $2 billion.
The cuts are mainly in the non-front office positions in the investment banking division that were added in recent years. The Bank plans to continue hiring people, including recruiting regular analysts this year.
According to data, the headcount has risen 34% since 2018 end to 49,000 as on September 30, 2022, under CEO David Solomon. The scale of layoffs is also affected due to the Bank’s decision to set aside the annual cuts of underperforming employees during the pandemic.
Uncertain Outlook Due to Economic Slowdown
The Bank is reducing overhead costs on the overall slowdown in different business segments, including the expensive consumer banking sector. Wall Street is also hit by lower fees earnings due to lesser merger activities. The slump in asset valuations was another source of significant gains that affected Goldman’s revenues last year.
The broad industry negative trends also compounded the first mistake of venturing into retail banking, which piled losses much faster than estimated. According to analysts’ estimates, this led to Goldman recording a 46% decline in profits on $48 billion in revenue. However, the trading division lifted the revenue, expected to post one more jump this year. This will help the Bank to notch its second-best performance ever.
The final job cuts are much lower than the initial proposals to cut management-rank jobs by 4,000. The last significant cuts were seen in 2008 during the Lehman Brothers collapse. At that time, Goldman had cut 3,000 employees, 10% of its workforce, and the Top Management had to forgo their annual bonuses.
Higher Provisioning as Per New Rules
The cuts underscore that those divisions that did well during the year will have to share the losses incurred by other divisions. The underperformance was mainly seen in Platform Solutions, a new division that led to poor performance. The $2 billion-plus loss was magnified by higher loss provisioning as per new accounting rules, which forces lending firms to set aside more money as loan book size and expenses grow.
The job cuts came before the annual compensation discussion, which traditionally happens at the year’s end. The cuts mean those employees who remain with the Bank will see compensation figures tumbling, especially in the investment banking unit.
This year contrasted to the previous year when employees were given big bonuses, and some even got special payouts. CEO Solomon’s annual compensation of $35 million in 2021 put him at par with James Gorman of Morgan Stanley as the highest-paid CEO of a US bank.
