The deteriorating economic situation is taking its toll on America’s big banks. The drop in activity in the lucrative investment banking business has particularly hurt Goldman Sachs, which suffered a 44% drop in profit to $2,962 million in the third quarter of the year. The bank is preparing to report full-year results next week, but a round of thousands of layoffs will begin this week.
According to Bloomberg agency, the layoffs will not exceed 3,200, between 6% and 7% of the workforce, which totaled 49,100 workers at the end of September. If confirmed, it would be the bank’s biggest cut since at least the financial crisis that followed the collapse of Lehman Brothers in 2008, when the company cut its workforce by 10%, around 3,000 employees. The layoffs will be announced starting this Wednesday, according to sources familiar with the situation, quoted by Portal, and will mainly focus on the investment banking sector. The company has not yet publicly announced its decision.
The bank has restored its performance appraisal adjustment program through which it lays off between 1% and 5% of its employees annually and which has been paralyzed during the pandemic. The more than 3,000 layoffs are in addition to layoffs resulting from this program. The suspension of those layoffs and hiring has seen Goldman’s workforce grow 46% since late 2017, when it had 33,600 employees.
With the layoffs, the bank is preparing for the possibility that the US economy’s deterioration will deepen this year. The interest rate hikes decided by the US Federal Reserve are cooling demand and have also caused slumps on the stock markets. Higher interest rates have made it harder to finance large deals and corporate M&A activity has declined. Goldman Sachs joins Morgan Stanley, which launched a round of roughly 1,600 layoffs last December, roughly 2% of its workforce. Other Wall Street firms have also made adjustments, albeit to a lesser extent.
In the third quarter of the year, Goldman Sachs, the Wall Street company most dependent on the investment banking business, saw its net income from the investment banking business fall 57% to $1,576 million. All types of commissions, those for underwriting fixed and floating rate issues and those for advice, collapsed due to the softening in capital markets.
Added to this were lower income from asset management and higher loan provisions. Goldman used the presentation of quarterly results to announce a restructuring of its business, grouping investment banking and brokerage in the markets into one division called Global Banking and Markets, also combining asset and wealth management into another division and leaving a third for platforms . These include its mapping alliances with Apple and General Motors, and its GreenSky digital brand.
The bank is also close to releasing financial results related to a new entity to house its credit card and personal loan businesses, which reported more than $2 billion in pre-tax losses, according to anonymous sources cited by Bloomberg will.
The big banks in the US will present their 2022 financial statements in the coming days. JP Morgan, Citi, Bank of America and Wells Fargo are all scheduled to do so this Friday, while Goldman Sachs and Morgan Stanley have delayed it until early next year.
THE LAND of the morning
Wake up to Berna González Harbor’s analysis of the day
GET IT