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Tuesday, April 23, 2024

Goldman Sachs plans mass layoff, 3,200 jobs to be eliminated after cost review

Goldman Sachs Group Inc is embarking on one of its biggest rounds of job cuts in history as it sticks to a plan to cut about 3,200 jobs this week, with the bank’s management going deeper than rivals to cut jobs.

Goldman Sachs has planned about 3,200 layoffs this week after in-depth cost review.

The firm is expected to begin the process by mid-week and the total number of people affected will not exceed 3,200, according to a person with knowledge of the matter. More than a third of these are likely to come from core trading and banking units, suggesting the broad nature of the cuts. The firm is also poised to reveal financials linked to a new unit that houses its credit card and installment loan business, which will post more than $2 billion in pretax losses, the people said, asking not to be identified discussing private information .

A spokesman for the New York-based company declined to comment. Cuts in its investment bank are compounded by the inclusion of non-front-office roles that have been added to the division’s headcount in recent years. The bank still plans to continue hiring, including introducing a regular analyst class later this year.

Under CEO David Solomon, headcount has increased by 34% since the end of 2018 to more than 49,000 as of September 30, the data shows. The scale of layoffs this year is also influenced by the company’s decision to mostly shelve its annual layoffs during the pandemic.

A slowdown in various business lines, an expensive foray into consumer banking and an uncertain outlook for markets and the economy are forcing the bank to cut costs. Mergers and fees to raise money for companies hit Wall Street, and a slump in asset prices removed another source of big profits for Goldman from a year ago. These broader industry trends were compounded by the bank’s missteps in its foray into retail banking, with losses piling up much faster than expected over the course of the year.

According to analysts’ estimates, the bank faces a 46% drop in profits on revenues of approximately $48 billion. Still, the brand has been boosted by its trading division, which is set to see another jump this year, helping the firm achieve its second-best performance ever.

The final number of job cuts is significantly lower than earlier proposals within the management ranks, which could have eliminated nearly 4,000 jobs.
The last major exercise of this magnitude came after the collapse of Lehman Brothers in 2008. Goldman embarked on a plan to cut more than 3,000 jobs, or nearly 10% of its workforce at the time, and top executives decided to forgo their bonuses.

Sharing the pain

The latest cuts are confirmation that even businesses that have outperformed this year will have to take pains for company-wide performance that falls short of targets set for shareholders in a year of falling costs.

This loss of performance was particularly evident in a new unit called Platform Solutions, whose numbers stand out in the divisional breakdown. The $2 billion-plus hit is boosted by loan-loss provisions, compounded by new accounting rules that force the firm to set aside more cash as loan volumes grow, as do rising expenses.

“There are a number of factors affecting the business environment, including tightening monetary conditions that are slowing economic activity,” Solomon told employees at the end of the year. “Our leadership team is focused on preparing the business to weather these headwinds.”

The cut also comes a week before the bank’s traditional year-end compensation talks. Even for those who remain at the firm, compensation numbers are expected to plummet, particularly in investment banking.

It’s a stark contrast from last year, when employees were showered with big bonus increases and a select few even received extra pay. At the time, Solomon’s $35 million compensation for 2021 put him alongside Morgan Stanley’s James Gorman as the highest-paid CEO of a major U.S. bank.

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