Goldman Sachs Prepares for Layoffs as Deal-Making Slows
Goldman Sachs is preparing for a round of layoffs that could come as soon as next week, according to two people familiar with the plans, who spoke on condition of anonymity because they were not authorized to speak publicly.
The job cuts will affect employees across the company, according to the people.
Goldman typically revisits its head count every year, letting go of employees based on performance and to match the bank’s needs. It had paused that program during the pandemic, which also coincided with a record period for deal-making, when bankers complained of overwork. The program typically lays off 1 to 5 percent of workers; this round of layoffs is likely to be at the lower end of that range, a person familiar with the matter said.
Goldman’s chief financial officer, Denis Coleman, told analysts in July that the bank was “probably reinstating our annual performance review of our employee base at the end of the year.”
The move comes as the Federal Reserve’s effort to tame inflation by raising rates has cooled deal-making and raised concerns that the U.S. economy will tip into recession. The war in Ukraine has added further uncertainty to the mix.
Goldman reported in July that its second-quarter profit had dropped nearly 50 percent from a year earlier, to just under $3 billion. Revenue from Goldman’s investment banking division fell 41 percent from the same period in 2021. The firm said its backlog of deals fell, but did not say by how much. At the time, the bank said hiring for the rest of the year would slow.
The State of Jobs in the United States
Economists have been surprised by recent strength in the labor market, as the Federal Reserve tries to engineer a slowdown and tame inflation.
Deal-making in the United States so far this year has totaled about $1.2 billion, compared with $2 billion a year ago, according to the data firm Dealogic. Initial public offerings raised about 95 percent less through the first half of the year than the first half of last year, according to EY, an advisory firm. The number of deals has fallen about 73 percent.
“No question that the market has gotten more challenging,” David M. Solomon, Goldman’s chief executive, said on the call in July.
“We have made the decision to slow hiring velocity and reduce certain professional fees going forward,” Mr. Solomon said. “We are keeping in mind, however, that while we’re being disciplined about our expenses, we are not doing so to the detriment of our client franchise or our growth strategy.”
Mr. Solomon’s statements, which echo similar warnings from chief executives across Wall Street, were a far cry from last year’s ebullience. Then, low interest rates and sky-high financial markets drove a deal frenzy that required banks to bring on new workers to help deal with the crushing deal volume.
Still, for executives across Wall Street, assessing the requisite size for layoffs can be difficult. There are conflicting signs about the state of the U.S. economy, with some estimating that it may already be in a recession, or about to enter one, while others believe that there will be a slowdown but no contraction. And deal-making, which can return as quickly as it fades, has shown recent signs of optimism, like the upcoming initial public offering of Porsche. That makes bankers wary of finding themselves understaffed should deals begin to roar again.
But for now, Wall Street banks may simply have too many deal makers.
“They just don’t need as many bodies as they have,” said Chris Connors, a vice president at Johnson Associates, a compensation consulting firm. “Production has fallen off a cliff.”