Goldman Sachs plans thousands of layoffs, expects to eliminate some bonuses

The bank added staff aggressively during the pandemic. Now, amid a deal-making slump, it is planning cutbacks.

Goldman Sachs had some 49,000 employees as of September, up from about 38,000 at the end of 2019. Picture: AFP

Goldman Sachs is planning to lay off several thousand employees, according to people familiar with the matter, another consequence of this year’s deal-making slump.

The bank will be leaner in 2023, but it will still have more employees than it did before the pandemic. Goldman had some 49,000 employees as of September, up from about 38,000 at the end of 2019.

Goldman also expects to slash, and in some cases eliminate, the annual bonuses of underperforming employees.

Like other Wall Street banks, Goldman hired aggressively throughout 2020 and 2021, bringing in new employees to help it keep up with an M&A boom.

This year was a different story: An economic slowdown, war in Europe and rising interest rates triggered a bear market for stocks and a slump in deal making. Morgan Stanley also laid off workers this month, and similar cutbacks have swept through American companies.

Some of the job cuts at Goldman will be part of annual workforce reviews. In most years, the bank eliminates underperformers during that process, but lay-offs were suspended during the pandemic.

Taking away bonuses is another lever it can pull to trim expenses. Like most Wall Street employees, Goldman staff receive a large portion of their compensation in annual payouts tied to their performance and that of the overall firm.

Employees who get no bonus usually interpret it as an invitation to leave. Eliminating bonuses for highly paid partners and other executives can also give the bank leeway to preserve compensation for junior bankers.

Investment bankers covering tech, including some managing directors, could be hit hard by layoffs. The tech industry in particular fuelled the pandemic stock run-up, and shares of tech companies are down drastically this year.

But if overhiring and overpaying staff during good times has been a standing tradition on Wall Street, then so have steep job and bonus cuts during lean years.

In 2020, the panic that gripped the markets early in the year as the coronavirus pandemic circled the globe quickly gave way a massive rally. The stockmarket routinely touched new highs and corporate deal making brought in blockbuster fees.

And the Wall Street firms went on a hiring spree, often offering big bucks to lure new employees and keep staff from jumping ship.

The party came to a halt this year. With uncertain markets and a recession potentially on the horizon, corporate clients went jittery. Wall Street firms have been forced to confront a steep slowdown in many of their businesses.

What’s more, Goldman’s prominence in investment banking and trading has made its results – and its stock price – more sensitive to the ebb and flow of the capital markets than many of its peers. Banks such as JPMorgan have consumer lending operations that dwarf Goldman’s. And in the years since the financial crisis of 2008-09, Morgan Stanley’s push into wealth and asset management has left it less dependent on deal fees than rival Goldman.

Goldman in October announced a reshuffling of its businesses, part of a push to draw more attention to its own asset and wealth management businesses, where it can clip relatively steady fees.

“We went from boom to bust immediately, so in hindsight (banks) probably overhired,” said Alan Johnson, managing director at Johnson Associates, a compensation consulting firm specialising in the financial services industry. Next year “isn’t looking great either”, Mr Johnson said.

The Wall Street Journal