The hysteria why Goldman Sachs could lay off 2% of the staff

“Hundreds of jobs at risk!” Some of the headlines related to the news that Goldman Sachs will announce job cuts in the coming weeks have been a bit blatant. The bank has just under 40,000 employees worldwide, so any redundancy program is bound to reach the hundreds.

In reality, what has been announced is hardly news. Each year, Goldman has a people layoff policy due to performance issues or because they work in areas the company has decided it doesn’t need: operations that have been automated, projects that have been completed, and so on. The annual round was canceled during the pandemic, but everyone expected it to be reinstated this year, and CFO Denis Coleman even confirmed in an analyst call in July that this would indeed happen.

In a typical year, the annual entitlement adjustment program affects between 1% and 5% of Goldman’s staff. This year, a “person familiar with the matter” said he is likely to be on the lower end; if we say it means 2%, then there will be between 750 and 800 former Goldmanites who will update their profiles.

The fact is that two percent is far below the normal turnover of a large Wall Street bank. People who work in banks will be offered more money in e-commerce houses or will go to the shopping side; some will retire, others will run out and others will write successful romance novels. The actual trajectory of Goldman Sachs’ workforce will therefore be guided by the hiring side much more than by any compulsory layoffs.

In July, GS CEO David Solomon said Goldman would “slow down the rate of hiring and cut some professional compensation” (this could refer to the fees charged by professional baristas in the coffee carts they are getting rid of, but it is more likely means headhunters). Therefore it is probable that the growth of the workforce in recent years will slow down; we may also see a quarter or two in which the number of Goldman bankers actually falls in absolute terms.

The headcount number, however, will not really be how Goldman (and other Wall Street banks) adapt to the new environment and reduce the flow of business. As of the H1 accounts, the clearing line in Goldman Sachs’ income statement fell 31% from last year. This implies significantly lower bonuses for 2022 unless something out of the ordinary happens and small changes in hiring and layoffs are very unlikely to change that picture.

This, then, is the deal successful banks make with their employees. If you demand as much from your employees as Goldman Sachs does, the implicit agreement is that you cannot then use layoffs to manage the business cycle; people simply will not continue to sacrifice their family and social life if they think they could be gotten rid of just because the market refused. Investment banks manage the volatility of their revenues by ensuring that their largest cost item is equally variable – it’s just when banks start thinking about laying off to save money that their franchises start to collapse.

Elsewhere, it wouldn’t be like September without a college student’s annual article claiming that their internship experience had driven them out of the industry for life. This year’s version comes from someone who spent the summer in a Chicago-based boutique (so not strictly “Wall Street”) but turned down the offer to be part of his 2023 analyst class.

Maybe you should have been there, but it’s not obvious that the way this boutique treated its boys justifies the intern’s claim that the culture was “abusive.” He found the worst thing about work was the feeling of having to be available at all times to give quick replies to “fix please” emails and he didn’t think editing PowerPoint slides was the best use of his ex. stellar skill doubt. But the worst examples of behavior he could come up with seem to have been a “what’s your status on this?” slightly concise email and a doctor who did not apologize for wrongly criticizing an analyst.

Reading between the lines, it seems the problem was more likely that the anonymous intern didn’t actually want to be a banker – it just seemed like a way to make a lot of money and a good job to get if you were a great successor. Which it is, but it’s not an easy job, especially in the first ten years, and if someone isn’t cut out for a lifetime of “ass kissing, caffeine and exhaustion,” it’s good to find out sooner or later. He is now “working on an entrepreneurial venture with my family and applying for a consulting job at the same time” and good luck to him.

Meanwhile …

JPMorgan continues to show that it is ready to spend money, thinks fintech is the big threat to its business, and wants to make a big bet on the cloud, with the acquisition of Renovite presented as a defensive move to help it compete against Stripe and Block. (CNBC)

Not everyone has heard the news of bonuses expectations for 2022: the “American bankers” are credited with keeping the super yacht charter market active. Supply is currently scarce, it seems, because many of the best yachts are not available for charter because their owners are subject to penalties. (Luxury launches)

As might be expected given what happened to prices, the commodity desks of banks like Goldman and Citi have had a great year so far. (Reuters)

Sanjay Shah will not be extradited from Dubai to Denmark, so his “it was all the fault of their legal system” theory about the Cum-Ex scandal will not be tested. (Bloomberg)

“CEO of Latin America outside Brazil” is a job title that could tell a long history of politics and office relations. Matias Eliaschev, who held that role at Lazard, has now moved to BoA as CEO and head of Latam FIG, including Brazil. (Bloomberg)

Great news for anyone who has kept a stock of it in the attic since the 1980s (and for those who haven’t put on too much weight). Striped “banker” shirts with white collars are back in fashion (Robb Report)

Photo by Mathieu Stern on Unsplash

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