After the record year 2021, the mood in the financial sector has deteriorated.
(Photo: Reuters)
new York The new year begins with bad news for Goldman Sachs bankers. CEO David Solomon will begin the planned job cuts later this week. The Wall Street Institute is expected to cut around 3,200 jobs, according to financial services firm Bloomberg. A good 4,000 layoffs had previously been expected. It would be the biggest wave of layoffs since the 2008 financial crisis. A spokesman declined to comment on the exact numbers.
2021 was another record year for Wall Street. But the war in Ukraine, coupled with high inflation, rapidly rising interest rates and fears of recession have spoiled the good mood on the capital markets. The once lucrative IPO business came to an almost complete standstill last year. The number of mergers and acquisitions, an area that was still experiencing a global boom in 2021, also collapsed significantly.
Goldman is expected to make cuts across virtually all of its businesses. A good third of the cuts should come from the core business, trading and banking. The unit, which includes the online bank Marcus, will also lay off employees.
David Michael Solomon admitted last year that the venture into retail banking was more expensive and less successful than the bank first thought. As a result, the ambitions for Marcus were scaled back. According to Bloomberg, the Marcus division is expected to post a $2 billion pre-tax loss. Goldman will present figures for the past fiscal year next week. Solomon is under increasing pressure to deliver. The bank has been rated lower on the stock exchange than its competitors for years.
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Especially at the beginning of his tenure, Solomon, who previously headed Goldman’s investment banking, significantly increased jobs. From the end of 2018 to the end of September, the number of employees rose by 34 percent to a good 49,000 employees. During the pandemic, the bank also refrained from terminating the worst-performing bankers. This practice was common on Wall Street before the coronavirus crisis, and the bank is now returning to it. In financial circles it is said that in every scenario the bank will employ more people in 2023 than before the corona pandemic.
German banks will probably also cut bonuses
Other banks are also preparing for tougher times. Citigroup has also planned job cuts, but on a much smaller scale. The same applies to Wells Fargo. Overall, bankers have to adjust to noticeably lower bonuses. The drop could be as much as 45 percent, according to an analysis by Johnson Associates. This has specialized in monitoring remuneration in the financial sector. If that were to happen, it would be the biggest slump since the 2008 financial crisis.
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Also in the Frankfurt banking district one has to reckon with lower bonuses. Nils C. Wilm, Managing Director at Bankenwelt Executive Search, says: “We are seeing a cross-industry reduction in bonuses of 20 to 30 percent compared to the previous year in German investment banking.”
How the past year went and what the top bankers are preparing for the coming months will become clearer in the coming days.
The big US banks start the quarterly season on Friday. Then industry leaders JP Morgan Chase, Citigroup, Wells Fargo and Bank of America present their results. Significant profit slumps are expected after the record times of 2021. These are also difficult times for bank stocks. The KBW bank index lost almost 30 percent in value in the past twelve months and thus significantly more than the broad S&P 500, which lost almost 17 percent.
Analysts at Deutsche Bank do not currently see banks as a buying opportunity. Financial institutions generally benefit from rising interest rates and the US Federal Reserve (Fed) raised the key interest rate at record speed in 2022 to a range of 4.25 to 4.5 percent. At the same time, however, there are recession risks that are still predominant. It was also said that the mood on the capital markets would not improve any time soon. Deutsche Bank downgraded Bank of America and JP Morgan stocks on Friday.
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