Goldman Sachs will lay off 8% of its workers in January as its consumer banking division struggles to be profitable. Goldman Sachs has been hiring steadily since 2018, when David Solomon became CEO. Goldman has climbed to around 49,100 employees putting around 4,000 jobs in jeopardy in the next round of layoffs. Goldman laid off several hundred employees in September.
The Goldman Sachs layoffs seem to be part of a larger trend. Several large Wall Street banks have recently laid off employees, and several have plans for layoffs. In November, Citigroup and Barclays fired roughly 250 trading personnel. Beleaguered Credit Suisse is cutting 2,700 jobs in the fourth quarter. The 2,700 reduction is part of Credit Suisse's plan to cut 9,000 jobs by 2025. Morgan Stanley is reducing its labor force by 1,600 and Deutsche Bank also is engaging in a new round of layoffs due to reduced deal-making. Morgan Stanley is considering even more layoffs and JP Morgan Chase may begin a round of layoffs soon.
Why Are Banks Laying People Off?
There are two primary reasons the banks are laying off. First, high-interest rates and inflation are reducing the number of investors making trades. Banking executives have grown pessimistic, predicting continued declines in stock and bond markets. An anonymous bank insider told CNBC, “Most of the banks are budgeting for declines in revenue next year. Investors know the general direction of the market, at least the first half, and the thinking is that client demand for hedging has probably peaked.
Second, there is a banking industry practice of laying off underperforming workers before paying bonuses. Like most Wall Street banks, Goldman Sachs lays off 1-5% of its bottom performers annually. During the pandemic, most banks paused the layoff practice. In July, Goldman announced the practice would return at the end of 2022. The current layoffs significantly exceed the typical performance-based layoffs. Banks expect more economic turbulence ahead.
Why Does It Matter?
A few sectors act as barometers for the economy’s health. For example, delivery companies like FedEx and UPS give insight into consumer and business behavior. Similarly, giant retailers like Amazon and Wal-Mart can reveal how people spend money and how much disposable income they have. However, the health of banks reveals the health of the entire system. Remember 2008? When the banks had problems, the entire world felt it.
Bill Slack said, “banks generally know stuff and try to get out ahead of everyone else.” He was referencing central banks buying record amounts of physical gold. His quote applies nicely to the layoffs as well.
Actions speak louder than words. Banks expect that the economy will get worse going into 2023. They decided they needed to buy record amounts of gold and reduce their workforce to get ahead of the recession curve. They aren't buying gold because they think the price is decreasing, and they aren't laying off their traders because they think the markets will rebound soon.
If anyone knows what is next in the economy, it's the banks. Banks have teams of analysts, artificial intelligence, insider information, political connections, and even set the prices for gold. It makes sense to follow their lead, buy a lot of gold and prepare for hard times. Better to be a few months early than one day too late. We can ask questions later.
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About the Author: Ryan Watkins
Ryan is proud to be an Army veteran. After honorably serving his country, he studied finance, marketing, and kinesiology and graduated Cum Laude. Sharing a professional, practical, well-rounded investment perspective is his primary objective. Ryan invests in many different assets but admits he likes tangible assets best. His sincere passion is educating people and helping them make the most informed choices.
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byRyan Watkins, Op-Ed Contributor