Treading the path of US tech firms? Goldman Sachs goes for job cuts

With the big tech companies already going for job cuts, it is banking sector’s turn now as Goldman Sachs will begin cutting up to 3,200 jobs within days.

The development comes as some experts have been saying that the layoffs in tech industry is a warning sign of overall economy, including the likes of Jeffrey Pfeffer who is a professor at Stanford University’s Graduate School of Business. He says many of the layoff announcements reflect peer pressure, as executives feel compelled to copy other firms making cuts – even as they continue to churn out healthy profits.

More than a third of those will likely be from within Goldman Sachs’ core trading and banking units, indicating the broad nature of the cuts. Cuts will be made across the bank, hitting its consumer business, which the company is scaling back, as well as its money-spinning investment banking and trading operations.

The scale of cuts being prepared are some of the deepest Goldman has made in its recent history and are more drastic than what many of the bank’s peers currently have planned.

Under Chief Executive Officer David Solomon, headcount has jumped 34 percent since the end of 2018, climbing to more than 49,000 as of Sept 30, data show. The scale of firings this year is also affected by the firm’s decision to mostly set aside its annual cut of underperformers during the pandemic.

Slowdowns in various business lines, an expensive consumer-banking foray, and an uncertain outlook for markets and the economy are prompting the bank to batten down costs.

The bank is facing a 46 percent drop in profits, on about $48 billion of revenue, according to analyst estimates.

It reminds us about the collapse of Lehman Brothers in 2008. Goldman had embarked on a plan to cut more than 3,000 jobs, or nearly 10% of its workforce at the time, and top executives elected to forgo their bonuses.

The cuts also come a week before the bank’s traditional year-end compensation discussions. Even for those who remain at the firm, compensation figures are expected to tumble, especially within investment banking.

It’s a stark contrast from last year, when staffers were getting showered with big bonus increases and a select few were even granted special payouts. At the time, Solomon’s $35 million compensation for 2021 put him alongside Morgan Stanley’s James Gorman as the highest paid CEO for a major US bank.

US tech sector

Pfeffer says the sentiment of cutting jobs spreads, as he expects, it risks turning the forecasts of economic hardship into reality.

“Companies do what other companies do,” he said. “This becomes a self-fulfilling prophecy because if everybody lays somebody off, the unemployment rate will go up and we will in fact have a worse economy.”

Just this week, Amazon said it was axing 18,000 workers (6 percent) of its office staff, while business software firm Salesforce said it would reduce its workforce by 10 percent, or roughly 8,000 people.

That followed announcements from dozens of other firms including big names such as Meta – the owner of Facebook, WhatsApp and Instagram – hardware heavyweight Cisco, and payments firm Stripe.

Pfeffer’s views are product of the forecast. The economy is widely predicted to slow in the coming months as rising prices weigh on consumer spending. Firms are also grappling with higher borrowing costs after the US central bank hiked rates rapidly last year.

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