In the next few weeks, Goldman Sachs is said to be planning job cuts that could result in hundreds of terminations in a sign that dealmaking is slowing down. 

After a year of massive profits in 2021, Goldman Sachs is planning job cuts among its roughly 47,000 staff as a sign that dealmaking is slowing down, according to a report in the «Financial Times» (behind paywall) on Tuesday. 

Since then, major headwinds have been making themselves felt in the form of the war in Ukraine, central banks exiting easy money policies, and concerns that major economies could slip into recession. The story, which was first reported by the «New York Times» (behind paywall) on Monday, said that the layoffs could start as early next week. 

Annual Cull

Both news outlets, citing people familiar with the matter, reported that job cuts are part of an annual headcount cull of those bankers who are underperforming, resulting in between one to five percent of employees being let go. According to the «Financial Times» report, the firm is aiming for dismissals at the lower end of the range, citing a person familiar.

This policy had been set aside during the Corona pandemic which had increased banker workloads. In July, chief financial officer (CFO) Denis Coleman, had indicated to analysts that the firm was «probably reinstating our annual performance review of our employee base at the end of the year», according to the Times. 

Kremlinology at the Height of the Cold

In normal times, a firm letting investment bankers go would be seen as an opportunity to snap up such talent. But for Credit Suisse, these are certainly not normal times. Following its disastrous second-quarter results, Credit Suisse announced it was undergoing a major strategic review for which it would only provide details upon releasing its third-quarter results.

In the meantime, following Credit Suisse has taken the aspect of Kremlinology at the height of the cold war and see who was standing next to the leader to judge the power structure.

Ulrich Koerner succeeded Thomas Gottstein as CEO following the fateful second quarter results and surrounded himself with like-minded cost cutters Francesca McDonagh and Dixit Joshi. For now, it is still an open question as to what measures they will take, although media reports provide some clues.  

Credit Suisse's investment banking unit has been the subject of much talk in the media, that as much as two-thirds of its investment banking unit could be put up for sale or spun off. Credit Suisse is also said to be sharpening the job cuts axe, with up to 4,000 employees facing dismissal. 

Meanwhile, at Credit Suisse's Swiss investment banking business, the unit maintained its leadership position in Switzerland's investment banking market, capturing 14.2 percent of the banking fee pool, or «wallet», maintaining its lead over its closest rival UBS with 9.7 percent, as finews.com reported. Might they be interested in some of the Goldman Sachs bankers?

Another Canary

HSBC, which is also active in investment banking, is also considering taking «pretty brutal» action as wage costs rise as a result of inflation, according to its chief executives. Inflation is not selective and this is a development that is also likely to come into consideration at other firms.

Revenues Down

During the first six months of the year, investment banking revenues at Goldman Sachs fell 38 percent compared to the same period last year. In asset management, revenues fell 83 percent.

The downturn in business was felt particularly in the equity capital markets unit where listings have «dried up.» To be sure, there was also a bright spot in the trading division where revenues increased 15 percent, accounting for nearly three-quarters of net revenues in the first half.

For firms such as Goldman, compensation, and benefits count as the biggest expense. For the first half of the year, those declined 31 percent in the first half, a bigger drop than the 25 percent drop in net revenues at the firm.