Goldman Sachs cuts payout by 30% as trading fees fall

Goldman Sachs has slashed wages by more than 30% by 2022 as a sharp slowdown in hiring is expected to lead to a new round of job cuts across the industry.

The US investment bank, which reported a 47% drop in profit to $2.9 billion in the second quarter, has cut compensation costs by 31% to $7.7 billion in the first six months of 2022, despite a hiring spree over the past year that has seen the number of employees increase by more than 6,000.

Goldman has cut its compensation costs by a larger percentage than rival Morgan Stanley, which cut payouts at its investment bank by 21% in the second quarter of 2022.

Goldman said wages were “significantly lower” in the second quarter.

Last year, payouts at Goldman rose to a 14-year high on record deal-making and strong trading revenue. Bonuses rose 50%, while overall pay rose 33% to $17.7 billion, an average of $404,000 for each employee.

Goldman’s workforce now stands at 47,000, up 6,200 from the same point in 2021 as the bank acquired new businesses, invested in dealmakers and entered new markets, including transaction services.

Banks are generally expected to cut headcount as dealmaking has slowed, particularly after a hiring spree last year. On a call with analysts, CFO Denis Coleman said Goldman would “slow the pace of hiring” as a result of the “challenging operating environment.”

“As we look toward the second half, we will slow down the pace of hiring, reduce attrition replacement, and likely reinstate our annual performance review of our employee base at the end of the year, which we suspended during the period of the pandemic. for the most part,” he added.

Goldman’s overall revenue was $11.9 billion, well ahead of analysts’ expectations, while profit of $2.9 billion was also above the market consensus of $2.5 billion.

Industry-wide investment banking fees have fallen so far this year after hitting a record in 2021. With $130 billion racked up last year in trading fees, banks have struggled to now to keep pace. Equity capital markets activity fell 68% to $282.3 billion as the Spac boom crashed and initial public offerings struggled to price themselves amid volatile markets. Meanwhile, rising inflation and rising interest rates have slowed mergers and acquisitions.

Goldman earned $2.1 billion in fees in the second quarter of 2022, down 41%, but still a smaller drop than its Wall Street rivals. However, an 89% drop in equity capital markets fees to $131 million was the steepest drop of any major investment bank to date.

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Both JPMorgan and Morgan Stanley reported declines in investment banking fees of around 55% in the second quarter, while Citigroup’s unit revenue fell 46%.

Goldman Sachs is currently second in the league tables for investment banks so far this year, with $3.4 billion, down 46%, according to data provider Dealogic.

Despite the hiring slump, Goldman’s sales and trading business has performed well. Its FX and Commodities Fixed Income unit generated revenue of $3.6 billion, up 55% from a year earlier. Meanwhile, its equity trading division rose 11% to $2.9 billion, bringing overall market revenue to $6.5 billion, up 32%.

“We delivered solid results in the second quarter as clients turned to us for our expertise and execution in these challenging markets,” CEO David Solomon said in a statement. “Despite increased volatility and uncertainty, I am confident in our ability to navigate the environment, dynamically manage our resources and generate long-term, shareholder-appreciative returns.”

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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!