Goldman Sachs said it is rolling back hiring and performance reviews to narrow down the bank’s lowest performers after profits nearly halved in the most recent quarter.
As the pandemic erupts in corporate dealmaking amid rising recession fears and rising interest rates, the bank is looking to cut costs for the company.
“Given the challenging operating environment, we are closely examining all of our forward spending and investment plans,” Chief Financial Officer Dennis Coleman said on Monday’s earnings call. “Specifically, we have made the decision to slow down the pace of hiring and reduce some of the professional fees going forward.”
Coleman said the bank would lay off backward employees by simply not filling roles and furloughing its lowest-performing employees after employees’ leave. The alarming performance review was suspended during the pandemic when the bank wanted to hire more people as profits hit an all-time high.
Coleman’s comments follow a report by The Post that Wall Street was undergoing layoffs as rising interest rates and fears of a recession dampened the appetite for mergers, IPOs and other large corporate deals. Have given.
The David Solomon-run Wall Street giant on Monday reported second-quarter earnings of $2.93 billion, or $7.73 per share, lower than the second quarter of 2021, when the bank posted $5.49 billion.
Investment banking was the driving force behind the downturn – bringing in 41% less than a year ago. Trading revenue of $6.47 billion — a 32% increase year over year — slightly offset losses.
Better-than-expected trading revenue offset some of the losses and pushed Goldman’s earnings ahead of analysts’ forecast of $6.46 per share, according to data from FactSet.
“Goldman once again showed it can excel in challenging markets,” Wells Fargo banking analyst Mike Mayo told The Post. “The mergers remain best-in-class and the backlog has improved.”
While Goldman’s banking fees were disappointing compared to a year ago — revenues were slightly better than those of other banks like JPMorgan and Morgan Stanley. JPMorgan’s banking fees fell 54% and Morgan Stanley’s banking fees fell 55% in the second quarter, both banks reported last week.
Compensation, a major operating cost for the bank, was down 30% year over year. Overall, operating expenses were down just 11%.
Solomon was eager to take the victory lap after the report.
“We delivered solid results in the second quarter as customers turned to us for our expertise and execution in these challenging markets,” Solomon said in a statement.
While Solomon said he was “convinced” that Goldman “can navigate the environment”, he also acknowledged that “the economic situation is getting dire” on the earnings call.
“It is prudent and appropriate for us to remain vigilant,” he said.
Investors were clearly upbeat on earnings — Goldman shares jumped 2.5% to $301.26. However, the shares are down 24% to date.
The steep fall in revenue is a sharp turn of events in the past few years when banks increased investment banking fees in a big way. But as the economy is facing adversity, all the major banks are forced to grapple with the challenging economic reality.
Both JPMorgan and Morgan Stanley’s earnings fell in the second quarter — but the declines of 28% and 29%, respectively, were far less than that of Goldman Sachs. Like Goldman Sachs, investment banks JPMorgan and Morgan Stanley declined, while the trading desk outperformed.