During the first half of 2023, the largest US banks spent more than $1 billion on severance payments, highlighting the high cost of winding down Wall Street’s excessive expansion during the coronavirus pandemic.
Goldman Sachs, which has been particularly hard hit by a slowdown in trading and investment banking, became the latest major bank on Wednesday to announce it had incurred $260 million in severance expenses in the first half of the year. Approximately 3,400 individuals, or 7% of Goldman’s whole workforce, have been let go this year.
This year, Morgan Stanley has laid off nearly 3,000 workers, and on Tuesday, the company revealed that it has spent more than $300 million on staff reductions. Last week, Citigroup reported a $450 million increase in expenses due to severance payments. The bank revealed last month that it had slashed over 5,000 jobs.
Michael Karp, a Wall Street headhunter with Options Group, predicted that investment banking would experience increased right-sizing. “At most of the big firms, it’s going to be a fire-two-hire-one situation for the rest of the year.”
Many Wall Street organizations today acknowledge that during the COVID-19 outbreak, they increased their headcounts too quickly in order to deal with an increase in trading and dealmaking at a time when productivity was being negatively impacted by working from home.
Even by the standards of investment banking, a cyclical industry, the feast-to-famine swing in recent years has been rapid. This year, the largest businesses on Wall Street have reported a total of almost 11,000 layoffs.
Goldman Sachs CEO David Solomon announced that the firm would resume its strategy of performance-based job cuts, which it had suspended during the epidemic and then resumed last year. There were, however, “no other specific plans on the headcount now,” according to Solomon.
On the other hand, Citi made the suggestion that perhaps there would be additional layoffs. According to Citi Chief Executive Jane Fraser, as we proceed through the second half of the year, we will be able to concentrate on the third leg of reducing our expense base through a leaner organizational architecture.
Wells Fargo informed investors that it anticipated the headcount, which has decreased by 5,000 this year and by 40,000 since the midpoint of 2020, to decrease even further in 2019. Because it is operating under a regulatory asset cap as a result of several legal and compliance breaches, it was one of the few significant banks that did not grow throughout the epidemic.
Wells, situated in San Francisco, raised its forecast for spending by $800 million for this year. Wells’ business is more oriented toward retail banking than acquisitions and trading. Job losses account for the vast majority of the increase. How much of the higher expenditures had already been incurred by the bank was not disclosed.
Bank of America announced on Tuesday that it had eliminated 4,000 jobs in the second quarter, or nearly 2% of its total staff. BofA has primarily cut employment through attrition, which has spared them from having to make sizeable severance payments.
JPMorgan Chase is one of the few significant banks defying the trend. It is the largest US bank by assets and has sizable retail, investment banking, and trading businesses. In the second quarter, it added 300,000 new employees, an 8% increase from the same time last year.
This doesn’t take into consideration the staff members who transferred from First Republic, the California-based lender it bought in May, whose staff members officially joined JPMorgan in July.
