Monday, December 05, 2022

Goldman Sachs to cut hiring, weed out laggard bankers as profits fall

Goldman Sachs said it is slowing hiring and bringing back performance reviews to pick out the bank’s underperformers after earnings nearly halved in the most recent quarter.

As the pandemic-era boom in corporate dealings begins to fade amid growing recession fears and rising interest rates, the bank is looking to cut costs across the business.

“Given the challenging operating environment, we are closely re-examining all of our future spending and investment plans,” Chief Financial Officer Denis Coleman said on Monday’s earnings call. “Specifically, we have made the decision to reduce the speed of hiring and reduce certain professional fees in the future.”

The bank will weed out lagging staff simply by not filling positions after employees leave and weeding out lower performers, Coleman said. The dreaded performance review was put on hold during the pandemic as the bank sought to hire as many people as possible as profits hit record highs.

Coleman’s comments follow The Post’s report that layoffs are looming on Wall Street as soaring interest rates and recession fears have dampened appetite for mergers, IPOs and other big corporate deals.

The David Solomon-led Wall Street giant reported second-quarter earnings of $2.93 billion, or $7.73 per share, on Monday, precipitously lower than in the second quarter of 2021 when the bank raised $5, 49 billion.

Investment banking was the driving force behind the drop, generating 41% less than a year ago. Trading revenue of $6.47 billion, an increase of 32% year over year, slightly offset the losses.

David Solomon
David Solomon said he was “cautious” about the economy.
AFP via Getty Images

Still, better-than-expected trading income offset some of the losses and pushed Goldman’s earnings beyond analyst forecasts of $6.46 a share, according to data from FactSet.

“Goldman once again proved that it can excel in challenging markets,” Wells Fargo banking analyst Mike Mayo told The Post. “The mergers continue to be best in class and backlogs have improved.”

While Goldman’s banking fees were disappointing compared to a year earlier, earnings were marginally better than other banks like JPMorgan and Morgan Stanley. JPMorgan bank fees fell 54% and Morgan Stanley bank fees fell 55% in the second quarter, both banks reported last week.

Compensation, a huge operating cost for the bank, was down 30% year over year. Overall, operating expenses were down just 11%.

Goldman Sachs
Goldman Sachs beat earnings expectations, but earnings still fell 47% year over year.

Solomon was eager to take a victory lap after the report.

“We delivered strong results in the second quarter as clients turned to us for our experience and execution in these challenging markets,” Solomon said in a statement.

While Solomon said he was “confident” Goldman could “navigate the environment,” he also acknowledged “economic conditions are tightening” on the earnings call.

“It is prudent and appropriate for us to be cautious,” he added.

Investors were clearly bullish on earnings: Goldman shares were up nearly 4% at $304 after the opening bell. However, the shares are down more than 25% so far this year.

The sharp decline in revenue is a sharp turn of events in recent years, when banks charged massive investment banking fees. But as the economy faces headwinds, all major banks are being forced to grapple with challenging economic realities.

JPMorgan and Morgan Stanley’s profits fell in the second quarter, but the 28% and 29% drops respectively were much smaller than Goldman Sachs’. Like Goldman Sachs, the investment banks of JPMorgan and Morgan Stanley tanked while the trading desks fared better.

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