Goldman Sachs Group Inc (GS.N) will begin its annual job cutting process as early as this week, sources familiar with the matter said on Monday, with its equities-trading business bracing for bigger cuts than fixed-income trading.
The bank usually culls out the weakest 5 percent of its employees around now. But the cuts will likely be deeper in some businesses, particularly equities trading, where volumes and earnings are weak. The number of shares traded on major U.S. exchanges so far this year is down 7.2 percent.
Fixed-income trading at Goldman, which took big hits last year but has had better volumes this year, will likely see cuts of less than 5 percent, the sources said.
In totality, cuts across the company will be roughly in line with Goldman's typical 5 percent culling and are not part of a bigger cost-cutting plan, one source said.
"As market activity has picked up in certain areas, we remain focused on prudently managing expenses and allocating resources to ensure we are best able to meet our clients' needs and generate good returns for our shareholders," said Goldman spokesman David Wells, who declined to comment on layoffs.
The cuts underscore how even as Wall Street shows some signs of recovering, banks are looking to thin their ranks to boost profitability.
Morgan Stanley (MS.N), Bank of America Corp (BAC.N), Citigroup Inc (C.N), and UBS AG, UBSN.VX have been cutting staff for the past few years, after revenue has been under pressure in multiple businesses. Regulations, meanwhile, are increasing banks' costs.
Over the past two years, Goldman has cut its workforce by 9 percent, or 3,300 employees.
Earlier this month, Goldman's new chief financial officer, Harvey Schwartz, said that laying off more workers may be the way for banks to generate higher returns on equity for shareholders. The measure is important because it shows how much profit banks can squeeze from their balance sheets.
Last year, Goldman's return-on-equity was 10.7 percent, an improvement from 2011, but still well below pre-financial crisis highs above 30 percent. Schwartz said he does not see Goldman's returns last year as "aspirational for the long term."
"I think the industry will migrate to higher returns because they will have to," Schwartz said, adding that it might be "a question of excess capacity coming out of the industry over a period of time."
HIGH PROFILE EXITS
In recent years, Goldman has experienced a wave of departures of partners and managing directors, who are typically the company's biggest earners. Some of those departures have been ordinary attrition, while other executives left to make way for up-and-comers.
Some big-name departures that have either occurred this year or were announced in internal memos. They include Jim O'Neill, the chairman of asset management, Henry Cornell, who retired as vice chairman of the merchant banking unit, Nick Burgin, who had been head of foreign-exchange, Scott Stanford, a co-head of global internet investment banking, and Ned Segal, who headed global software investment banking.
Former Goldman CFO David Viniar, who retired at the end of January, has said that, many of the executives leaving had been with Goldman for an atypically long time because of the crisis and its aftermath, and were ready to move on. But such departures have also helped the bank cut compensation costs.
Last year, Goldman's paid out 37.9 percent of its revenue to employees, down from 42.4 percent the previous year. The lower compensation ratio was cheered by investors and analysts, who had been questioning the bank about cost-cutting for some time.
Goldman shares fell 4.2 percent on Monday, to close at $147.65. The stock is up 16 percent year-to-date.
(Reporting By Lauren Tara LaCapra and Katya Wachtel; Additional reporting by Olivia Oran; Editing by Kenneth Barry, Maureen Bavdek, Dan Wilchins and Steve Orlofsky)