Exclusive: Goldman to begin fresh round of job cuts

Mon Feb 25, 2013 3:56pm EST

A Goldman Sachs sign is seen on the floor of the New York Stock Exchange in this April 16, 2012 file photo. REUTERS/Brendan McDermid/Files

A Goldman Sachs sign is seen on the floor of the New York Stock Exchange in this April 16, 2012 file photo.

Credit: Reuters/Brendan McDermid/Files

(Reuters) - Goldman Sachs Group Inc will begin a fresh round of job cuts 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. It is unclear whether the cuts in totality will be larger than Goldman's typical 5 percent culling across the firm.

"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, Bank of America Corp, Citigroup Inc, and UBS AG, 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

Goldman has also experienced a wave of departures of partners and managing directors, who are typically the company's biggest earners. 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 the departures are a natural progression of senior executives leaving to make way for more junior employees to move up the ranks, though they 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 were down 2.3 percent on Monday afternoon, at $150.54. As of Friday's close, the stock was up 21 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)

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Comments (4)
Vuenbelvue wrote:
Do they have any other great looking home grown beauties (NJ) like Erin Burnett? CNN needs to shed some of the gray hair gray beards for some new blood.

Feb 25, 2013 1:03pm EST  --  Report as abuse
garilou wrote:
“I think the industry will migrate to higher returns because they will have to” .
This is a great way to make predictions.
All industries want bigger returns.
And how will they achive this?
Less equities? Some fixed income? So where?
Probably more risky commodities and other obscur trading

Will these returns be made by taking more risks?

Feb 25, 2013 1:29pm EST  --  Report as abuse
Harry079 wrote:
“The cuts come at the time of year in which the Wall Street bank typically gets rid of its weakest 5 percent of employees across the entire firm.”

So in this Rueters so called “Growing Economy” one of the Big Dogs on Wall Street is going to layoff another 5% of its workforce just because it’s “That Time of Year” and they have done it the last two years so now it’s a Tradition?

What do the Treasury and Fed think of their buddy Mr. Finkstein of follow this tradition?

February 25th, 2013, 12:43pm EST ยท

Feb 25, 2013 2:08pm EST  --  Report as abuse
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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