Weakness in the capital markets could lead to another round of firings at the largest banks in the US as they try to bolster earnings. Goldman Sachs Group Inc. (NYSE: GS) might be next out of the gate with a cost-cutting plan that would cost 3,000 bank employees their jobs.
That’s the report today from The New York Times, citing ” people briefed on the matter who were not authorized to speak publicly.” Goldman has already indicated that it would cut $1.2 billion from its operating costs by mid-2012, a move that the bank said would cost about 1,000 people their jobs. The latest discussions of cost reductions could lift the target savings to $1.45 billion, or about 5% of the bank’s expenses.
Bank of America Corp. (NYSE: BAC) has already said that it would cut 30,000 employees over the next few years, and Goldman has eliminated 3,500 jobs since 2007. Morgan Stanley (NYSE: MS) has not indicated any imminent layoffs, but it’s share price target and earnings estimate was lowered yesterday by Bernstein Research. The research firm also lowered target prices and earnings for Goldman Sachs. Both Goldman and Morgan Stanley made our list of the 2011 layoff kings.
Employment in the financial services industry has fallen from a peak of 8.35 million to 7.61 million since December 2006. Citigroup Inc. (NYSE: C) has chopped about 100,000 jobs since December 2007. Wells Fargo & Co. (NYSE: WFC) hasn’t announced any job cuts yet, but has said that it plans to cut $1.5 billion in quarterly expenses by the end of next year. Jobs will certainly have to go in order to meet that goal.
The Bernstein Research report on Goldman attributes the lowered estimates to expected mark-to-market losses on Goldman’s investments. More likely is that daily trading net revenues were negative on 15 trading days during Goldman’s second quarter compared with just 1 day in the first quarter.
In its first quarter Goldman reported daily net trading revenue of more than $100 million for 32 days, more than half the days the desk was open. In the second quarter that number fell to just 4 days.
If that performance gets worse, as is likely for the third quarter, Goldman’s mark-to-market losses become almost immaterial. And the company is going to get more aggressive in cutting costs. That’s why the earlier estimate of 1,000 job cuts is almost surely going to have to go up. The only question will be if 3,000 firings is enough.
Goldman’s shares are up about 4.3% in the first half hour of trading this morning, at $103.41, in a 52-week range of $91.40-$175.34.