By John Ikani
The pandemic-induced overexpansion on Wall Street is proving to be a costly affair, with the biggest US banks shelling out over $1 billion in severance costs during the first half of this year.
The economic slowdown, particularly in trading and investment banking, has compelled banks to cut jobs, incurring substantial charges.
Goldman Sachs, facing significant challenges amidst the trading slump, revealed it had spent $260 million on severance costs in the first six months of the year.
The bank has parted ways with approximately 7% of its staff, amounting to about 3400 employees.
Morgan Stanley, which also had to let go of about 3000 employees this year, reported spending over $300 million on staff reductions.
Citigroup, not far behind, faced $450 million in expenses due to severance cheques after announcing almost 5000 job cuts last month.
Experts anticipate more “right-sizing” in investment banking throughout the year, leading to a “fire-two-to-hire-one situation” at most major firms, according to Michael Karp from Options Group, a Wall Street headhunter.
During the COVID-19 pandemic, Wall Street firms rapidly expanded their workforce to meet the surge in trading and dealmaking.
However, with the shift back to the office, many firms realized they had overextended their headcounts, hurting productivity.
This led to a swift swing from feast to famine, with more than 11,000 layoffs collectively announced by the biggest employers on Wall Street this year.
As the year progresses, executives are divided on the need for further job cuts and the resulting severance expenses.
While Morgan Stanley aims to capitalize on a deals backlog and enhance its footprint for opportunities, Goldman Sachs plans to implement another round of performance-based job cuts but has no specific headcount reduction plans for now.
Citigroup, on the other hand, hinted at potential additional layoffs to achieve a leaner organizational model.
Wells Fargo, which has already reduced its headcount by 5000 this year and 40,000 since mid-2020, expects further decline.
The bank increased its expense outlook for the year by $800 million, largely linked to job cuts.
However, it remains cautious about disclosing the already incurred costs.
Bank of America managed to cut about 2% of its overall workforce, approximately 4000 positions, primarily through attrition to avoid substantial severance payments.
Despite the industry trend, JPMorgan Chase is an outlier with an 8% increase in headcount compared to last year.
The bank’s sprawling retail, investment banking, and trading operations remained resilient, with 300,000 employees in the second quarter.
This number does not include the employees from the recently acquired California-based lender, First Republic, who joined JPMorgan in July.
