One Step Forward, Two Steps Back: Wall-Street Giants Consider More Layoffs

Julia Tuck, Class of 2025

Background

The pandemic era ushered in a ‘new normal’ for those with careers on Wall Street. When the pandemic first began in 2020, major investment banks such as Goldman Sachs had to deal with the realities of sustaining growth during a global volatile period.[1] For many major banks, the pandemic called for a new type of work that dealt with employees working remotely. Nevertheless, there was criticism drawn from some major figures, including Goldman Sachs’ CEO David Solomon. He stated in an April 2021 call his opinion of dissatisfaction about the work-from-home situation: “Let me be clear, achieving the objective of bringing our colleagues back to the office is not inconsistent with the desire to provide our people with the flexibility they need to manage their personal and professional lives, which is the way we have always run this firm.”[2] As put forth by Solomon’s statement, Goldman’s main emphasis was for more people to return to the office as soon as possible.

Discussion

By September 2021, many Wall Street banks were back to working in the office.[3] Now, as put forth by a memo regarding the situation, it was addressed that “Goldman will roll back its massive testing program and plans to end offering test kits companywide by the end of the year [2022]. The bank will reimburse COVID tests covered by insurance and will continue contact tracing and notify employees who have come into contact with an infected person.”[4] Nevertheless, Goldman has been hit with trying to find ways to deal with international events affecting the markets. According to a report, there has been a “48% slump in its [Goldman’s] second-quarter profit as its clients face inflation, rising interest rates, the Coronavirus pandemic, and war in Ukraine. Its investment banking division generated revenues of $2.1 billion, down 41% compared to a year ago.”[5] With even more issues to contend with, Goldman is now looking to decrease its staff as a method to try and combat the market deficiencies.[6] There is the underlying question though as to whether this is truly a proper move given that there could be other methods of properly tackling the profit margin decreases than through layoffs. For instance, it could be possible that bonuses for more senior bankers are cut as opposed to simply laying off workers as means to cut costs.[7] It is also possible that companies like Goldman will simply not fill the number of open positions that are advertised and this could reduce the costs.[8]

Conclusion

It is important to not lose focus on Wall Street banks’ primary objective of maintaining levels of profitability. Major banks will have to grapple with whether the pending layoffs are an optimal way to maximize profitability. While a cut in labor can be the fastest way to cut costs, there can be negative repercussions. Considering the move by many banks to return to the office, it may not be easy to recruit staff, so retaining existing staff and boosting morale could serve to mitigate the potential for long-term negative implications. In light of the ongoing current events and unpredictability present, the question that remains for major Wall Street banks is: Has the ‘new normal’ generated other ways to maintain profitability, or are layoffs simply bound to happen?

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[1] Matt Schuffham, Exclusive: Goldman Sachs Financial Targets Jeopardized as Pandemic Slows Revamp, Reuters (Oct. 12, 2020, 7:27 AM), https://www.reuters.com/article/goldman-sachs-targets-idINKBN26X1GW.

[2] William Shaw, Irina Anghel, and Loukia Gyftopoulou, Goldman’s Work-From-Office Policy is the Aberration Now, Bloomberg (updated Feb. 8, 2022, 6:09 AM), https://www.bloomberg.com/news/features/2022-02-07/is-a-five-day-work-week-dead-return-to-office-plans-shift-in-hybrid-work-era.

[3] Jennifer Surane and Mary Biekert, It’s Deja Vu for Wall Street With September Return Upended Again, Bloomberg (Aug. 18, 2021, 11:18 AM), https://www.bloomberg.com/news/articles/2021-08-18/it-s-deja-vu-for-wall-street-with-september-return-upended-again.

[4] Lydia Moynihan, Goldman Sachs Lifts All COVID Protocols, Orders Staff to Return to Office Full-Time, N.Y. Post (Aug. 30, 2022, 3:13 PM), https://nypost.com/2022/08/30/goldman-sachs-lifts-covid-protocols-urges-workers-back-to-office/.

[5] Financial Giant Goldman Sachs Set For Hundreds of Layoffs, BBC (Sept. 13, 2022), https://www.bbc.com/news/business-62885047.

[6] Lydia Moynihan, Goldman Sachs begin), Goldman Sachs Begins Layoffs, Targeting Mid-Level Bankers: Report, N.Y. Post (Sept. 26, 2022, 2:41 PM), https://nypost.com/2022/09/26/goldman-sachs-begins-layoffs-targeting-mid-level-bankers/.

[7] Kitty Donaldson and Tom Metcalf, UK Looks to Scrap Banker Bonus Cap to Boost City of London, Bloomberg (Sept. 14, 2022, 7:41 PM), https://www.bloomberg.com/news/articles/2022-09-14/uk-s-kwarteng-seeks-to-scrap-banker-bonus-cap-ft-says.

[8] Saundra Latham, JPMorgan Circumspect on Layoffs, LinkedIn News, https://www.linkedin.com/news/story/jpmorgan-circumspect-on-layoffs-4959601/.