Goldman Sachs Group Inc has begun a new round of staff cuts in its trading and investment banking divisions, three sources familiar with the matter said, a sign of a continued penny-pinching on Wall Street.
The job cuts follow 2,400 positions Goldman eliminated last year, and further reductions are possible as the company continues to reduce costs to raise profitability, the sources said.
The latest round of cuts is part of Goldman's annual culling process in which the company fires employees who miss performance targets or can be replaced with technology or less expensive staff.
It's unclear how many people will be affected by the job eliminations, which began two weeks ago, because different divisions have received different targets, the sources said. While management has formulated an overall plan for cost-cutting, all of the job cuts may not be completed for months, said a source familiar with the matter.
Recent staff reductions have been less drastic than the culling Goldman performed in March 2011, when 5% of its trading staff was let go, said the sources, who have either worked at the company or recruited for it, and spoke under condition of anonymity.
Goldman spokesman Michael DuVally declined to comment on the job cuts.
In late 2011, Goldman management targeted $1.4 billion in annual cost savings that would be achieved largely through staff and bonus cuts. When asked on a conference call in January whether the bank might have to do more such trimming this year to meet the goal, Chief Financial Officer David Viniar said "there is a small amount left to go."
The new job cuts are taking place in all of Goldman's four main divisions, including sales and trading, investment banking, wealth management and investing and lending, according to one source familiar with the matter.
Many of the cuts are aimed at traders who can be replaced with new technology, or back-office, technology and operations staff who can be replaced with less expensive employees, the source said. The bank has been pushing aggressively to replace staff in high-cost areas like New York and New Jersey with less costly workers in Salt Lake City, where the company is building a sizable workforce.
Goldman has also been cutting some staff from divisions likely to be affected by new trading restrictions, such as merchant banking.
"In general the whole paradigm of the business is changing," said one source familiar with Goldman's recent job cuts. "As the business is consolidating and the volumes are going down and there's still this regulatory pressure, management is really looking at the new paradigm and seeing how many bodies are absolutely required for the business."
Many Wall Street banks weed out underperformers or costly employees, who are placed on what's known as a "RIF," or reduction-in-force, list. Morgan Stanley <MS.N>, for instance, cut 887 financial advisers -- many of whom were not meeting revenue targets -- from its wealth-management business throughout 2011 as part of a broader cost-cutting effort.
Goldman is known to create such lists early in the year and send at-risk employees a signal through low bonuses that are handed out in February. Those who do not get the hint are let go in mid-to-late March.
While Goldman's cuts are part of an annual Wall Street ritual, sources familiar with Goldman's trading business say. Bank management has been issuing aggressive revenue targets that have been difficult to meet, particularly with fewer traders, weak trading volumes and low morale.
One equities trading division at Goldman met revenue targets last year but was still required to cut 10% of its staff and reduce bonuses by 25% to meet cost targets, according to a source familiar with the desk. The business was required to do even more cutting in recent weeks amid weak trading volumes, even as performance targets have risen.
At a conference last month, Viniar said investors have been complaining that the bank has nearly 11,000 more staffers than it did six years ago, but only generates slightly more revenue.
Goldman's 33,300 employees generated $28.8 billion in revenue and $2.5 billion in profit last year, which amounts to $865,195 in revenue per employee and $75,375 in profit per employee. That represents a 25% decline in revenue per worker and a 71% decline in profit per worker compared with 2005.
