Goldman Sachs considers cutting bonuses for investment bankers by 40%

One year later Goldman book Paying the biggest bonus on Wall Street, the investment banking giant is considering cutting bonuses for bankers by about 40% – the biggest cut to payouts since the financial crisis. main 2008.

Bonus cuts for the bank’s 3,000 investment bankers – a first Reported by Semafor and more detailed by Financial Times — is said to be deeper than many of the Wall Street bank’s rivals, raising concerns that the bank could face higher staff turnover next year. Bonuses for Goldman’s top 400 partners could even be cut by around half as senior bankers bear the brunt of compensation cuts, Semafor report.

Mr. Solomon told Bloomberg Television that last year “was a special year for the company”, adding that 2022 was “another year and so the compensation will of course be lower”.

economic headwinds

While Goldman Sachs has largely navigated rising interest rates and a lagging economy in the second half of 2022 better than its Wall Street peers, chief executive David Solomon has repeatedly warned about the economic outlook. worsening in the coming year.

in The Wall Street JournalLast week’s CEO Council Summit, Solomon said he expected The stock market will continue to slide into 2023 and it is estimated that the probability of a recession for the US economy is about two-thirds. At rival Goldman american bankChief Executive Officer Brian Moynihan said at the Goldman Sachs Financial Conference 2022 that the bank’s research showed “negative growth” in the first half of 2023, but noted that the decline in GDP would be “slight”.

Speaking at Goldman Financial Services Conference, Solomon points to these economic headwinds as the reason for the bonus cuts. Compensation costs are the largest category in Goldman’s expense stream, he said, and “tough times ahead” for the global economy mean compensation will fall from last year’s levels.

Aside from the economy, the pressure to cut compensation costs at Goldman Sachs can be attributed to Solomon’s focus on raising the bank’s share valuation and allaying shareholder concerns. In February, the banking giant set a target of increasing return on equity, a key measure of profitability, to 14% — a target Solomon had feared 2% as of September 30. Now, with money in the market running dry, Goldman’s CEO must choose between courting the bank’s shareholders and rewarding its employees.

Salary cut for the head

Banks are facing a difficult balancing act of limiting total spending while rewarding the best performers in a competitive market to attract talent—and doing so when markets go from feasting to starvation.

While major banks saw a boom in investment activity last year as COVID restrictions were eased, a drop in demand following Russia’s invasion of Ukraine has made many companies more cautious in their investments. the pursuit of corporate deals and raising money in the market — exactly the kind of transaction that fills the coffers.

At Bank of America’s capital markets division, gross wages are expected to fall by more than a third, Financial Times reported, with senior managers bearing the bulk of the damage. Payroll for junior employees is less flexible as it is often tied to payroll and increases significantly when they are promoted.

Other Wall Street banks like JPMorgan Chase and Citigroup all are said to be contemplating a 30% cut in their investment banking bonuses.

Fired for the bottom

While top bankers see their bonuses cut as banks try to cut compensation costs, junior bankers will face job losses.

Morgan Stanley announced on December 6 that it would cut 2% of its global workforce, or about 1,600 employees from its 80,000-strong team. Meanwhile, in September, Goldman Sachs embarked on biggest job cuts since the start of the pandemic, removing hundreds of roles from its 47,000-person company.

Bank of America is bucking the trend by allowing natural consumption do most of the reduction in the number of employees. Moynihan said in a press conference that once an employee voluntarily leaves the company, the bank will keep vacant positions that have not been filled, move people and retrain them as needed.

Many banks are also returning to the Wall Street ritual of weeding out the weakest performers. Major Wall Street banks include Citigroup, Barclays. For most banks, this operation was halted in 2020, after the pandemic caused a two-year boom in activity and transactions.

Decisions on Goldman’s bonuses are likely to be finalized this month before they are announced and paid out in January.

“Remuneration at Goldman Sachs is determined by the performance of the company as a whole, not by individual business lines. A Goldman Sachs spokesperson said in a statement that the compensation process is not yet complete, so any discussion or projection of specific numbers is premature.

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