According to The New York Times,The Goldman
Sachs Group Inc. (GS) is moving ahead with its cost
cutting plan. The bank is expected to cut its expenses by $1.45
billion by the end of 2011. The cost containment measures would
include significant layoffs and the amount expected exceeds $1.2
billion of costs cutting announced by the company in July.
Since June, Goldman has started cost containment measures
through layoffs. During the same period, Goldman announced to lay
off 230 workers in New York State due to economic reasons. The
layoffs will be executed during the fourth quarter of 2011 and the
first quarter of 2012.
Goldman's New York layoffs represent less than 1% of its 35,400
employees as of March 2011. The layoffs would be in addition to the
company's annual retrenchment of workers, who perform in the bottom
5% or so. The current layoffs are estimated to be of 1,000 jobs, or
3% of Goldman's workforce, which will cut costs by $1.2
billion.
In 2010, total operating expenses amounted $26.3 billion for
Goldman. The completion of $1.45 billion cost cutting plan would
reduce the expenses by 5.5% for the bank in 2011.
Further, compensation and benefits expenses form a major part of
Goldman’s total expenses. In 2010, the bank's total 35,700
employees received $15.4 billion in compensation and benefits.
In July, Goldman planned to cut costs by $1.2 billion, including
layoffs and reduction of non-compensating expenses such as travel,
telecommunications and market data, rather than lowering employees’
compensation.
In August, Goldman also planned to slash salaries of some
London-based investment bankers in order to reduce costs. This move
would put an end to the two-year pay rise deal agreed upon in 2009.
Beginning 2012, Goldman announced it will cut London employees’
salaries in line with the current market rates, though employees
will be benefited as the rates will not be as low as they were in
mid-2009.
Among other banks, UBS AG (UBS), Credit
Suisse Group (CS) and Barclays
plc (BCS) also came up with the plan of retrenching
hundreds of staff in their investment banking arms to rapidly bring
down fixed costs in the current worsening markets.
Last month, according to the New York Times,
Bank of America Corp. (BAC) also moved ahead with
its cost-cutting plan. The bank is expected to slash its consumer
banking costs by 20%, which would include significant layoffs. Last
year, the consumer banking businesses incurred approximately $30
billion in expenses.
In July, BofA also planned to retrench 60 employees in its
equity sales and trading unit. The decision was taken to boost
revenue in the unit by lowering expenses.
The division, comprising approximately 2,500 people, plans to
fire least-productive employees globally. BofA also announced jobs
cut of approximately 100 employees in its consumer and small
business banking unit as of March 2011. The layoffs are part of
BofA's ongoing efforts to overhaul its consumer banking unit.
Further, another mega bank, Wells Fargo &
Company (WFC) has cut 49 jobs in its financial card
collections department in Sioux Falls. In January 2011, Wells Fargo
also announced to trim 120 workers in its student loan operations,
including many in Sioux Falls, though the company planned to
transfer most of the employees to other units.
In March 2011,Wells Fargo also announced that it will lay off
approximately 200 employees, including 82employees in San Antonio,
30 in Addison and 67 in Bedford, Texas in its home mortgage
division.
Wells Fargo employs about 13,000 people in metro Des Moines. The
company’s Home Mortgage division, which is based in West Des
Moines, captures approximately 25% of the U.S. home lending
market.Wells Fargo also announced the elimination of 68 positions
at a Vancouver call center, which supports collection of loans for
Wells Fargo Financial division, the company’s consumer finance
subsidiary. The action followed as the customers are paying down
debt, eliminating the need for debt collectors.
Among others, earlier in August, Bank of New York Mellon
Corp (BK) announced that it will slash about 1,500 jobs,
representing about 3% of its total workforce. Further, on July 19,
State Street Corp. (STT) stated that it would
reduce 850 technology jobs through layoffs and outsourcing.
Many large Wall Street banks have started reducing their
workforces to cut costs following the slowdown in economic and
market activity. Further, some large Wall Street banks are laying
off employees due to weak trading volumes and stringent regulations
on some parts of their business.
Overall, until revenue generation revives, a hideous
cost-to-income ratio will continue to force many more banks to
reduce costs through job cuts as they need to maximize profits in
order to boost capital ratios. Of course, everyone will now keep
their eyes on the weak performing firms that have not yet announced
job cuts. However, we also expect job cut announcements from many
other banks, including Morgan Stanley (MS), in the
near term.
We believe that the present job cuts will enable Goldman to
reduce expenses, alleviating bottom-line pressure.The job cut
initiative explains Goldman’s attempt to improve profitability amid
revenue headwinds due to a weak economy and stricter capital
requirements by regulators.
Goldman currently retains its Zacks #5 Rank, which translates
into a short-term Strong Sell rating.
BANK OF AMER CP (BAC): Free Stock Analysis Report
BARCLAY PLC-ADR (BCS): Free Stock Analysis Report
BANK OF NY MELL (BK): Free Stock Analysis Report
CREDIT SUISSE (CS): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
UBS AG (UBS): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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