The year 2023 is destined to witness more layoffs in the investment banking industry. As the global economy weakens in anticipation of a potential recession, major investment banks such as Goldman Sachs, Morgan Stanley, Citigroup, Barclays and Credit Suisse have already announced plans to cut thousands of jobs. Cost control becomes an urgent task for banks to weather the economic headwinds. Industry insiders predict the wave of layoffs will continue well into 2023 until the economy stabilizes. The causes are multilayered, but the crux lies in the Federal Reserve’s aggressive interest rate hikes to curb inflation, which dampened deal-making and trading activities. Investment banks overhired during the pandemic boom and now have to right-size. Layoffs seem inevitable amid the confluence of factors like rising borrowing costs, market volatility, geopolitical tensions and weakening consumer demand.
Goldman Sachs plans up to 8% job cuts in early 2023
Goldman Sachs is expected to eliminate thousands of jobs in early 2023, which could amount to slashing up to 8% of its workforce. The impending layoffs will impact every division of the storied investment bank as it girds for a tougher operating environment. Goldman Sachs went on a hiring spree during the pandemic to handle the deal boom. But now it has to cut costs and reduce headcounts to reflect the shrinking business opportunities. The economic outlook has deteriorated markedly since 2022, with central banks hiking rates aggressively to fight inflation. This dented financial markets and cooled the hot pace of mergers and acquisitions. Goldman’s move to trim headcounts echoes similar decisions made by its Wall Street peers to control costs.
Morgan Stanley initiates 2% job cuts across divisions
Morgan Stanley is cutting about 2% of its workforce across all operations this year. The reductions will help the firm rein in expenses given the market challenges. Like Goldman Sachs, Morgan Stanley also went on a hiring binge during the pandemic to capture the opportunities. But the good times are over as volatility roils markets amid rising rates and recession fears. Morgan Stanley’s investment banking division is taking a direct hit from the slowing IPO and deal markets. Hence, trimming the workforce to reflect market realities can shore up profitability. The move aligns with similar steps taken by rival banks in anticipation of tougher times ahead.
Citigroup to eliminate hundreds of jobs in investment banking
Citigroup is reportedly planning to cut hundreds of jobs in its investment banking division in the coming weeks. The reductions could amount to shrinking the division’s workforce by up to 5% amid a slump in the capital markets. Fees from activities like debt and equity underwriting have fallen sharply as volatility spikes. Hence, Citigroup is taking preemptive steps to lower costs given the uncertain outlook. The bank went on an expansion drive during the deal bonanza of the pandemic. But now that central banks are aggressively tightening policies, deals have dried up. Citigroup’s layoffs underline the challenges facing investment banks as the environment shifts from boom to bust.
More investment banks set to follow with job cuts
The wave of layoffs seen at major investment banks like Goldman Sachs, Morgan Stanley and Citigroup is expected to spread to other players too. Banks expanded too quickly when markets were flush with liquidity. But tightening financial conditions and the threat of recession have forced a rethink. Hiring has already slowed down sharply. And more job cuts are likely in early 2023 as banks realign staffing with the weakening business outlook. Tough steps like layoffs can help investment banks protect profitability amid the downturn through leaner operations. Workforce reductions also signal to shareholders a realistic assessment of growth prospects.
Major investment banks like Goldman Sachs, Morgan Stanley and Citigroup have unveiled job cuts to control costs amid a deteriorating economic environment. More layoffs are imminent in 2023 as banks right-size bloated workforces hired during the pandemic boom. The moves align staffing levels with the weak business outlook resulting from rising rates and recession risks. Investment banks need to stay profitable through downturns via steps like layoffs. The turbulence may continue until central banks pivot policies to support growth again.