Goldman Sachs has started preparing for possible large-scale job cuts later this month in the wake of the continuing decline in investment banking and the securities business.
Senior managers in the bank's investment banking and capital markets divisions are understood to have been asked to identify personnel they can shed well before the next round of salary reviews and bonus payments in November. There are fears that some departments might have to cut as many as 20% to 25% of their staff.
Sources close to Goldman, headed by Hank Paulson, suggest that the bank's board has yet to make a final decision on whether to make such drastic cuts, however. Senior managers have been asked to make preliminary investigations that still might not result in mass redundancies.
Cuts in Goldman's investment banking business would occur across industry sectors, rather than be concentrated in badly hit sectors such as technology and telecom. Investment banking revenues were actually sharply up on the second quarter, but down on the same period last year. Most cuts in capital markets would be in equities. Equities saw a 25% decline in third-quarter revenues, compared to the same period last year.
So far this year, Goldman has avoided a mass redundancy programme along the lines of those put in place by many other securities and investment banking firms, most recently JPMorgan. Goldman bankers are hopeful that the bank's conservative stance on bonus payments - it does not guarantee bonuses or give 'lock-in' payments - will give it enough financial flexibility to avoid mass layoffs.
A Goldman spokesperson in New York reiterated the stance taken by chief financial officer David Viniar when the firm presented third-quarter results, who did not rule out the possibility of more job cuts. 'We expect headcount at the end of this year to be roughly flat to the end of last year,' the spokesperson said.