Why Goldman's redundancies could be 30% higher than it suggested. And BAML might make cuts too

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If you're working at Goldman Sachs, you may be thinking that the estimated 1,000 redundancies due to be implemented this year are proportionately light. However, the real figure is likely to be decidedly more than this, and Western markets could be hit hardest.

In actual fact the bank is targeting $1.2bn in cost reductions, but it's refusing to reduce individual compensation and the 1,000 figure is, as Goldman's CFO David Viniar said yesterday, "not a science but more of an art".

"We're much more focused on the dollars that the savings we'll create than the number of heads. And so businesses are actually looking to get to a dollar number. That's why I gave you a number like in the range of 1,000 heads, because it could be somewhat more, it could be somewhat less," said Viniar at yesterday's Q2 results conference call.

The bank currently employs around 35,500 people, and the planned headcount reduction is a net figure, also taking into account any recruitment for the remainder of the year.

Headcount is likely to increase in the immediate future, suggesting that more than 1,000 cuts will be necessary.

The first thing to consider in this respect is graduate recruitment - a new batch of analysts will come in the third quarter and, according to the bank's earlier estimate, will be around 300-strong.

While any redundancies will be spread across the junior and senior ranks, Viniar also said there were unlikely to be many cuts in "growth markets".

According Lloyd Blankfein's presentation last year, Goldman defines these as: China, Asia, India, the Middle East and Latin America. Headcount in these areas has increased by compound annual rate of 33% since 2003, compared to 7% for the whole firm.

Bankers in Europe in the US therefore have reason to feel nervous.

More cuts coming at Bank of America?

Bank of America Merrill Lynch also reported its second quarter results yesterday and, while there were no redundancy announcements, it did say it had been increasing headcount in growth areas and "taking it out of places where the opportunities aren't as big".

Brian Moynihan also admitted that costs were currently too high, and that if revenues didn't improve it would look at reducing them. Initially, this could mean reducing compensation, but redundancies shouldn't be ruled out.

Growth areas include its wealth management business, where it added around 500 financial advisors last quarter, and the bank has also been building its research team in Asia.

Sales and trading roles, though, don't look as safe. Fixed income revenues are down 18% year-on-year and equities have declined by 3%.

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