Published - December 19, 2022 @ 2:11 PM (EET)

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In the latest sign that staff layoffs are accelerating across Wall Street, a source familiar with the matter said Goldman Sachs Group Inc. (NYSE:GS) is planning to cut thousands of employees to navigate a challenging economic environment.

Against slumping capital markets and its retreat from consumer banking, Sachs may lay off as many as 4,000, or 8% of its employees, to lighten the load.

Semafor's Liz Hoffman reported on Friday that managers across Goldman were instructed to identify low performers ahead of an upcoming conference for Goldman shareholders, indicating the cuts will likely happen in the first month of 2023 as the investment bank typically pays bonuses in January.‍

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WHY IT MATTERS

Following a two-year boom adding significant numbers to its headcount, Goldman is adjusting to a lower revenue environment like other Wall Street banks. At the end of the third quarter, Goldman Sachs had 49,100 employees compared to its workforce totaling 38,300 at the end of 2019.  

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Collectively - JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley employed 1.11 million workers at the end of September, up 7.1% from 2019. 

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Banking analyst Mike Mayo at Wells Fargo wrote in a note,

"GS needs to show that its costs are as variable as its revenues, especially after a year when it provided special rewards to top managers during the boom times."

NOW WHAT

According to people familiar with the matter, the layoffs could severely affect investment bankers covering tech, including some managing directors, while the bank is also weighing a sharp cut to the annual bonus pool this year. 

In particular, the tech industry fueled the pandemic stock runup, but overhiring and overpaying staff during good times often includes steep job and bonus cuts during lean years.

Earlier this month, Morgan Stanley (NYSE:MS) cut about 2% of its global workforce, representing roughly 1,600 jobs. Yet, despite the broader market's disapproval of massive job cuts, analysts seem largely unfazed by the news.

Based on 28 Analyst ratings covered by Refinitiv, Goldman's stock is a Buy (16 Buys, 10 Holds, 2 Sells). Moreover, the average price target of $392.64 implies an upside potential of 13.24%.

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