Goldman Sachs said it is slowing hiring and bringing back performance reviews to cull the bank’s lowest performers after profits were nearly halved in the most recent quarter.
As the pandemic-era boom in corporate dealmaking begins to sputter amid rising recession fears and surging interest rates, the bank is looking to cut costs companywide.
“Given the challenging operating environment, we are closely re-examining all of our forward spending and investment plans,” Chief Financial Officer Denis Coleman said on Monday’s earnings call. “Specifically, we have made the decision to slow hiring velocity and reduce certain professional fees going forward.”
The bank will weed out laggard staff by simply not filling roles after employees leave and by axing its lowest performers, Coleman said. The dreaded performance review had been suspended during the pandemic when the bank was looking to hire as many people as possible as profits hit all-time highs.
Coleman’s comments follow The Post’s report that layoffs are looming across Wall Street as soaring interest rates and recession fears have tanked appetites for mergers, IPOs and other big corporate deals.
The Wall Street giant helmed by David Solomon reported second-quarter earnings of $2.93 billion, or $7.73 per share, on Monday, precipitously lower than the second quarter of 2021 when the bank hauled in $5.49 billion.
Investment banking was the driving force behind the slump — bringing in 41% less then it did a year ago. Trading revenue of $6.47 billion — up 32% year over year — slightly offset losses.
Still, better than expected trading revenues offset some of the losses and pushed Goldman’s earnings past analysts’ forecasts of $6.46 per share, according to data from FactSet.
“Goldman once again showed that it can excel in challenging markets,” Wells Fargo banking analyst Mike Mayo told The Post. “Mergers remain best-in-class and have improved backlogs.”
While Goldman’s banking fees were disappointing compared to a year earlier — the revenue was marginally better than other banks like JPMorgan and Morgan Stanley. JPMorgan’s banking fees dropped 54% and Morgan Stanley’s banking fees dropped 55% in the second quarter, both banks reported last week.
Compensation, a huge operating cost for the bank was down 30% year over year. Overall, operating expenses were down just 11%.
Solomon was eager to take a victory lap following the report.
“We delivered solid results in the second quarter as clients turned to us for our expertise and execution in these challenging markets,” Solomon said in a statement.
While Solomon said he was “confident” Goldman could “navigate the environment,” he also acknowledged “economic conditions are tightening” on the earnings call.
“It’s prudent, and appropriate, for us to be cautious,” he added.
Investors were clearly bullish on the earnings — Goldman shares jumped nearly 4% to $304 after the opening bell. However, shares are down more than 25% year to date.
The steep decline in revenue is a sharp turn of events from the last few years when banks raked in massive investment banking fees. But as the economy faces headwinds, all major banks are forced to grapple with the challenging economic reality.
Both JPMorgan and Morgan Stanley’s earnings dropped in the second quarter — but the slump of 28% and 29% respectively was far less than that of of Goldman Sachs. Like Goldman Sachs, JPMorgan and Morgan Stanley’s investment banks tanked while the trading desks outperformed.