Wall Street banks spend more than $1bn on severance costs amid sharp job cuts


The biggest US banks spent more than $1bn on severance costs during the first six months of 2023, underscoring the steep price of unwinding Wall Street’s overexpansion during the coronavirus pandemic.

Goldman Sachs, which has been hit particularly hard by the slowdown in trading and investment banking, on Wednesday became the latest big bank to take a charge for recent job cuts, telling investors it had spent $260mn in the first half of the year in severance costs. Goldman has laid off about 3,400 employees, or about 7 per cent of its overall staff, this year.

On Tuesday, Morgan Stanley, which has let go about 3,000 employees this year, said that it had spent more than $300mn on staff reductions. And Citigroup last week said that severance cheques have added $450mn to its expenses. The bank announced last month that it had nearly completed 5,000 job cuts.

“I think there is going to be more right-sizing in investment banking,” said Michael Karp at Options Group, a Wall Street headhunter. “For the rest of the year, it’s going to be a fire-2-to-hire-1 situation at most of the big firms.”

Line chart of Employees in thousands showing US banks seek to bring down headcount

Many Wall Street groups now concede they grew their headcounts too aggressively during the Covid-19 pandemic to cope with a spurt of trading and dealmaking at a time when working-from-home was hurting productivity.

The feast-to-famine swing of the past few years has been swift even by the standards of investment banking, which has always been a cyclical business. Wall Street’s biggest employers have collectively announced more than 11,000 lay-offs this year.

Executives are divided on whether they will have to make more job cuts — and pay out more in severance — as the year progresses.

Morgan Stanley chief financial officer Sharon Yeshaya told analysts this week that the bank expected to benefit from a backlog of deals and wanted to “enhance [its] footprint to best position for the opportunity”.

Goldman chief executive David Solomon said his bank would implement another round of performance-based job cuts, a practice which it had put on hold during the pandemic before restarting it last year. But Solomon said there were “no other specific plans on the headcount now”.

Citi, on the other hand, hinted that more lay-offs could be coming. “As we move through the second half of the year, we will be in a position to focus on the third leg of bringing down our expense base through a leaner organisational model,” Citi chief executive Jane Fraser told analysts last week.

Wells Fargo told investors it expected its headcount — which has fallen by 5,000 this year and 40,000 since the midpoint of 2020 — to decline further this year. It was one of the few large banks that did not expand during the pandemic, in part because it is operating under a regulatory asset cap following various legal and compliance infractions.

San Francisco-based Wells, which has a business that skews more towards retail banking rather than deals and trading, increased its outlook for expenses for this year by $800mn. The vast majority of the rise is tied to job cuts. The bank declined to say how much of the increased costs it had already incurred.

Bank of America reported on Tuesday that it had cut 4,000 positions, or about 2 per cent of its overall workforce, in the second quarter. BofA has eliminated positions mostly by attrition and so has avoided having to pay large severance cheques.

JPMorgan Chase, the largest US by assets with sprawling retail, investment banking and trading operations, is the one big banks bucking the trend. Its headcount rose to 300,000 in the second quarter, an 8 per cent increase on the same period of last year.

This does not account for the employees joining from First Republic, the California-based lender it acquired in May and whose employees officially joined JPMorgan in July.

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