Wall Street Banking Giants Start "Bloodbath" as Sluggish Economy Is Tanking Turnover

Stocks are in bear market, crypto is collapsing and recession fears are intensifying. In the wake of tense layoffs in the crypto​ and fintech sectors, the hurricane has swept the global banking industry. Global investment banking faces tougher times, with IPOs in the US slumping 74% over the first nine months of 2022 on a yearly basis, according to EY. Goldman Sachs, for instance, reported that net earnings for Q2 2022 fell 47% year-on-year to $2.927 billion, with that of Investment Banking plummeting 44%.

In June, John Waldron, President and Chief Operating Officer of Goldman Sachs, said that "the confluence of the number of shocks to the system, to me, is unprecedented."

Slammed by the dismal market, even banking giants around the globe have to trim headcount to cut costs to grapple with plunges in capital markets activity.

“Bloodbath”

• In September, Goldman Sachs unveiled plans to trim several hundred jobs, making it the first major Wall Street firm to take actions to rein in expenses amid a collapse in deals volume. Soon after, the bank has reportedly axed at least 25 investment bankers​ in Asia. Moreover, it is reinstating a tradition of annual employee culls reportedly.

Adding to 2022's turmoil, the mortgage sector is downsizing as the Federal Reserve has kept raising interest rates to curb inflation which hit 40-year high. This therefore severely struck the mortgage sector, forcing a host of banks in the world to start job cuts.

• Wells Fargo​ has conducted the ninth round of layoffs in its mortgage segment since April, bringing the total number of local workers who have lost jobs this year to 366.

• In June, JPMorgan started laying off in its mortgage business, with more than 1,000 being affected, around half of whom would be transitioned to different units within the bank.

• Additionally, Citigroup disclosed last month that it has axed around 100 employees in its mortgage business for the purpose of an internal streamlining of functions.

Quiet Deal Flow Tanks Turnover

Regarding net revenue for global investment banking, the figure has fell 38% to $35.6 billion in June from $57.4 billion in the same period of 2021, during which the world has experienced a blockbuster year, with the figure reaching record high of $132 billion, data from Dealogic showed.

JPMorgan registered a 28% decrease in net income for Q2 2022, falling from $11.948 billion in last same period to $8.649 billion. Wells Fargo revealed that the net income in Q2 2022​ came in at $3.1 billion, compared to that of the same last period of around $6.0 billion, plunging nearly 50%.

Relatively speaking, Citi was a lucky loser in the storm. The bank's net income in Q2 2022 came in at $4.5 billion, dipping 27% from the prior-year period, as higher cost of credit and an 8% increase in expenses offset the 11% increase in revenues. 

Further, Morgan Stanley, JPMorgan, Wells Fargo and Citi, reported recently that profits over the third quarter of 2022 ended September 30 contibued dipping, 30%, 17%, 31% and 25% on a yearly basis, respectively. And Morgan Stanley​ has also joined the list of banking giants that have seen profits fall during this period, with profit  declinning 30% YoY.

Warning Signs

Earlier in June, the heads of US banks warned about the health of the global economy, with JPMorgan CEO Jamie Dimon speaking of a coming "hurricane." The US economy has contracted 1.6% in Q1 2022, and the Federal Reserve in June raised interest rates by 75 basis points, its largest rate hike in 28 years.

As per a report in July by New York Post, whispers of hiring freezes and even layoffs have begun to circulate at financial firms as soaring interest rates and recession fears have tanked appetites for mergers, IPOs and other big corporate deals.

Views on Job Cuts Vary

But not all banks' decisions are in line with Goldman Sachs'. JPMorgan and Bank of America​, the largest banks in the US by assets, noted that a more cautious approach should be taken to subsequent layoffs.

"You need to very careful when you have a bit of a downturn to start cutting bankers here and there because you will hurt the possibility for growth going forward," Daniel Pinto, president and chief operating officer of JPMorgan, commented.

"We're fine with our headcount," said Brian Moynihan, Chief Executive Officer of Bank of America, in September. "I'm confident if we need to manage headcount when people leave us to go to other employers, we just won't fill all the jobs, but we're in good shape."

The Trend

"In terms of a market downturn, investment banking and asset management segments would be most exposed," Christopher Wolfe, who heads up North American banks for Fitch Ratings, stated.

Executives from top banks including JPMorgan and Morgan Stanley​, speculated that layoffs would ravage the industry's workforce by at least 10% — and that the bloodbath could be in full swing by year's end, as per a report by New York Post.