Wall Street banks spend more than $1 billion on severance costs amid massive job cuts

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The biggest US banks are set to spend more than $1 billion on severance costs through the first six months of 2023, underscoring the heavy price of stemming Wall Street’s excessive expansion during the coronavirus pandemic.

Goldman Sachs, which has been particularly hard hit by the downturn in trading and investment banking, on Wednesday became the latest big bank to take charge for recent job cuts, telling investors it had incurred $260 million in severance in the first half of the year. Cost. Goldman has laid off about 3,400 employees this year, or about 7 percent of its total workforce.

On Tuesday Morgan Stanley, which has laid off nearly 3,000 employees this year, said it has spent more than $300 million on staff reductions. And Citigroup said last week that severance checks had increased its expenses by $450 million. The bank had announced last month that it had completed about 5,000 job cuts.

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

Many Wall Street conglomerates now acknowledge that they grew their workforce too aggressively during the COVID-19 pandemic to cope with a surge in trading and dealmaking at a time when working from home was hurting productivity.

The famine over the past few years has been stark 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 layoffs this year.

Executives are divided on whether they will have to cut more jobs — and pay more in severance — as the year progresses.

Sharon Isaiah, Morgan Stanley’s chief financial officer, told analysts this week that the bank expected to benefit from a backlog of deals and was looking to “increase its footprint to best position itself for the opportunity.”

Goldman Chief Executive David Solomon said his bank would implement another round of performance-based job cuts, a practice it paused during the pandemic before resuming last year. But Solomon said there are “no other specific plans” on the number of employees for now.

On the other hand, Citi indicated that more layoffs could happen. “As we move into the second half of the year, we will be in a position to focus on the third phase of reducing our expense base through a smaller organizational model,” Citi Chief Executive Jane Fraser told analysts last week.

Wells Fargo told investors it expects its workforce — which has dropped by 5,000 this year and is on track to drop to 40,000 by mid-2020 — to decline further this year. It was one of the few large banks that did not expand during the pandemic, partly because it was operating under a regulatory asset limit following various legal and compliance breaches.

San Francisco-based Wells, whose business is geared more toward retail banking rather than deals and business, raised its spending outlook for this year to $800 million. The bulk of the increase is linked to job cuts. The bank declined to say how much of the increased cost it has already borne.

Bank of America reported Tuesday that it cut 4,000 positions, or about 2 percent of its total workforce, in the second quarter. BofA has liquidated most of the positions by forfeit and has therefore avoided paying a large severance check.

JPMorgan Chase, the largest US bank by assets with extensive retail, investment banking and trading operations, is a big bank bucking the trend. Its workforce grew to 300,000 in the second quarter, an 8 percent increase from the same period last year.

That doesn’t account for employees joining from First Republic, the California-based lender it acquired in May and whose employees officially joined JPMorgan in July.