- Bonus reductions reflect plunging global investment banking revenue.
- Goldman's bonus cuts may exceed those of its competitors.
- M&A deal value and volume has declined considerably in 2022.
- Goldman is also cutting its workforce and reducing its exposure to unsecured loans.
Goldman Sachs (GS) may slash annual bonuses for its 3,000 investment bankers by at least 40%, joining the list of Wall Street banks considering substantial bonus cuts in the wake of 2022's financial market distress.
The news comes after reports last week that Goldman may cut bonuses for its 400 partners by as much as 50%. The bank will also reportedly trim 400 jobs in its retail banking division after laying off about 500 workers in September.
The bank joins a list of Wall Street firms planning the largest annual bonus reductions since 2008's global financial crisis amid this year's industry-wide downturn. Falling stock and bond markets throughout 2022 reduced mergers and other deals that provide the bulk of the industry's investment banking revenue, and firms remain concerned about likelihood of a recession in 2023.
Goldman's anticipated bonus cuts exceed those its main rivals are reportedly considering. JPMorgan Chase, Citigroup, and Bank of America all may decrease bonuses by about 30%, leaving Goldman susceptible to losing bankers to those firms and other competitors.
That's because bonuses account for a significant portion of investment bankers' annual compensation. Junior bankers typically earn 25-50% of their annual compensation from year-end bonuses; the proportion climbs to 50-90% for senior bankers.
Globally, investment banking revenue has plunged 35% year-to-date, according to Refinitiv, and the decline has worsened as the year progressed.
Through Q3, the value of 2022's mergers and acquisitions M&A deals worldwide fell by a third compared with last year, and deal volume fell 17%. In Q3 alone, the number of deals announced globally fell to the lowest quarterly level since the height of the pandemic in 2020 and by 55% compared with Q3 2021.
Meanwhile, four out of five U.S. executives expect a recession within the next six months as the Federal Reserve continues raising interest rates to bring down inflation. Goldman, in addition to layoffs and bonus cuts, has taken other actions to limit its risk to the troubled economy, reportedly deciding to stop making unsecured loans.