Mutual gold woke up like a dream, Goldman Sachs began to lay off employees

Text/He Yiran

Editor/Wang Fangjie

The big layoffs in Silicon Valley on the west coast of the United States are still underway, Wall Street on the east coast cannot hold on, and the chill is spreading in the financial industry.

Recently, a number of investment banking giants announced salary cuts and staff reduction plans, which is basically the most aggressive since the 2008 financial crisis, among which the old giant Goldman Sachs is the most high-profile one. Labor cost has always been the most important cost of investment banking, and the aura of investment banking comes from the high salary of practitioners. In a sluggish market, layoffs are the fastest way to control costs.

On January 9, local time, sources revealed that Goldman Sachs Group expects to cut up to 3,200 jobs, accounting for about 6.5% of the total number of employees. Compared with the buffer period provided by Silicon Valley layoffs, Wall Street layoffs are more direct and cruel. It was disclosed that after receiving the layoff notice, many employees immediately lost the access control to enter the office area, and had to pack up and leave within 30 minutes.

A Goldman Sachs spokesperson said in a statement on January 11: "We thank all employees for their contributions, and in a challenging macroeconomic environment, we need to adjust the size of the company appropriately for the opportunities ahead." ”

In addition to downsizing its workforce, Goldman Sachs is expected to cut its total bonuses by at least 40 percent this year, and the bonuses of the firm's roughly 400 partners could even be halved, with higher ranks, greater salary cuts. The year-end bonus is reduced or some employees choose to leave on their own.

01

Goldman's U-turn came a little hastily.

In the past three years, guided by the rising capital market environment and diversified business strategy, Goldman Sachs has repeatedly announced the expansion of recruitment. From 2019 to September 2022, Goldman Sachs increased its total workforce by 11,000, an increase of 29%.

In 2022, the global financial market showed a "bull" to a "bear", with the Dow Jones, S&P 500 and Nasdaq falling by 8.8%, 19.4% and 33.1% respectively, and the US bond market recorded the largest decline in decades.

In 2022, the number of global IPOs fell by 45% year-on-year, and the funds raised fell by 61% year-on-year. The reduction in business volume directly led to the contraction of investment banks. Statistics show that Wall Street banks' advisory fees on M&A transactions, stock issuances and bond sales fell by nearly 40% compared with the same period in 2021, and the banking industry's revenue decreased by about US$50 billion.

In October 2022, Goldman Sachs announced its financial results for the third quarter of 2022. Net revenue for the quarter was $11.98 billion, down 12% year-over-year, and net profit was $3.069 billion, down 43% year-over-year. In the first three quarters of 2022, Goldman Sachs had net revenue of $36.77 billion and net profit of $9.94 billion.

At the same time as the earnings report, Goldman Sachs announced the largest organizational restructuring, and its investment banking and trading businesses merged; the merger of asset management and wealth management businesses, including Marcus, the company's lending platform for individual consumers; The combination of transaction banking and the bank's fintech platforms becomes the Platform Solutions segment designed to provide a secure, flexible, and easy-to-use transaction banking platform.

Organizational adjustments inevitably lead to personnel changes. After the earnings report, Goldman Sachs CEO David Solomon said: "We will further leverage the main operating model of 'One Goldman Sachs' to better serve our clients." He told a news conference: "We are ready to lose weight a little. ”

While officials have tried to downplay the impact of layoffs, Goldman Sachs is clearly "paying off debt" for an overly optimistic aggressive strategy over the past three years and the failure of its consumer business.

According to Goldman Sachs' filings with the U.S. Securities and Exchange Commission, the platform solutions division suffered a pre-tax loss of more than $1.2 billion from January to September 2022, and the loss is accelerating every quarter. Goldman Sachs estimates that the division's three-year cumulative losses are close to $4 billion. In terms of the level of the credit loss reserve, losses in the most recent year will amount to $2 billion.

Previously, Goldman Sachs was optimistic that the consumer business would break even in 2022, but that dream has been shattered. Goldman Sachs executives now hope to achieve that goal by 2025, people familiar with the matter said.

02

After the 2008 financial crisis, Silicon Valley newcomers began to influence the usual pattern of the financial industry, and the "Occupy Wall Street" movement also brought a great impact on the thinking of practitioners. To get an emergency bailout from the federal government, Goldman Sachs transitioned from an investment bank to a commercial bank known for its financial advisory and mergers and acquisitions for large companies.

In 2009, Simple, the first online bank in the United States, began operations. With the rapid penetration of technology financial platforms around the world, established banking giants also realize that they must embrace the Internet financial market and need to step down from the top of the pyramid.

In 2014, Goldman Sachs CEO Blankfaim accepted the advice of Friedman, head of commercial banking, and established the "Mosaic Project" working group to study how to use the identity of the bank holding company to create new consumer financial products, emphasizing that "technology" is a central point for all business development.

Goldman Sachs is no longer focused on serving the high-end rich and top companies, but is going to do consumer banking that seems to be a small profit but a larger market, dealing with the most ordinary people. Analysts say Goldman is trying to change its stale and closed image and position itself as a technologically advanced financial institution that serves everyone.

In 2016, Goldman Sachs launched Marcus, a consumer banking unit that offers loans, savings and certificates of deposit to retail consumers, high-interest checking accounts and luxury credit cards. This description may have some sense of distance, if it is a simplistic interpretation, Goldman Sachs is vigorously doing "personal online loans" in the United States.

Due to the late entry time, the market competition has become fierce, Goldman Sachs in order to cultivate user stickiness, has to invest higher costs, and cooperate with various companies.

In 2015, Goldman Sachs acquired the GE online savings platform, which has $16 billion in deposits and 140,000 customers. It was then incorporated into the Marcus umbrella to entice customers to save. After all, deposits are a very cheap source of money for banks, and income can be generated by lending. Marcus has customized a variety of loan products, including home improvement, relocation, wedding, and travel.

In 2018, David Solomon won the battle for the helm of Goldman Solds, and he gave greater support to the consumer business after taking office. Perhaps in order to narrow the distance with consumers, in 2019, Goldman Sachs relaxed the dress code for employees, no longer having to wear formal wear, and tried to create a more casual environment.

In 2021, Goldman Sachs acquired GreenSky, a fintech loan company specializing in renovation loans and home renovation loans, for $2.24 billion, and more than 10,000 "buy now, pay later" stores on GreenSky were incorporated into Goldman Sachs. Marcus also works with Amazon and Walmart to fund e-commerce sellers; Partnered with GM to launch a credit card that allows customers to earn higher points on purchases of GM products.

Of course, the most well-known cooperation of Goldman Sachs' consumer business is undoubtedly the Internet banking credit card Apple Card jointly launched with Apple. In August 2019, Apple Card was officially launched, mainly for Apple Pay services.

In 2022, Goldman Sachs and Apple also expanded their partnership to develop high-yield savings accounts. It is claimed that the "daily change" rewarded by the future Apple Card will be automatically deposited into a savings account. In addition, Goldman Sachs is planning to offer Apple customers a "buy now, pay later" feature.

With the help of the user accumulation and channels of various partners, Goldman Sachs Consumer Business has 14 million users and a deposit amount of more than 110 billion US dollars.

03

Goldman Sachs got the size of clients it wanted, but at a huge price. Goldman Sachs is estimated to have invested more than $5 billion in consumer banking.

Some institutions estimate that Goldman Sachs pays as much as $350 for each new Apple Card customer, Apple Card zero fees and transparent pricing concept makes the bank's profit margins smaller, Citibank is because of doubts about the profit model to abandon the cooperation with Apple.

David Solomon has said that although the market does not currently recognize Goldman's achievements in technology, the strategy is working and will eventually bring compound interest returns to the company.

However, the sluggish capital markets in 2022 have raised greater questions about Goldman's cost-conscious bet on fintech and consumer businesses. The US media quoted people familiar with the matter as pointing out that the vast majority of the $3 billion losses reported by Goldman Sachs' platform solutions division in 2021 and 2022 came from Apple Card.

With more and more pessimistic about the economic outlook, Goldman Sachs' consumer portfolio is facing a large "headwind test" right now.

In 2022, Goldman Sachs' credit card business has a bad debt rate of nearly 3%, more than double that of JPMorgan Chase. What's more, more than a quarter of Goldman's credit card loans go to clients with FICO scores below 660. Goldman Sachs' consumer business products are "highly sensitive" to net write-offs of bad debt, forcing Goldman Sachs to set aside more reserves for potential future credit losses. During the 2008 recession, the US bad debt ratio once reached more than 10%.

Faced with real pressures, Solomon had to focus Goldman Sachs' business center on businesses that generate stable revenue in any environment.

After the organizational adjustment, Marcus was placed in the asset management and wealth management division, and GreenSky and Apple Card were placed in the platform solutions division, which is a manifestation of Goldman's slowing into retail banking, which cannot exist as a separate segment and will not become an independent banking brand. Solomon said: "I think it is time to be cautious. ”

Goldman Sachs has shown optimism in a recent research report, although it predicts a 45%-55% probability of a US recession in 2023, but the turning point may also be approaching: "The market may have bottomed out while bad news is still coming out." ”

In order to transform, Goldman Sachs paid billions of dollars, and the lack of Internet genes in its bones made it difficult for Goldman Sachs to seize the right to speak in technology, and it was more of a compromise in front of Apple.

From the existing results, Goldman Sachs' grounded "personal online loan" development path is obviously not successful, the road to monetization of traffic into income is a threshold that all Internet thinking enterprises must cross, Goldman Sachs' Internet finance dream needs to be explored for a while.