Investment banks have been hit hard by layoffs recently as the economy faces headwinds. Major firms like Goldman Sachs, Morgan Stanley, and Credit Suisse have announced job cuts. Market volatility, rising interest rates, lower deal volumes, and recession fears have forced cost reductions. However, boutique investment banks and private equity firms have so far avoided layoffs. Firms are struggling to maintain profitability amidst the challenging environment.
Goldman Sachs cuts jobs despite dealmaking rebound
Goldman Sachs laid off hundreds of employees in early 2023 despite an increase in investment banking revenue at the end of 2022. The job cuts impacted around 3% of Goldman’s workforce. The reductions were focused on non-front office roles and aimed to boost efficiency. Goldman’s layoffs followed similar moves by Morgan Stanley, Barclays, and Credit Suisse. Although dealmaking activity picked up, other factors like trading declines and market uncertainty have squeezed profits.
Morgan Stanley trims jobs amid weak trading results
Morgan Stanley eliminated around 2% of its workforce, amounting to 1,600 employees, in December 2022. The cuts targeted technology and back-office staff and were part of a broader effort to control costs. The move came after weak third-quarter trading results at Morgan Stanley. Bond trading revenue was down significantly. Rising interest rates and market volatility have impacted firms’ trading and investment banking businesses.
Boutique investment banks avoid layoffs so far
While large investment banks conduct layoffs, smaller boutique firms have so far avoided significant job reductions. Boutiques like Centerview Partners, Perella Weinberg Partners, and Moelis & Company have held off on job cuts. Their business models rely more on giving strategic advice rather than trading or lending. Boutiques also have leaner cost structures compared to bulge bracket banks. However, should the economic downturn deepen, boutiques may eventually also need to cut jobs.
Private equity firms not immune from downturn
Although private equity firms have not yet enacted major layoffs like investment banks, worsening conditions may test their resilience. PE firms face challenges deploying record amounts of dry powder with the IPO market frozen. Deals are also taking longer to close amid greater uncertainty. To enhance returns, PE investors may pressure portfolio companies to trim costs, including headcount reductions. But so far, leading PE firms seem to be taking a patient approach.
Investment banks have borne the brunt of layoffs so far as volatility and uncertainty weigh on profits. Smaller boutique firms and private equity investors have avoided job cuts but remain exposed to slowing business activity. Firms are balancing the need to protect profitability today while retaining talent to drive growth when conditions improve.