While a random day trader/motivational speaker is going around telling the BBC that Goldman Sachs rules the world and everyone’s savings are about to disappear, Goldman Sachs is having a few other issues to deal with.
The New York Times says the bank is drawing up plans for deeper cost cuts and that it will probably announce them along with Q3 earnings on October 18th.
Where previously the bank intended to reduce costs by $1.2bn, it now plans to reduce them by $1.45bn, says the Times. If all the cuts were borne by employees, this would imply staff reductions of around 3,000 people based upon the current rate of annual compensation accrual per head. In fact, however, only 56% of costs at Goldman are staff-related, suggesting headcount might be reduced by only around 1,700. Then again, it may be reduced by more given the difficulty of reducing non-staff expenditure.
The alleged cost-cut-ramp-up comes after Barclays Capital analysts suggested Goldman may make a loss in the third quarter for the first time since Q4 2008. Yesterday, Brad Hintz at Bernstein Research adjusted his prediction of a $3.38 per share Q3 gain for Goldman to a -$0.20 Q3 loss. Unfortunately, M&A and investment banking have now followed sales and trading down the revenue hole.
If Goldman does cut 1,700 people before the end of the year, Europe and the US are likely to be most affected: the bank is apparently building up still in Singapore.
It’s worth bearing in mind, however, that the cuts of 1,700 would amount to a mere 5% of Goldman’s headcount and that Goldman has expanded employee numbers by around 160% over the past decade. This could be the start of something.