December 3, 2023

Investment Banking

Let Your Investment Banking Do The Walking

Why are US banks shedding jobs?

What impact will the latest round of US banking job cuts have on their share prices?

This year hasn’t been great for US banks, first the US was hit by a regional banking crisis and now job cuts in the larger investment banks are on course to surpass 15,000 amid the worst recruitment market since the financial crisis following a pandemic-era hiring frenzy.

With Citigroup Inc (All Sessions) following in the footsteps of Goldman Sachs Group Inc (All Sessions) and Morgan Stanley by making thousands of their staff – mostly in investment banking and trading – redundant, the question is whether their share prices can benefit from these cost cutting measures?

Historically shedding jobs helps drive bank share prices up but in case of Citigroup Inc (All Sessions), which last Thursday announced a cull of 5,000 jobs, the positive impact has so far been muted.

Perhaps this has to do with the fact that although the number of Citigroup redundancies by the end of the second quarter sounds large, it only represents slightly more than 2% of its 240,000 workforce.

Such redundancies are nothing out of the ordinary as major US investment banks tend to trim their “underperforming” staff on a regular basis in order to keep those who survive the cull motivated whilst cutting costs.

When the job cuts mount up, though, as was the case earlier in the year when Goldman Sachs saw its headcount fall by 6.4 per cent to 45,400, the steepest drop in years, some investors begin to worry about the state of the economy and the impact it is having on banks.

As the Federal Reserve began its monetary tightening to drive down inflation, deal activity started to slow in 2022 and hasn’t recovered since. Combined with employees leaving at a slower pace amid waning demand for new appointments in the financial industry as a whole, most US banks are forced to reduce their headcount.

There are some exceptions, however. Bank of America Corp (All Sessions) (BofA) wants to eliminate 4,000 positions but is trying to do so via attrition, by not rehiring when employees leave, and thus avoid job cuts.

The largest US bank, JPMorgan Chase & Co (All Sessions), seems to be bucking the trend for now and has not announced any large-scale staff reductions.

Goldman Sachs’ share price struggles at technical resistance

Goldman Sachs’ share price is trying to overcome its May peak at $347.46 but is struggling to do so, having last week only managed to rise to a three-month intraday high at $347.73 before slipping back.

The investment bank’s share price has since oscillated around the 200-day simple moving average (SMA) at around $340 which capped it back in May.

Year-to-date the Goldman Sachs share price remains under water by around 2% and it can only enter positive territory if it were to rise and make a daily chart close above its May and current June highs at $347.46 to $347.73.

Goldman Sachs Daily Chart