When it comes to job cuts in the banking sector, Goldman Sachs (GS) would probably be the last company many would suspect to be implementing layoffs. However, after eliminating 2,400 positions last year, the company is reportedly ready to cut more workers this year. In fact, reports are they may even be cutting more workers than they did last year.
In a pronounced attempt to cut costs after letting go 5% of its trading staff last March, the reason for the axe is actually much more technological in nature. Basically, the company no longer needs many of these workers. "In general the whole paradigm of the business is changing," said one source familiar with the matter. "As the business is consolidating and the volumes are going down and there's still this regulatory pressure, management is really looking at the new paradigm and seeing how many bodies are absolutely required for the business."
In summary, these cuts amount to nothing more than a changing of the business model in which technology wins, while the workers undoubtedly lose. Goldman Sachs isn't the first bank to take such a strategy. Morgan Stanley (MS) laid off 887 financial advisers last year, and more heading to the unemployment office is almost a sure thing. In November, Wells Fargo (WFC) announced plans to cut workers and eliminate more than $1.5 billion of quarterly operating expenses.
Now some would argue these cuts will remain within the banking sector as the industry values cost-cutting and responsible spending now probably more than ever. However, banks aren't the only ones implementing such a strategy. They're merely reassuring other businesses such a strategy works.
Following an economic collapse many defined as the worst since The Great Depression, it has become relatively easy to layoff workers, while hiding behind the cost-cutting excuse. In fact many, including analysts, endorse such an approach. After all, companies find themselves at the point now where such cuts don't interfere with actual business itself. We live in a world in which there is always some way, some inexpensive way, to maneuver around the workforce instead of through it.
Maybe there was a solid reason for Goldman Sachs to cut more jobs. Maybe without these cuts the business model would have begun to struggle to the point even more cuts would have been necessary. However, a company posting solid earnings, along with a dividend to shareholders, shouldn't be that much in need of layoffs. Although the financial industry is far from sound, this by all accounts is not a repeat of 2008 where one wrong move could have left Goldman Sachs having to consider taking a government bailout.
Common sense would instead argue these cuts by Goldman Sachs occurred only because the financial giant could go through with them. It didn't need to cut, it wanted to cut. Sort of like the grocery stores that now allow customers to check themselves out without the cashier.
If there's a way to cut costs, these companies will. All the while concocting their own reasons for doing so.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
