Wall Street's 'Layoff Freeze' Spends 1.26 Trillion Won on Severance Pay in First Half of This Year

Major Banks Lay Off 11,000 Employees This Year
Goldman Sachs and Others Forecast Further Cuts in Second Half

Major Wall Street banks have paid out more than $1 billion (1.26 trillion won) in severance packages in the first half of this year alone due to a domino effect of layoffs that began last year. Analysts suggest that Wall Street, which expanded rapidly amid the liquidity surge triggered by COVID-19, is now paying the price for those costs.

On the 19th (local time), major foreign media reported that large Wall Street banks have announced layoffs of more than 11,000 employees so far this year.

Goldman Sachs, which laid off 3,400 employees?7% of its total workforce?this year, spent $260 million on severance pay in the first half alone. Morgan Stanley spent over $300 million, and Citigroup spent more than $450 million on severance packages. These two banks laid off 3,000 and 5,000 employees respectively this year.

Michael Karp of Options Group, a Wall Street headhunter, said, "The size of the investment banking industry is expected to become more appropriate," and predicted, "In the second half of this year, large companies will continue a situation where for every one person hired, two are laid off."

Wall Street began restructuring its workforce last year. Banks significantly expanded their size as initial public offerings (IPOs) and mergers and acquisitions (M&A) increased following the liquidity surge after COVID-19 in 2020. However, last year, the U.S. Federal Reserve's aggressive tightening led to a stock market downturn and the disappearance of IPOs, causing a sharp decline in brokerage fees for stock trading and IPO underwriting commissions, which severely weakened investment banking performance. Banks that expanded hiring during the COVID-19 boom are now forced to cut costs through layoffs.

Some banks, including Goldman Sachs, plan to continue layoffs in the second half of this year. David Solomon, CEO of Goldman Sachs, said, "We will resume performance-based layoffs that were put on hold during COVID-19," adding, "There are no specific plans regarding layoffs yet." Poor second-quarter results this year further reinforce the outlook for layoffs. The company reported a net profit of $1.22 billion in Q2, down 58% from the same period last year. Investment banking performance was weak, and the retail banking business also suffered significant losses.

Citibank also intends to continue layoffs. Jane Fraser, CEO of Citigroup, stated, "We will further streamline the organization in the second half of this year to reduce costs," effectively signaling additional layoffs. Wells Fargo, which has cut 5,000 employees this year and 40,000 since mid-2020, also informed investors that it plans to reduce its workforce further within the year.

Foreign media reported, "Many Wall Street firms acknowledge that during the COVID-19 period, when remote work reduced productivity, they increased their workforce too aggressively to cope with rising trading volumes."