At Goldman Sachs’ New York headquarters, bankers sensed the writing on the wall when walking to their desks and seeing human resources teams filling meeting rooms with back-to-back meetings.One person said he had never seen Goldman’s Sky Lobby – a mezzanine level with a large cafe – filled with so many staff members buying drinks after being let go.
A second person in New York described the environment as a “bloodbath” and referred to last Friday as “D-Day” for bankers.Central to Wall Street banks’ decision to trim expenses is their bearishness about the US economy. Geopolitical tensions and persistent inflation – which has hindered purchasing power and pushed interest rates higher – have stoked fears that the world’s largest economy could slip into recessionary territory.
JPMorgan economists predicted the US would fall into a recession in the fourth quarter this year, the bank’s chief financial officer Jeremy Barnum said during its fourth-quarter earnings call last Friday. JPMorgan posted a $US2.3 billion provision for credit losses during the December quarter, a 49 per cent jump from the September quarter. The increase comes as the bank prepares for customer debt defaults.
The investment banking division earned $US1.4 billion of revenue in the December quarter, down 57 per cent from the September quarter, due to weaker fees and fewer underwritings.While Australia’s investment banking teams – and their compensation – are tied to the success of their global headquarters, there are reasons to be optimistic for the local banking market.