Goldman, Morgan Stanley, & BlackRock all saw job cuts in 2023; should financial professionals be worried?
June 30, 2023
Layoffs in Investment Banking, Asset Management, and Consulting
In today's world, the investments and financial services industry is going through a tough and stressful time. Economic challenges, along with slow business growth, have led to an overall stagnation in the economy. Giants like Goldman Sachs, Morgan Stanley, BlackRock, and Deloitte have also faced layoffs during the first half of 2023. This has understandably put financial professionals on edge, and they're rightfully concerned. The question remains: Is this difficult period close to ending, or are we only witnessing the initial stages of a more prolonged struggle?
Global Job Cuts at Notable Companies in 2023
McKinsey & Co - 2,000
Goldman Sachs - 3,200
JP Morgan - 500
Morgan Stanley - 3,000
Deloitte - 1,200
Ernst & Young - 3,000
Bank of America - 4,000
Citigroup - 1,600
BlackRock - 500
UBS/Credit Suisse - 35,000
Declining Investment Banking Revenues
Investment banking deal flow serves as an essential indicator of overall economic conditions. During market booms, investment firms eagerly pursue business acquisitions to capitalize on favorable opportunities. Conversely, when markets falter, investors become more cautious, leading to reduced investments in companies. In early 2022, the investment banking landscape was highly lucrative, with a robust and consistent deal flow. However, the situation took a downturn a year later in early 2023. Fee revenues have dropped by an average of 41%, with some banks, notably: Morgan Stanley, Citi, and BofA, performing even worse. As a result, these banks must consider job cuts to maintain optimal profitability. Interestingly, Barclays stands out as the only top 10 investment bank to defy the norm by having an increase in fees generated compared to its last year.
From Jan. 1, 2023 to March 31, 2023
Job Security in the Financial Services Industry
The unfortunate reality of working in the financial services industry is that job security heavily depends on current economic conditions. Unlike certain career fields such as law enforcement or medicine, which consistently remain in demand, financial professionals face uncertainties during times of business stagnation and unprofitable investments. In response to these challenging circumstances, banks and investment firms must streamline their workforce to avoid overstaffing and unnecessary expenses related to employees.
The year 2008 serves as a compelling example of this phenomenon. The Great Recession dealt a severe blow to the revenues of many financial institutions, resulting in thousands of professionals being laid off. In essence, if the country heads towards a recession, financial professionals are often the first to bear the brunt of its impact.
Outlook on the Current Situation
As of the date of this article, June 30th, 2023, the S&P 500 hovers around $443.15, showing a significant improvement from the $356.56 price on October 12th, 2022, representing a 24.3% increase in just under 9 months. The market is now approaching the peak of $474.96 achieved on December 31st, 2021. Additionally, the CPI (Consumer Price Index), which tracks the year-to-year inflation rate, has (thankfully) descended from its peak of 9.1% in July 2022 to 4.2% in June 2023. These positive trends indicate that the economy is undergoing a strong recovery from the challenges Americans faced during 2022.
If the current trends persist, and economic conditions continue to improve, we can expect minimal layoffs for financial professionals. However, if the economy takes a turn for the worse, as some analysts have predicted, this could just be the tip of the iceberg, and the worst may be yet to come.
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About the Author
Nicholas Mikhael is the founder of Financial Intelligence and Pristine Pools. He is an undergraduate finance student at the University of New Hampshire and in his spare time, he enjoys lifting weights, running, and reading.