Goldman gives the heave-ho to 5% of its traders

The bank has just completed its much-feared 'annual review process' - and it's bad news for approximately 1,785 of its traders...

by Emma Haslett
Last Updated: 26 Apr 2011
Here’s one raft of redundancies the Great British Public won’t be shedding a tear over: according to oft-cited ‘sources close to the matter’, investment bank Goldman Sachs laid off 5% of its trading floor earlier this week. The layoffs have come days after one analyst cut his first-quarter earnings estimate for the bank by almost a third, but make no mistake: this isn’t unusual behaviour for the bank. In fact, its annual reviews are legendary in the City...

There are no indications of exactly how many people 5% constitutes, but the company had 35,700 employees at the end of last year, which suggests 1,785 will be let go this year (but you don’t have to be a maths genius to work out not all of those work on the trading floor, so it’s difficult to tell). But although layoffs are usually an indicator that something’s awry in a company, it’s common practice at Goldman. The bank’s rigorous 360-degree peer review process (employees are reviewed by supervisors, colleagues and those they manage) is feared and admired in equal measure by City-types.

The process is fairly well-known in the bank: once they’ve had their review, those on the ‘z-list’, as it’s known, are usually given an indication that they’re for the chop around January, when they get a smaller bonus than usual (although, admittedly, that’s probably the case for most people in the bank’s UK arm this year after pressure from the Government). Many of them then leave before they can be given their marching orders. And 5% is actually less than usual – Goldman tends to chop its bottom 10% on an annual basis. So expect more redundancies to be announced in the near future.

This year, though, the annual cull could be even more brutal than that: Citigroup analyst Keith Horowitz cut his first-quarter earnings estimate for the bank by 29% yesterday, saying pressure during the first few months of the year has lead to weaker-than-usual revenue expectations. But Goldman seems to be faring better than many of its rivals: Horowitz also cut first-quarter earnings estimates for Morgan Stanley, by 72%, and Bank of America, by 34%. He said he’s expecting fixed income trading revenue from the industry as a whole to drop by up to a quarter, while equities trading revenues are expected to decline by 10%. And the disaster in Japan won’t do much to help…

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