Bank employees from many investment banks are being added to the list of layoffs in the US economy, despite the news of profitability in the banking industry. On March 18th, Goldman Sachs became the newest investment bank to add workers to the rolls of the unemployed as they intend to layoff up to 2000 employees from their overseas offices.
Citigroup recently cut Goldman Sachs first quarter profit estimates by one-third, as payouts to Warren Buffett for his preferred shares will be expensed in their next balance sheet, and a downturn in the bond industry is likely to add further cuts to the investment bank’s revenues.
The banking industry was one of the few areas in the economy that actually hired workers after the initial layoffs from the credit crisis of 2008. Although massive job cuts took place when Lehman Brothers, Morgan Stanley, and Bear Stearns all closed their doors, or were acquired in deals by other banks, institutions such as Goldman Sachs and Citigroup began hiring in earnest as the stock market recovery began to emerge in 2009.
Now however, the economy seems to have ground into a potential stagflationary direction, with little growth in manufacturing and industry to help alleviate the tens of millions of unemployed who have not re-entered the work force in nearly three years. The scare of the credit crisis, coupled with the Federal Reserve’s dropping of the discount borrowing rate to nearly 0%, have led banks to spend their money investing in the bond markets, and instead, refrained from lending to small business.
Now that the bond markets have been saturated, and appear to be a ‘bubble’ like the housing industry was five years ago, banks are losing profitability in these investments, and are once again moving towards layoffs and restructuring.
Goldman Sachs reported that these job cuts however have nothing to do with the economic turmoil taking place in the Middle East and Japan, but instead are a simple re-evaluation of their business model in different investment areas of the company. While this may have a small semblance of truth, the fact that Goldman Sachs has profited immensely through Federal Reserve monies, and regulatory protection by the government which most banks and businesses did not have access to, gives a much stronger indication that the economy may be headed back down into a recessionary landscape.
As many Americans are still trying to look for work three years after the credit crisis of 2008, the one industry that received the most help from the government is now itself beginning to layoff workers. Bank employee layoffs are starting to occur even with recent evidence of profitability by the banks that hired them, and Goldman Sachs may be just the beginning of a tidal wave of worker job cuts in the rest banking industry.