The largest U.S. banks have been quietly laying off workers all year — and some of the deepest cuts are yet to come.
While the economy has surprised forecasters with its resilience, lenders have cut workforces or announced plans to do so, with the main exception being JPMorgan Chasethe largest and most profitable American bank.
Pressured by the impact of higher interest rates on the mortgage industry, Wall Street dealmaking and borrowing costs, the next five largest U.S. banks have shed a total of 20,000 positions so far this year, company filings show.
The moves come after a two-year hiring boom during the Covid pandemic, fueled by a surge in activity on Wall Street. That waned after the Federal Reserve began raising interest rates last year to cool an overheated economy, and banks suddenly became overcrowded due to an environment in which fewer consumers sought mortgages and fewer companies issued debt or bought up competitors.
“Banks are cutting back where they can because things are really uncertain next year,” Chris Marinac, research director at Janney Montgomery Scott, said in a telephone interview.
Job losses in the financial sector could put pressure on the broader US labor market in 2024. Faced with rising defaults on business and consumer loans, lenders are poised to make deeper cuts next year, Marinac said.
“They need to find levers to prevent profits from falling further and free up money for provisions as more loans go bad,” he said. “By the time we get into January, you’re going to hear a lot of companies talking about this.”
Deepest cuts
Banks announce their total workforce every quarter. While the numbers collected mask hiring and firing beneath the surface, they are informative.
The deepest reductions have taken place Wells Fargo And Goldman Sachsinstitutions struggling with sales declines in key companies. They have cut about 5% of their workforce so far this year.
At Wells Fargo, the job cuts came after the bank announced a strategic shift away from the mortgage industry in January. And while the bank has laid off 50,000 employees over the past three years as part of CEO Charlie Scharf’s cost-cutting plan, the company is not done cutting its workforce, executives said Friday.
There are “very few parts of the business” that will be spared from cuts, according to CFO Mike Santomassimo.
“We still have additional opportunities to reduce headcount,” he told analysts. “Attrition has remained low, which will likely result in additional severance costs for actions in 2024.”
Goldman Firing
Meanwhile, after several rounds of cuts over the past year, Goldman executives said they had “right-sized” the bank and do not expect another mass layoff like in January.
But headcount at the New York-based bank is still declining. Last year, Goldman introduced annual performance reviews in which people deemed poor performers were cut. The bank will lay off about 1% to 2% of its employees in the coming weeks, according to a person with knowledge of the plans.
Headcount will also decline due to Goldman’s shift into consumer finance; The company agreed to sell two businesses in deals set to close in the coming months: an asset management unit and fintech lender GreenSky.
Pedestrians walk along Wall Street near the New York Stock Exchange in New York.
Michael Nagel | Bloomberg | Getty Images
A key factor behind the cuts is that job growth in the financial sector has slowed dramatically compared to previous years, leaving banks with more people than they expected.
“Attrition has been remarkably low, and that’s something we have to work through,” he says. Morgan Stanley CEO James Gorman said this on Wednesday. The bank has cut about 2% of its workforce this year due to a prolonged slowdown in investment banking operations.
The overall figures obscure the hiring that banks are still making. While the workforce is up bank of America down 1.9% this year, the company has hired 12,000 people to date, indicating an even greater number of people have left their jobs.
Citigroup’s cuts
While Citi GroupThe company’s workforce is stable at 240,000 this year. Significant changes are afoot, CFO Mark Mason told analysts last week. The bank has already identified 7,000 job cuts linked to $600 million in “repositioning costs” disclosed so far this year.
CEO Jane Fraser’s latest plan to overhaul the bank’s corporate structure, as well as the sale of foreign retail operations, will further reduce headcount in coming quarters, executives said.
“As we continue to move forward with those divestitures … we’re going to see those heads come down,” Mason said.
Meanwhile, JPMorgan was the outlier in the sector. The bank grew 5.1% this year by expanding its branch network, investing aggressively in technology and acquiring bankrupt regional lender First Republic, adding about 5,000 positions.
Even after the hiring spree, JPMorgan has more than 10,000 open positions, the company said.
But the bank seems to be the exception to the rule. Led by CEO Jamie Dimon since 2006, JPMorgan has best coped with the rising interest rate environment over the past year, managing to attract deposits and grow revenue while smaller rivals have struggled. It is the only one of the Big Six lenders whose shares have risen meaningfully this year.
“All these companies expanded year after year,” Marinac said. “You can easily see several more quarters where they decline because there is room to make cuts and they have to find a way to survive.”
Don’t miss these CNBC PRO stories:
– CNBCs Gabriel Cortes contributed to this article.