"Citigroup Also Lays Off 1,600 Employees"…Layoff Tsunami Hits Wall Street

A fierce wave of layoffs is sweeping through Wall Street in the United States. As the recession in corporate finance sectors such as mergers and acquisitions (M&A) and initial public offerings (IPO) deepens due to high-intensity tightening and economic slowdown, banks are continuing their efforts to downsize.

According to Bloomberg on the 14th (local time), Mark Mason, Chief Financial Officer (CFO) of Citigroup, announced that a one-time cost of $400 million (about 510 billion KRW) related to layoffs will be reflected in the second quarter earnings this year.

He attended the Morgan Stanley conference held in New York that day and stated that the layoffs of 1,600 employees are expected to be completed by this month, with the investment banking (IB) and trading divisions being mainly affected by this round of layoffs.

He also mentioned that due to market contraction caused by uncertainties such as the U.S. debt ceiling negotiations, earnings are expected to decrease by about 20% so far (based on the second quarter of this year). In particular, the IB division, which has been hit hard by the high-intensity tightening that began last year, saw its earnings plunge by 25% during this period.

David Solomon, CEO of Goldman Sachs.
Photo by AP Yonhap News

As Wall Street faces the worst recession ever due to high interest rates and liquidity shortages, firms heavily reliant on IB division earnings, such as Morgan Stanley and Goldman Sachs, are conducting high-intensity restructuring by cutting thousands of employees in response to deteriorating performance.

Goldman Sachs, the largest IB in the U.S., has been conducting additional workforce adjustments involving about 250 employees since last month. This follows the largest layoff in its history of 3,200 employees in January, marking another round of layoffs just four months later. As a result of this layoff, Goldman Sachs’ global workforce is expected to shrink to 45,000 employees.

Goldman Sachs, a representative of Wall Street, has embarked on high-intensity tightening due to a significant deterioration in earnings in its core corporate finance division amid recession concerns. Goldman Sachs did not benefit from the positive effects of high interest rates and deposit outflows from regional banks, resulting in a net profit of $3.23 billion in the first quarter of this year, down 18% from the same period last year. In particular, net profit in the corporate finance division plunged 26% compared to the same period last year.

Morgan Stanley also conducted a second round of layoffs last month, cutting 3,000 global employees (about 5% of the total workforce) just five months after laying off 1,600 to 1,800 employees (about 2% of the total workforce) in December last year. The layoffs are expected to be completed by the end of this month.

[Image source=AFP Yonhap News]

Meanwhile, the U.S. central bank, the Federal Reserve (Fed), held the federal funds rate steady at 5-5.25% as expected on the same day. This marks the first pause in rate hikes by the Fed, which had raised rates 10 consecutive times from March last year through May this year.

However, the Fed raised its year-end rate forecast to 5.6%, confirming that the tightening cycle is not yet over. This is significantly higher than the 5.1% year-end rate forecast on the March dot plot.

In its monetary policy statement, the Fed added the phrase, "We will assess the additional effects of cumulative tightening and policy implications through this pause." Although the Fed provided a hawkish guide, experts expect that the tightened real and financial environment will continue even without a nominal increase in the benchmark interest rate.

This content was produced with the assistance of AI translation services.