Goldman Sachs will be left with slightly more than 200 bankers across Asia after the job cuts
The Goldman Sachs Group Inc. (NYSE: GS) plans to cut almost 30% of its 300 investment-banking jobs in Asia, excluding Japan, in response to a combination of factors including slowing regional growth, higher regulatory costs, and tougher competition for deals, as per an article published on Bloomberg on September 24th, 2016. To add to its woes, Chinese securities firms are making inroads into the business of advising companies on cross-border mergers and acquisitions. Post the job cuts, Goldman Sachs will be left with slightly more than 200 bankers across Asia. Most of the jobs cuts are likely to take place in Hong Kong, Singapore, and China, where Goldman’s main Asian offices are located.
The New York-based bank plans to make the cutback of about 75 jobs in the region later 2016, as it faces a major fall in Asia ranking in equity issuance since 2008. Asia ex-Japan equity offerings have declined 29% in 2016, and Goldman’s ranking plummeted to 11th from 2nd in 2015; its lowest rank in about eight years. The bank is also reducing the number of bankers working on mergers and acquisitions (M&A), and equity and debt capital markets deals. Earlier in July 2016, Goldman said that it had embarked on a cost-cutting plan that would save $700 million a year in response to the challenging scenario.
Top brass at Goldman Sachs plan exit
The massive job cuts have added to the jittery sentiment and uncertainty among the bank’s employees. Hence, it comes as no surprise that Goldman Sachs Group’s head of Southeast Asia, Michael Smith, is planning to leave after 10 years at the firm, as reported by Bloomberg on September 27th, 2016. Smith, a partner who also heads the real estate team in Asia, has managed some of the biggest real estate deals in Singapore, including the initial public offerings of Mapletree Investments Pte’s industrial, commercial, and Greater China units during the past six years.
Asia Pacific Investment Banking Solutions head Anthony Miller is also planning to depart the bank after 15 years with the firm. He was appointed to his current position in 2014. In early 2016, Goldman’s Southeast Asia chairman Tim Leissner quit the company.
Goldman Sachs’ ranking plummets
Goldman Sachs’ ranking in advising on deals in the region rose to 3rd in 2016 from 14th in 2015. It advised on transactions including Alibaba Group Holding Ltd.’s $1 billion purchase of a controlling stake in Lazada Group S.A. as well as Medco Energi Internasional Tbk’s purchase of a stake in an Indonesian oil and gas block owned by ConocoPhillips.
However, Goldman Sachs has been slipping in the ranking for investment-banking fees in Asia. Having occupied the number one slot in 2014 and 2015, the bank is ranked fourth for the period up to September 25th, 2016, with fees of $319 million compared to $477 million in 2015, as per Bloomberg.
In Q2 FY16, Goldman Sachs’ investment banking revenue fell 11% to $1.79 billion, being hit by a lackluster environment for deals across Asia. The total value of M&A deals across the Asia/Pacific region has dropped to $572.9 billion so far this year, from $745.7 billion in the same period of 2015. About $78 billion of M&As have been announced in Southeast Asia so far in 2016 compared to $94 billion in the same period last year, according to Bloomberg.
The company also has come under scrutiny of authorities for its role in underwriting $6 billion of bond sales for 1MDB, the Malaysian government fund that is being investigated for suspected corruption and money laundering. Chinese securities firms are also mounting pressure on Goldman Sachs in Asia, with mainland companies occupying 7 of the top 10 positions in advising on Hong Kong IPOs in 2016.
Global investment banks tighten belt
Global investment banks have reduced headcount to trim costs after reporting declines in profit this year. UBS Group AG (NYSE: UBS) cut senior management ranks in the region, removing an Asia investment banking co-head position in July 2016, after its pretax profit slumped 48% in Q2 FY16. Nomura Holdings Inc. (NYSE: NMR) and Macquarie Group Ltd. (OTC US: MQBKY) also cut jobs as part of their downsizing measures.
Goldman and other big investment banks are grappling with a harsh environment after the region’s economies and markets failed to deliver sustained growth after the 2008 financial crisis. The banks’ business has also been eroded by local competitors. In 2015, Goldman reduced the number of its investment bankers in Singapore to about 35 from 50. Goldman employs just over 100 bankers in China, where it was one of the first foreign investment banks to start operations. Like other banks, it has also been hit by a drop in Chinese trading volumes and competition from local banks.
Barclays PLC (NYSE: BCS) said in January that it would cut about 1,000 staff in its investment bank operations worldwide, with the bulk happening in Asia, while Societe Generale (OTC US: SCGLY) decided to close its equities research desk in India. Other European banks including BNP Paribas S.A. (OTC US: BNPQY) and Deutsche Bank (NYSE: DB) are expected to scale back operations in non-core Asian markets. In 2015, Asia-focused Standard Chartered PLC (OTC US: SCBFF) shut down its equities franchise.
Goldman Sachs also told U.S. regulators earlier in 2016 that it plans to eliminate 15 positions in New York before the end of this year to reflect slower trading and investment-banking activity. Goldman Sachs has cut jobs at least four times so far in 2016, with prior announcements informing New York officials of 408 dismissals. The bank has also extended cutbacks in its fixed-income division to roughly 10% of staff.
Goldman Sachs’ stock stood at $163.45, gaining 0.34%, at the close on Wednesday, September 28th, 2016, having vacillated between an intraday high of $163.79 and a low of $161.68 during the session. The stock’s trading volume was at 1,677,707 for the day. The Company’s market cap was at $66.27 billion as of Wednesday’s close.