Goldman Sachs starts major cost-cutting drive

NEW YORK • Goldman Sachs is embarking on its biggest cost-cutting push in years as it tries to weather a slump in trading and dealmaking.

The firm, expected to report a steep drop in expenses for the first quarter, recently began dismissing more support staff and is increasingly rejecting executives' spending on airfare, hotels and entertainment unless it directly serves clients, people with knowledge of the matter said.

Chief executive officer Lloyd Blankfein, 61, is trying to ride out a years-long bond-trading slump that is being compounded by market swings and stiffer regulations - challenges that have forced many competitors to scale back.

He already has adjusted his workforce, relying more on junior executives, moving support staff to cheaper locations and investing in technology to improve productivity.

The question is whether his efforts will be enough to satisfy investors when the bank reports quarterly results on Tuesday.

Morgan Stanley analyst Betsy Graseck estimates that Goldman Sachs will say operating expenses fell 29 per cent to US$4.76 billion (S$6.5 billion), the lowest for the start of a fiscal year in a decade. Still, that is not as steep as the 37 per cent drop in revenue expected.

At a conference in February, Mr Blankfein reassured investors that he is keeping an "eagle eye" on expenses and that the firm had more flexibility to reduce them.

"We can do a lot more on the cost side if we have to," he said.

Cost reductions may also come from deferring projects, choosing not to fill open positions and spending less on printing pitch books or brochures, another person said, asking not to be identified discussing internal deliberations.

Ultimately, the latest push to reduce expenses probably will amount to the biggest since 2011, or possibly even earlier, the sources said. In July of that year, the bank announced an initiative to trim more than US$1 billion in costs, including compensation, a plan that entailed cutting 1,000 jobs. By year end, expenses had dropped 14 per cent from the previous year.

JPMorgan Chase and Bank of America, which reported first-quarter results this week, countered their own revenue declines with cost cuts that went deeper than analysts expected.

Goldman Sachs' senior employees have not been immune this year. More than a half-dozen partners have left since the end of last year, though it is not unusual for departures to increase in a year in which a new class is named.

From 2012 through last year, the number of partners and managing directors fell 2 per cent, while the ranks of analysts, associates and vice-presidents rose 17 per cent, Mr Blankfein said in the February presentation. Even as its workforce grew 11 per cent, it cut US$270 million in compensation, the presentation showed.

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A version of this article appeared in the print edition of The Straits Times on April 16, 2016, with the headline 'Goldman Sachs starts major cost-cutting drive'. Print Edition | Subscribe