Prepare for Recession... Even Goldman Sachs, Exceeding Earnings Expectations, Issues 'Layoff' Warning

by Cho Seulkina

Published 19 Jul.2022 07:43(KST)

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Goldman Sachs, a major U.S. investment bank that reported second-quarter earnings exceeding market expectations, warned that it may not only reduce hiring plans but also take layoffs targeting low-performing employees. As concerns about an economic recession rise, the company is entering a kind of 'tightening' to prepare for it.

According to economic media CNBC and others, David Solomon, CEO of Goldman Sachs, said during a conference call after the second-quarter earnings announcement on the 18th (local time), "Inflation is deeply embedded throughout the global economy," adding, "As volatility and uncertainty are expected to increase, we will carefully manage all resources in the current environment."

Accordingly, Goldman Sachs has begun a thorough review of all future spending and investment plans. This includes slowing down hiring, reducing professional fees, and reintroducing the year-end performance review system for employees, which was suspended during the pandemic.

This judgment is based on the necessity to improve operational efficiency amid increased uncertainty in macroeconomic conditions due to high inflation, interest rate hikes by the U.S. Federal Reserve (Fed), and the war in Ukraine. Earlier, the Financial Times (FT) reported that Goldman Sachs had halted some hiring to replace retired employees.

CEO Solomon expressed concern, saying, "From conversations with global large company CEOs, we have learned that persistent inflation is being observed in supply chains," and "Because central banks around the world continue to tighten financial conditions to combat inflation, volatile asset markets will show instability."

Notably, this warning came simultaneously with Goldman Sachs announcing earnings that surpassed market expectations, drawing attention. Goldman Sachs’ second-quarter earnings per share released that day were $7.73, exceeding the forecast of $6.58. On the New York Stock Exchange, Goldman Sachs’ stock closed up 2.51% compared to the previous session, supported by these results.

On the same day, Apple was also reported to have decided to slow hiring and reduce spending in some departments to respond to the economic downturn. Earlier, Sundar Pichai, CEO of Google, also announced a delay in this year’s planned hiring. Microsoft (MS), Twitter, Tesla, and others have also announced plans for layoffs or reduced hiring.

Meanwhile, the New York stock market turned to a decline in the afternoon as these news were disclosed. In particular, the news that Apple, with a market capitalization of $2.43 trillion (approximately 3,196 trillion won), has also started tightening dampened overall investor sentiment. The Dow Jones Industrial Average closed down 0.69% compared to the previous session. The S&P 500, focused on large-cap stocks, fell 0.84%, and the tech-heavy Nasdaq dropped 0.81%.