Goldman Sachs' immense quarter was achieved with 400 fewer people
Goldman Sachs had an exceptional 1st quarter. The firm's Q1 results, released today, show it generating the second highest net revenues ever. The standouts were the firm's M&A bankers, whose revenues were up 89% year-on-year, and its equities capital markets bankers, whose revenues were up 45% year-on-year, and its equities salespeople and traders, whose revenues were up 27% over the same period.
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These were good times. But good times do not always mean good hiring. In the first quarter, Goldman instead shaved its headcount lower.
The firm ended Q1 with 47,000 people, down from the 47,400 it began the quarter with. The net headcount reduction came after Goldman said it has begun to look at workstreams susceptible to automation by AI. Reuters reported in March that the firm planned to make performance related cuts in April, with a focus on underperformers.
Cutting headcount in the first quarter is nothing unusual for Goldman Sachs. As we noted last year, in the past decade Goldman made Q1 cuts half of the time. However, those cuts were more frequently in the 200 person range. At no point were they above 300 people.
Will Goldman hire more talent as the year progresses? This remains to be seen. The firm said today that its M&A deals backlog declined in the first quarter, suggesting that war in the Middle East might be discouraging activity and may yet dampen enthusiasm for recruiting. However, speaking on today's investor call, Goldman Sachs' CEO David Solomon said corporates are "incredibly engaged" and willing to do deals because "they operate in the long term" and "believe they have an opportunity to drive scale and innovation."
In equities, the most dramatic revenue growth was in prime financing, suggesting churn in largely automated hedge fund business. In fixed income trading, revenues fell across everything from rates to credit to mortgages and only revenues from commodities and FX trading grew.
More headcount reductions may be coming. Business Insider reported in March that Goldman is adopting a different approach to headcount cuts this year. Instead of making one or two rounds of large cuts, the firm reportedly plans to make rolling rounds of cuts for poor performers. Insiders at the bank tell us the firm had hoped for a wave of voluntary resignations after bonuses were paid, but that this didn't happen.
The good news is that Goldman's falling headcount was accompanied by higher spending on compensation. Pay per head rose by 10% in the first quarter as a result.
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