Wall Street is paying the price for walking back its pandemic hiring spree, with the biggest US banks spending more than $1bn on severance costs in the first half of this year.
Goldman Sachs, which has been hit particularly hard by a slowdown in trading and investment banking, is the latest to take a charge for recent job cuts. Yesterday, it told investors it had spent $260mn in severance costs in the first six months of 2023. The bank has laid off about 3,400 employees, or about 7 per cent of its overall staff, this year.
On Tuesday, Morgan Stanley, which has let about 3,000 employees go this year, said it had spent more than $300mn on staff reductions. Citigroup last week said severance cheques had added $450mn to its expenses. The bank announced last month that it had nearly completed 5,000 job cuts.
“I think there is going to be more right-sizing in investment banking,” said Michael Karp at Options Group, a Wall Street headhunter. “For the rest of the year, it’s going to be a fire-two-to-hire-one situation at most of the big firms.”
Deutsche Bank: The German lender has been fined $186mn by the US Federal Reserve over a “material failure” to fix “unsafe and unsound banking practices” which the bank had promised to sort out as early as 2015.
Here’s what else I’m keeping tabs on today:
FedNow: The Federal Reserve will launch its new real-time payments system called FedNow that will enable Americans to move money in a matter of seconds. The system is the biggest upgrade to the country’s financial plumbing in decades.
Earnings: Johnson & Johnson will kick off earnings season for the pharmaceutical industry, and report quarterly results for the first time since it spun off its consumer business, Kenvue. Analysts anticipate J&J to have earned $1.97 a share in the quarter, which would represent 9 per cent in annual profit growth.
Economic data: Initial US state unemployment claims, considered a proxy for lay-offs, are expected to have ticked up to 242,000 last week from 237,000 the week before. Meanwhile, existing home sales for June are forecast to have declined to 4.2mn from 4.3mn in May.
Five more top stories
1. Foreign inflows to Asian emerging equity markets outside China surpassed the world’s second-largest economy for the first time in six years to reach $41bn. This outstripped net inflows of about $33bn into mainland Chinese equities via Hong Kong’s Stock Connect trading scheme, according to Goldman Sachs data. Here’s our full analysis.
China billionaires: The country’s typically low-profile tycoons, including Tencent founder Pony Ma, have issued similar statements praising the government’s pivot away from cracking down on private enterprises.
2. Tesla’s profit margins slipped in the latest quarter after a series of price cuts this year but still performed better than analysts’ forecasts. Chief executive Elon Musk suggested there could be more price reductions to come for the electric-car maker, which reiterated its goal of selling 1.8mn vehicles this year.
3. A crackdown on password sharing helped Netflix add nearly 6mn subscribers, more than double what analysts had forecast and validating the streamer’s strategy to shore up its business. But the company’s shares dropped by more than 8 per cent in post-market trading after revenues fell short of expectations.
4. Exclusive: More of EY’s work outside the US is failing inspections by American regulators. The firm estimates inspections have uncovered deficiencies in up to 38 per cent of the audits done by its overseas businesses last year. This would be a big jump from 21 per cent in 2021. Here’s why regulators are alarmed.
5. Wirecard’s former second-in-command Jan Marsalek has claimed the company’s Asia operations are still active. German authorities believe the company’s Asia division was fraudulent, but Marsalek claims the section of the business was resilient and at one point did not depend on Wirecard at all for sales, finance or technology.
News in-depth
When Meta launched its new social network Threads earlier this month the man in charge of the platform, Instagram boss Adam Mosseri, said it was “not going to do anything to encourage” news on the platform. More widely Meta is trying to move away from supporting news. The company is currently in a stand-off with the Canadian government over pulling news-related content from the region just as the country mandated publishers are paid when their work is used.
We’re also reading and watching . . .
Military briefing: Russia’s vast and dense minefields have posed the most daunting obstacle yet for Ukraine’s counteroffensive.
The Taylor Swift effect: Rivalry between Hong Kong and Singapore has always been hot, but tour plans by pop stars are throwing a new light on the competition between the two cities.
Online reviews: There are three kinds of lies on the internet, writes Jemima Kelly: lies, damned lies and one-to-five-star ratings.
🎬 Crispin Odey: Watch the FT’s film on the fall of one of Britain’s most successful hedge fund managers in a story of greed, secrecy and alleged abuse.
Chart of the day
While it’s economy has had a sluggish start to the year China has been importing record volumes of oil, primarily from Russia. Analysts are divided over exactly why: Beijing could be worried about geopolitical tensions threatening its energy security, or it could just be taking advantage of cheap costs while it can.
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Take a break from the news
On July 10 a volcanic fissure in Iceland began spewing lava, within 24 hour authorities had opened a footpath that tourists could trek to take selfies next to the eruption. Take a look inside the growing tourist trend of watching volcanic activity live.
Additional contributions by Tee Zhuo and Benjamin Wilhelm
Source: Economy - ft.com
