Whatâs Going On Here?Investment banking giant Goldman Sachs is set to make the biggest set of cost cuts since the financial crisis, according to news out on Wednesday. What Does This Mean?Goldman Sachs isn't your average Joe when it comes to banking: the firm focuses on bonanza corporate deal-making and securities trading, and doesnât bother lending peanuts to typical punters like the rest of us. Problem is, even Goldmanâs pro trading clients are now sitting on trembling hands, and fearful firms have no desire to pour piles of cash into big deals in this environment. Goldman, then, has resorted to some extremely unglamorous tactics: the firmâs slashing 3,000 jobs (tweet this), cutting back on hoity-toity office supplies, and selling off private jets â grab the worldâs smallest violin, stat. Why Should I Care?For markets: Business as usual.
Wall Street is known for slicing costs faster than you can say "recession" whenever the economy starts to slide. After all, the investment banking industry tends to feel the economic pain before other sectors. And believe it or not, Goldman has a reputation for being tight with a dollar, shedding underperforming staff each and every year. So, after a hiring frenzy in recent years, this news isnât exactly from left of field.
The bigger picture: Tech's watching its figures.
Profit matters a lot in banking, because high margins have to compensate for the fact the industryâs a slow grower. But that hasnât been the case for the fast-moving tech industry: there, investors are usually happy to overlook profit, so long as sales are motoring along. So itâs interesting that even tech firms are now slashing costs and keeping an eye on their profit margins. Investors may think it's a smart move to trim some fat, but if the slimming session is really a sign of slower growth in the future, theyâre likely to demand a full-blown hack, not just a trim. | 