Throughout the year, the largest American banks have been discreetly reducing their workforce, and there are still more significant cuts on the horizon. Despite the economy's unexpected resilience, most major banks have trimmed their headcounts or revealed intentions to do so, except for JPMorgan Chase, the largest and most profitable U.S. bank. Due to challenges such as the impact of higher interest rates on the mortgage sector, Wall Street deal-making, and funding costs, the five largest U.S. banks, excluding JPMorgan Chase, have collectively eliminated 20,000 positions this year, as reported in their filings.

These actions follow a period of robust hiring over the past two years during the COVID-19 pandemic, driven by a surge in Wall Street activities. This momentum waned as the Federal Reserve initiated interest rate hikes last year to temper an overheated economy. Banks, as a result, discovered themselves with an excessive workforce for a situation where fewer individuals were seeking mortgages and fewer companies were issuing debt or engaging in acquisitions.

Banks are trimming expenses wherever possible due to the high level of uncertainty expected next year," stated Chris Marinac, Research Director at Janney Montgomery Scott during a phone interview.

The potential job losses in the financial sector could exert additional pressure on the broader U.S. labor market in 2024. Marinac believes that lenders will likely implement more substantial staff reductions next year in response to increasing defaults on both corporate and consumer loans.

"They must identify strategies to prevent further declines in earnings and allocate funds for provisions as loan delinquencies rise," he explained. "By the start of January, you can anticipate many companies discussing this.

Most substantial reductions

Banks regularly disclose their overall employee numbers every quarter. While these aggregated figures don't reveal the detailed dynamics of hiring and layoffs happening within, they provide valuable insights.

The most substantial staff reductions have occurred at Wells Fargo and Goldman Sachs, both grappling with declining revenues in critical sectors. Each of these institutions has trimmed approximately 5% of their workforce throughout this year.

At Wells Fargo, job cuts were initiated following the bank's strategic shift away from the mortgage business in January. Despite having eliminated 50,000 employees over the past three years as part of CEO Charlie Scharf's cost-cutting strategy, the bank's efforts to reduce headcount are not yet complete, as indicated by executives on Friday.

CFO Mike Santomassimo mentioned, "There are very few areas within the company that will be exempt from staff reductions. We still have additional opportunities to decrease headcount, and low attrition rates may lead to additional severance expenses for actions in 2024," he informed analysts.

Layoffs at Goldman Sachs

After multiple rounds of reductions in the past year, Goldman executives have stated that they have "right-sized" the bank and do not anticipate another large-scale layoff like the one implemented in January.

However, the total number of employees is still on a downward trajectory at the New York-based bank. Last year, Goldman reinstated annual performance reviews, and employees categorized as low performers are let go. Over the next few weeks, the bank is expected to terminate approximately 1% to 2% of its workforce, according to an individual familiar with the plans.

The headcount will also decrease due to Goldman's shift away from consumer finance. The company has agreed to sell two businesses – a wealth management unit and fintech lender GreenSky – in transactions set to be completed in the coming months.

One significant factor behind these job reductions is the marked decrease in job turnover within the finance industry compared to previous years, which has resulted in banks having more employees than anticipated.

Morgan Stanley's CEO, James Gorman, remarked on this issue, stating, "Attrition has been remarkably low, and that's a challenge we need to address." The bank has reduced its workforce by approximately 2% this year, largely due to a prolonged slowdown in investment banking activity.

The overall employee numbers can mask the ongoing hiring activities by banks. For instance, although Bank of America's headcount decreased by 1.9% this year, the firm has brought in 12,000 new employees, indicating that a greater number of individuals left their positions.

Citigroup's staff reductions

While Citigroup has maintained a stable staff count of 240,000 this year, significant changes are in the works, as highlighted by CFO Mark Mason in a recent discussion with analysts. The bank has already identified 7,000 job cuts related to $600 million in disclosed "repositioning charges" this year. Furthermore, CEO Jane Fraser's recent plan to revamp the bank's corporate structure, along with the sale of overseas retail operations, will lead to further reductions in headcount in the upcoming quarters, according to company executives. Mark Mason explained, "As we continue to progress in those divestitures ... we'll see those headcounts decrease."

In contrast, JPMorgan stands as an outlier in the industry. The bank has increased its headcount by 5.1% this year, driven by branch network expansion, aggressive technology investments, and the acquisition of the regional lender First Republic, which added approximately 5,000 positions. Even after this hiring spree, JPMorgan still reports having more than 10,000 open positions.

However, JPMorgan appears to be an exception in an industry where others are making cuts. Led by CEO Jamie Dimon since 2006, JPMorgan has effectively navigated the challenging interest rate environment of the past year, attracting deposits and growing revenue while many smaller competitors faced difficulties. It is the only one among the Big Six banks whose shares have shown meaningful growth this year. Analyst Chris Marinac noted, "All these companies expanded year after year. You can easily see several more quarters where they go backward because there's room to cut, and they have to find a way to survive."