Layoffs, Pay Cuts and Restructuring Across Global Banks
Investment banks respond to shrinking deal volumes
Several of the world’s largest investment banks are cutting headcount after missing profitability targets and facing compliance gaps. Bonus pools are reportedly being reduced by up to 30%.
Goldman Sachs and Morgan Stanley
Goldman Sachs is expected to cut up to 4,000 roles, representing just over 8% of its workforce. Morgan Stanley has already eliminated around 1,600 positions, nearly 2% of its staff. CEO James Gorman described the cuts as “modest” following years of expansion. Both banks increased hiring at double‑digit rates after 2020.
Why the cuts are happening
Dealogic and the Wall Street Journal report a dramatic contraction in global IPO activity:
- Global IPO volume down 72% year‑on‑year to £137.2 billion
- US IPOs down 94% to £14.1 billion
- European IPOs down 85% to £13.1 billion
The Federal Reserve’s increase in the federal funds rate to 4.5% has further depressed capital markets activity. Investment banking revenue has fallen:
- 43% globally
- 51% in the US
- 36% in Europe
With deal flow evaporating, banks are shrinking to match the opportunity set.
Home lending slowdown
The mortgage sector has also contracted. Wells Fargo cut hundreds of home‑lending roles after its third‑quarter revenue dropped nearly fourfold year‑on‑year. JPMorgan Chase made similar reductions in June 2022.
JPMorgan’s CEO warned in mid‑2022 of an “economic hurricane”. His prediction continues to resonate.
European banks follow suit
Deutsche Bank cut dozens of roles at the start of the fourth quarter. Barclays eliminated around 200 banking and trading positions in November.
Credit Suisse is undergoing the most dramatic restructuring. After reporting a £3.36 billion net loss in the third quarter, more than seven times analyst expectations, the bank announced:
- A £608 million litigation cushion
- A £407 million settlement with the New Jersey Attorney General
- A £790 million loss and £3.8 billion charge linked to Archegos
Its strategic review resulted in:
- 2,700 job cuts in late 2022
- A further 6,300 cuts planned by 2025
Branch closures in the UK
HSBC will close 114 UK branches in 2023, eliminating around 100 roles. Lloyds Banking Group plans to close more than 70 branches. The shift reflects increased mobile and online banking usage.
Regulatory Action, AML Failures and Criminal Trials
US regulators demand improvements to “living wills”
The Federal Reserve and Federal Deposit Insurance Corporation have ordered Credit Suisse and BNP Paribas to revise their resolution plans under the Dodd‑Frank Act. Credit Suisse must improve cash‑flow forecasting and governance. BNP must strengthen its securities repurchase agreement processes. Both banks must submit revised plans by June 2023.
Danske Bank’s historic guilty plea
On 13 December, the US Department of Justice, working with the Securities and Exchange Commission, announced that Danske Bank pleaded guilty to conspiring to commit fraud against a US bank.
Between 2008 and 2016, Danske Bank Estonia enabled high‑risk, non‑resident customers, including individuals in Russia, to funnel more than £130 billion of suspicious funds through the US financial system by circumventing AML controls.
Penalties include:
- £1.6 billion forfeiture
- £340 million SEC settlement
- £410 million fine from Danish regulators
Danske must also implement a significantly enhanced compliance programme.
UK enforcement intensifies
Metro Bank was fined £10 million by the Financial Conduct Authority and £5 million by the Prudential Regulation Authority for misleading investors about risk exposure.
Santander received a nearly £108 million FCA fine for persistent AML failures between 2012 and 2017. These failures affected oversight of more than 560,000 business accounts, allowing nearly £300 million to pass through poorly managed accounts.
Germany escalates AML pressure
German regulator BaFin ordered Deutsche Bank to implement specific measures to prevent money laundering and terrorist financing. BaFin has threatened further penalties if the bank fails to comply.
Cum‑ex scandal reaches criminal sentencing
A landmark trial in Germany delivered new convictions in the cum‑ex tax fraud scandal. Three former Maple Bank bankers, including the former managing director, were found guilty of tax evasion and aiding tax evasion. Their trading structures deprived German taxpayers of nearly £400 million.
The judge described their conduct as showing “considerable criminal energy”. Each defendant received an average sentence of 4 years. It is one of the largest tax fraud cases in Germany since World War II.
Conclusion
The banking sector is entering a period of contraction, scrutiny and enforcement. Layoffs, restructuring and regulatory pressure will generate significant legal work across:
- Employment
- Financial regulation
- Litigation
- Restructuring
- White‑collar crime
- AML compliance
Students and practitioners should monitor developments closely. The next phase will shape the legal market for years.
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