FirstFT: Biggest US banks spend more than $1bn on severance costs

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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 go about 3,000 employees 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 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:

• New Zealand: Three people, including the gunman, were killed and several injured after a shooter opened fire in Auckland. New Zealand’s prime minister has said the Women’s World Cup, which begins today in the capital, will proceed as planned.

• Turkey interest rate decision: Turkey’s central bank could make one of its biggest-ever pivots today as the country’s new economic leadership shifts away from President Recep Tayyip Erdoğan’s unorthodox policies.

• UK politics: Prime Minister Rishi Sunak has attempted to rally Tory MPs as his party is braced for crushing by-election defeats today.

• Results: Johnson & Johnson, Marsh & McLennan, Philip Morris International and SAP report.

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.

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. The EU will reject US deals to resolve a steel dispute if they flout global trade rules, the bloc’s trade commissioner Valdis Dombrovskis has warned ahead of a meeting with his US counterpart to discuss the issue today. Without a deal, tariffs that have been lifted temporarily would return in December along with retaliatory measures from Brussels. Read the FT’s full interview with Dombrovskis.

The Big Read

A looming 2038 deadline for Germany’s coal-fired power plants to be switched off poses an existential challenge for Leag and its roughly 7,000 workers. The coal giant has made an unlikely pledge to reinvent itself as a renewable energy powerhouse, but the stakes go beyond its fate to the prosperity of the Lausitz region where it is based — and the success of the energy transition in Europe’s largest economy.

We’re also reading and watching . . .

Chart of the day

After months of disappointing data, yesterday’s unexpected drop in UK consumer price growth for last month has led to cautious predictions that the country’s inflation crisis has reached a turning point, with most analysts expecting the rate to continue declining.

Take a break from the news

Greta Gerwig’s Barbie film is a seamless blend of infectious, Day-Glo wit. It peers into the chasm between the have-it-all vision of femininity sold to little girls by the doll’s maker Mattel and the grinding, impossible choices that face many adult women, writes Danny Leigh in his 4-star review.

Additional contributions by Benjamin Wilhelm and Gordon Smith