Goldman Sharpens Axe

Goldman Sachs is about to embark on a radical overhaul of its business which will require a drastic 10% cut in its highly paid investment banking workforce worldwide.

The scale of the job cuts at Goldman is likely to compound fears about a new wave of costcutting across the City and Wall Street, where business activity has yet to recover from the global economic downturn and the shock of the September 11 terrorist attacks.

Well over 2,000 jobs will go over the coming months, although senior sources at Gold man say the bank is determined not to disclose the full scale of the cuts, arguing that it will only be under an obligation to do so if there is a material impact on its finances.

Nevertheless, the firings will begin in earnest after next week's first-quarter results. The top management of Goldman, which once included Gordon Brown's friend and BBC chairman Gavyn Davies, is understood to have reached the painful decision after a root-and-branch review of every part of its business.

The firm, which ended its partnership structure three years ago with a partial stock market flotation, employs 22,600 bankers worldwide. Some 5,000 of these work in the City where Goldman has seen rapid expansion in recent years.

Retreat now comes after an intensely difficult 2001, during which Goldman resisted pressure felt by its rivals who were quicker to wield the job axe. The bank ended last year with a flat headcount, but has already said it would have to be pragmatic during the current year if trading conditions failed to improve.

Merrill Lynch cut 15% of it its workforce after an unprecedented offer of voluntary redundancy to all its employees, while other major investment banks such as Credit Suisse First Boston - which reports its full year results today - also took radical action to cut staff.

At Goldman, the job reduction measures have already begun with employees leaving in a trickle from areas worst affected by the business malaise.

In some areas of its operations, Goldman's senior managers are preparing to tell staff that two-in-five jobs may go. The areas likely to be hardest hit include parts of the equities operation, such as sales and new issues, as well as in corporate finance, where advisory work on mergers and acquisitions has all but dried up.

The decision to cut jobs is all the more extreme for Goldman as it has traditionally tried to resist redundancies, preferring to reduce bonuses instead. Its last big job reduction programme was in the early 1990s. Goldman refused to comment on the business review.

The impact of slower markets has already taken its toll on the pay packets of its top executives. Henry Paulson, the chief executive, took a 16% cut to his pay packet last year but was still able to take home $18.9m (£14m), including a bonus of $11.6m.

His pay fell less sharply than the firm's overall profitability in 2001, which slumped 29% to $2.3bn as fees from mergers and acquisitions or stock market flotations shrank.

The downturn in the financial sector has already led to drastic action at other investment banks. Some bankers in HSBC's equities division forfeited their bonuses last year yet other members of the investment banking section still received hefty rewards. HSBC's annual report shows that five employees took home more than £4.3m.