Big banks quietly laid off thousands of employees and more cuts lay ahead

The largest U.S. banks have been quietly laying off workers throughout the year, and the deepest cuts may be ahead.

Despite the economy's resilience, which has taken forecasters by surprise, lenders, except JPMorgan Chase, the most profitable bank in the U.S., have been laying off workers or announced plans to do so.

Forced by the impact of rising interest rates on the mortgage business, Wall Street trading, and financing costs, the five largest U.S. banks have cut a total of 20,000 jobs so far this year, according to company fillings.

The hiring boom during the COVID-19 epidemic lasted for two years, fueled by a surge in trading activity. The boom subsided last year when the Federal Reserve began raising interest rates to cool the overheated economy, and banks found themselves suddenly overstaffed in an environment where fewer consumers were seeking mortgages and fewer companies were issuing debt or acquiring competitors.

"Banks are cutting costs where they can because things are really uncertain next year," Chris Marinac, research director at Janney Montgomery Scott, said in a phone interview.

Job losses in the financial sector could put pressure on the U.S. labor market in 2024, Marinac said, adding that lenders are poised to make even deeper cuts next year in the face of rising defaults on business and consumer loans. "They need to find levers to keep earnings from falling further and to free up money for provisions as more loans go bad," Marinac said. "By the time we roll into January, you"ll hear a lot of companies talking about this."

Banks publicize their employee totals quarterly. While the aggregate figures mask hiring and firing activity below the surface, they are still informative.

The biggest layoffs have been at Wells Fargo and Goldman Sachs, which are grappling with declining revenue in key businesses. So far this year, the two firms have each laid off about 5% of their workforce.

At Wells Fargo, the layoffs come after the bank announced a strategic shift away from its mortgage business in January. Although the bank has laid off 50,000 employees over the past three years under Chief Executive Charlie Scharf's cost-cutting plan, executives said on Friday that the company was not done laying off employees.

Meanwhile, after several rounds of layoffs last year, Goldman Sachs executives say they have right-sized the bank and don't expect to make any more mass layoffs, as they did in January of this year.

But the total number of employees at Goldman Sachs is still declining. Last year, Goldman Sachs reimplemented its annual performance evaluations, and employees deemed to be underperforming will be laid off. In the next few weeks, the bank will lay off about 1 percent or 2 percent of its workforce, according to people familiar with the matter.

One of the key factors driving the layoffs is that the job-hopping rate in the financial sector has dropped dramatically compared to previous years, which has left banks with more employees than they expected.

"Attrition has been remarkably low, and that"s something that we"ve just got to work through," Morgan Stanley CEO James Gorman said Wednesday. The bank has cut about 2% of its workforce this year amid a protracted slowdown in investment banking activity.

And JPMorgan Chase has become an industry exception. This year, the bank's workforce has grown 5.1%. That's because it has expanded its branch network, invested heavily in technology, and acquired failed regional lender First Republic, adding about 5,000 jobs to its ranks. Even after the hiring frenzy, the bank says it still has more than 10,000 vacancies.

JPMorgan has fared best in the high-interest-rate environment over the past year, able to attract deposits and grow revenue while smaller rivals have struggled. JPMorgan is the only one of the big six banks whose shares have climbed significantly this year.