Goldman Sachs Culls Equities Jobs and Office Space

Goldman Sachs is cutting costs and boosting its return to investors by culling jobs and paring back office space in Tokyo.

According to unnamed sources cited by Reuters, Goldman Sachs is targeting most of its annual 5 percent job cull in the equities trading unit, rather than the fixed income business which delivered a major increase in revenue year-on-year.

For 2012, Goldman Sachs' net revenues in fixed income, currency and commodities client execution increased by 10 percent from the previous year to reach $9.91bn (€7.6bn / £6.5bn). However, net revenues in equities remained essentially unchanged year on year at $8.2bn for 2012.

Goldman Sachs employees 32,400 people around the world and has cut its workforce by 9 percent over the last two years.

According to its last earnings statement, despite decreasing its total staff by 3 percent in 2012, compensation and benefits expenses including salaries, discretionary compensation, amortization of equity awards and other items such as benefits, rose by 6 percent on the year at $12.9bn.

But the ratio of compensation and benefits to net revenues for 2012 pleased investors as it stood at 37.9 percent compared with 42.4 percent for 2011.

Goldman Sachs would not comment directly on the job cuts but it did tell IBTimes UK "As market activity has picked up in certain areas, we remain focused on prudently managing expenses and allocating resources to ensure we are best able to meet our clients' needs and generate good returns for our shareholders."

Meanwhile, the investment bank is also looking to cut its Tokyo office space as it seeks to reduce expenses.

The investment bank rents six floors of the Mori Tower in the Roppongi Hills office complex and is in discussions with Mori Building Co. to vacate two levels.

Goldman Sachs did not specify whether this was part of a cost cutting plan but a spokesperson told IBTimes UK that "this is part of a planning process to optimize our space."

Despite a clear deceleration in prime rents in regions in Asia, Tokyo ranked the 5th most expensive office location in the world, according to a recent research report by real estate group Cushman & Wakefield, titled Office Space Across the World 2013.

The Cushman & Wakefield report also added that prime rent prices are set to recover in 2014 and, while slower economic growth affected Asia prime rents rose 3 percent last year.

While Goldman reported net revenues of $34.16bn, and net earnings of $7.48bn last year, reports indicate the cost cuts are more likely to filter into increased return to investors as the return on average common shareholders' equity (ROE) is still below the pre-crisis levels of 30 percent.

Last year, Goldman Sachs delivered a ROE at 10.7 percent and diluted earnings per common share were $14.13 compared with $4.51 the previous year.

Harvey Schwatrz, who became Goldman Sach's Chief Financial Officer in January this year, said in an investor call that "I think the industry will migrate to higher returns because they will have to," adding that it might be "a question of excess capacity coming out of the industry over a period of time."

He also added that laying off more workers may be the way for banks to generate higher ROE as it shows how much profit banks can squeeze from their balance sheets.