Goldman Sachs said to cut 10 percent of work force

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(Agencies)
Updated: 2008-10-23 23:37

NEW YORK -- Goldman Sachs Group Inc. is cutting about 10 percent of its work force amid the ongoing downturn in the credit and lending markets, a person briefed on the plan said Thursday.

Goldman Sachs will cut about 3,260 jobs. Goldman's work force, which was at record high levels at the end of the third quarter, will be pared back close to 2006 and 2007 levels. No additional cuts are planned, the person said.

The job cuts are a direct result of the current economic environment and significantly lower levels of business activity, the person told the Associated Press.

Last month, amid the increasing turmoil that saw Lehman Brothers Holdings Inc. file for bankruptcy protection and Merrill Lynch & Co. sell itself to Bank of America Corp., Goldman Sachs along with Morgan Stanley received approval to become bank holding companies.

September was considered one of the worst months during the credit crisis as banks essentially stopped lending money to each other for fear they would not be repaid. The problems intensified when Lehman filed for bankruptcy and the government loaned insurer American International Group Inc. US$85 billion to help it remain in business.

Goldman Sachs and Morgan Stanley made the change to bank holding companies as investors worried the stand-alone investment bank model may no longer be viable. With the new status, Goldman Sachs will likely face increased regulatory scrutiny, which could force it to scale back some of more leveraged and aggressive business units.

The new status also allows Goldman Sachs to grow a large deposit base to help fund its operations, while providing permanent access to borrow money from the Federal Reserve. Before changing its status, Goldman Sachs only had temporary access to that lending option.

Goldman Sachs has widely been considered among the best performing banks amid the ongoing credit and mortgage crisis that began in the middle of 2007. During its fiscal third quarter, which ended Aug. 31, the company's profit fell 71 percent, but that performance was still better than many of its competitors, which have reported quarterly losses throughout much of the year.

Last month, Goldman Sachs struck a deal with Warren Buffett to sell preferred and common stock to Buffett's Berkshire Hathaway. As part of the deal, Buffett planned to invest at least US$5 billion in fresh capital to help Goldman Sachs. The investment could double to US$10 billion.

At the same time, Goldman Sachs issued common stock to raise an additional US$5 billion through a public offering.

Shares of Goldman Sachs fell US$1.71 to US$113 in premarket trading.