NEW YORK (Reuters) – Goldman Sachs Group Inc (GS.N: Quote, Profile, Research) has shown it is not totally immune to the credit crunch as it makes deeper cuts in its business of arranging loans for leveraged buyouts, people familiar with the situation said.
Sources say there is a significant restructuring under way in Goldman's leveraged finance business, reflecting the lack of big LBOs since credit markets seized up last summer.
These job cuts go beyond the 5 percent cuts Goldman acknowledged last month and the 1,500 across-the-board cuts stemming from year-end performance reviews.
Goldman declined to comment specifically on its leveraged finance business, but affirmed the firm's total headcount will dip temporarily to reflect the current slowdown.
“Given market conditions, we've been looking at a number of areas where we believe we have too many people. We've transferred some people to other areas and other regions, while others have been asked to leave the firm,” spokesman Michael DuVally said.
That said, Goldman maintains it will still end 2008 with its total employment rising by “low single digits.” Goldman had 32,000 employees at the end of November.
Goldman, the largest investment bank by market value, is by far the most active Wall Street firm in the realms of making private equity investments and financing deals struck by big buyout shops.
And while it avoided the crippling losses on subprime mortgages, it has recorded some of the largest write-downs on leveraged loan commitments — $1.4 billion in the first quarter and $1.7 billion in the third as the breakdown in debt markets created a logjam of incompleted deals.
U.S. leveraged loan issuance fell 74 percent in the first quarter versus last year to $54.1 billion, while loans backing LBOs plunged 88 percent to $5.4 billion, according to Reuters Loan Pricing Corp.
Goldman executives have denied they are under any pressure to cut back, citing their impressive record 2007 results and the absence of big write-downs that hammered its rivals.
Yet like the rest of Wall Street, Goldman faces markets expected to remain difficult for the next year or more.
Bankers remain busy working through the pipeline of leveraged loan commitments extended a year ago, and there are still new deals getting done. Goldman, notably, is helping arrange funding for Mars Inc's $23 billion takeover of Wm Wrigley Jr & Co (WWY.N: Quote, Profile, Research).
By Joseph A. Giannone
(Additional reporting by Jennifer Ablan and Faris Khan, editing by Dave Zimmerman)