The big investment banks refrained from announcing further plans to significantly cut their workforce, contrary to expectations, suggesting that Wall Street bonuses may absorb most of the pain in 2011.
NEW YORK ( TheStreet) -- The big investment banks refrained from announcing further plans to significantly cut their workforce, contrary to expectations, suggesting that Wall Street bonuses may absorb most of the pain in 2011. Difficult market conditions roiled third-quarter investment banking and trading revenue for the nation's biggest banks including JPMorgan Chase ( JPM), Goldman Sachs ( GS) and the outlook for the fourth quarter bleak amid ongoing uncertainty in Europe. Expectations that the weakness will ensue for several quarters had spurred talk about impending layoffs on Wall Street, as compensation remains the biggest lever for investment banks to boost profitability. But banks at the moment seem more focused on cutting compensation through bonus reductions rather than shedding jobs. During its third-quarter earnings conference call, JPMorgan Chase CEO Jamie Dimon said the investment banking unit will likely see some "trimming of sails" but there was no major layoff program. Goldman Sachs, which said last quarter it will target 1,000 layoffs as part of a cost cutting program by 2012, did not announce any further headcount reduction plans. The firm shed 1,300 jobs in the third quarter, although 800 of those cuts came from the sale of its mortgage servicing unit. Citigroup ( C) CEO Vikram Pandit said compensation will be calibrated to performance but fell short of announcing any plans to slash jobs. That means traders and investment bankers may see their bonus check shrink significantly in 2011, as banks move to rein in expenses. Although the third quarter saw compensation cuts across the board, the reductions have not been enough to offset the adverse impact of declining revenues on profitability in all cases. Goldman Sachs slashed compensation expenses by 59% in the third quarter from the year-ago quarter in pace with its revenue decline. Still, its compensation-to-revenue ratio is at 44% for the first nine months of 2011, up from 43% in the year-ago period, as revenues have declined at a greater pace. RBC Capital analyst Fiona Swaffield forecasts bonuses at Goldman Sachs to fall by roughly 50% in 2011, as compensation expenses decline 24%.