From Goldman Sachs to JCB, impact of recession spreads

Investment bank to axe 600 London staff while workers at digger-maker take £50-a-week pay cut to save jobs

October 24, 2008

The cultural and financial gulf between them could hardly be deeper: JCB, maker of bright yellow diggers for muddy building sites – a product so straightforward in function and purpose that every six-year-old boy seems to be a fan – and Goldman Sachs, the sharp-suited alchemists of investment banking, mysteriously creating wealth from nothing but a stack of debt. Or not, as events turned out.

Yet, yesterday, the fates of each were intertwined in a graphic illustration of how the credit crisis has unified unlikely partners in adversity. Both need to cut jobs. Goldman, one of Wall Street's traditional hire-and-fire companies, is ditching 10 per cent of its staff, about 3,200 well-paid employees worldwide, with 600 jobs set to go in Britain. Their average salary is about $500,000 (£310,000) and the most lavishly remunerated have seen well over $30m in their pay packets.

JCB's approach is more down-to-earth, so to speak. About 2,500 staff have agreed to a four-day week and a £50-a-week pay cut. It is an unusual deal. Wages are usually assumed to be "sticky" and resistance to cuts is normally severe, yet Keith Hodgkinson, of the GMB union, declared: "I am delighted we have been able to save 350 jobs."

It is a testament to how desperate times have become, and how rapidly.

The contrast is stark, but events at Goldman Sachs and JCB are both (albeit disparate) symptoms of a single, globalised economic malaise: the onset of recession. Yesterday's retail sales figures confirmed the extent of the downturn – growth slowed to its weakest in two-and-a-half years in September, with the outlook for Christmas looking gloomier by the day. Most economists see unemployment attwo million by the end of the year.

Today sees the publication by the Office for National Statistics of its first estimates for economic growth during the third quarter of the year. They will almost certainly show the economy has entered its first decline since 1992 – a fall of 0.2 per cent in output is expected. Having recorded zero growth in the second quarter, Britain's economy is teetering on the brink of recession.

The once-booming financial services sector is set to tip it over the edge. Hundreds more investment bankers in London are due to lose their jobs as the market shrinks. The Goldman Sachs move can be viewed as a leading indicator that the bank sees already troubled global markets worsening – and bodes ill for City employment prospects. "They are being realistic about the future," said Shaun Springer, chief executive of the head-hunter Napier Scott. "It is as good an indicator as you can get for the job market over the next 12 months."

While the precise number of UK staff facing the axe is still unclear, Goldman has about 6,000 British employees, so there will probably be several hundred redundancies at its London offices in and around the art deco former Daily Express building in Fleet Street. The headcount reduction chimes with a report by the Centre for Economics and Business Research think-tank which, earlier this month, said it expected the number of City jobs to fall by 28,000 this year, with 34,000 more cuts in 2009.

Redundancies are expected across Goldman's businesses and regions. The lion's share of the bank's revenue comes from trading – products ranging from shares and derivatives to oil and electricity. It also provides fee-based services for takeovers and share offerings. Although Goldman cut hundreds of support and junior staff in June, its chief financial officer, David Viniar, said in mid-September that he expected it to have added jobs overall in 2008.

The cuts will add to the thousands of job losses seen in the City this year, as the credit crunch, initially confined to debt markets, has worsened. The Bank of England Governor, Mervyn King, said on Tuesday that "not since the beginning of the First World War has our banking system been so close to collapse," with an "extraordinary, almost unimaginable, sequence of events". One thing is certain: no one believes the job cuts at Goldman Sachs, JCB and many other companies will be the last.

Recession Watch: 1. On the buses

With petrol prices still close to record highs, and the squeeze on consumers' disposableincomes getting tighter by the day, public transport is enjoying a renaissance. Go-Ahead is just the latest in a series of bus and train operators to report soaring demand in recent weeks, with ever more driverschoosing to leave their cars at home. Passenger numbers on its buses have risen by 3 per cent in the past three months alone, Go-Ahead said yesterday, while train ticket sales are up by more than 10 per cent.