A sharp reduction in trading revenues has sparked a panic inside Goldman Sachs (GS) as executives there brace for additional layoffs in the firm’s trading ranks unless business conditions improve, FOX Business has learned.

People inside Goldman’s trading operations -- traditionally the power center of the big Wall Street investment bank -- say the place most vulnerable to cuts is in the firm’s fixed-income trading operations, where business conditions are weakest in large part because of regulatory limits on risk taking.

That’s why people inside Goldman say management is likely to swing the ax further than the constant pruning of the firm’s ranks that traditionally takes place on a regular basis. Buttressing fears of head count reduction: remarks made yesterday by Goldman President Gary Cohn, who admitted the current trading environment is tough and could lead to job cuts.

“What drives activity in our business is volatility,” Cohn said at Bernstein's Strategic Decisions Conference in New York. “If markets never move or don’t move, our clients really don’t need to transact... We’re not just waiting for things to get better.”

Goldman declined to comment.

Goldman has already pruned 10% from its fixed-income trading ranks since 2010 and it recently announced that it will be selling its metal warehouses as the firm attempts to figure out its post-financial-crisis business model. The firm, however, has been reluctant to make wholesale changes to its business model -- which is highly reliant on trading -- even as firms like Morgan Stanley (MS) have shifted toward less capital intensive businesses such as asset management and brokerage.

In the first quarter, trading revenue topped $4 billion, representing 44% of Goldman’s $9.3 billion in total revenue. Fixed-income trading in particular represented roughly a third of  revenues, at $2.9 billion -- almost 50% higher than the $1.9 billion figure for the fourth quarter of 2013, but 14% below the $3.3 billion the unit brought in for the first quarter 2013.

Analyst Dick Bove of Rafferty Capital said that while trading is clearly very important at Goldman, generating more revenue than other businesses, a pickup in mergers and acquisitions activity in recent months could be Goldman’s saving grace.

As of last week, Goldman was leading the pack in global M&A, advising on $598.9 billion worth of deals year to date. Morgan Stanley is second with $556.9 billion and Bank of America (BAC) comes in third with $506.5 billion. JPMorgan (JPM) and Citi (C) round out the top five, according to Thomson Reuters’ latest global M&A league table.

“You are getting these mergers announced about once a day and these guys are handling that,” Bove said. “That’s a very profitable business and stimulates other activity such as financing, broker commissions, as well.  Over the next 6 months, these benefits will show up, making the fourth quarter and first quarter of 2015 look really good.”

Follow Julie VerHage on Twitter @julieverhage.

Charles Gasparino joined FOX Business Network (FBN) in February 2010 as Senior Correspondent.