Monday, November 24, 2008

BANKING NEWS - AIBEA - 23 & 24.11.2008

Financial giant Citigroup cuts 53,000 jobs
By Jerry White , 18 November 2008
The world’s largest financial conglomerate Citigroup announced plans on Monday to slash 53,000 banking jobs over the next several months. The job cuts are in addition to the 22,000 positions the company eliminated last year.
After four consecutive quarterly losses—including a $2.8 billion decline in the third quarter—company executives more than doubled the head count reductions they announced just last month. By early next year, the company is expected to reduce its worldwide workforce to 300,000, down 20 percent from a high of 375,000 workers in 2007.
About 21,500 people will be directly laid off according to the Wall Street Journal, with the remaining positions axed through the selling of various business units. The bulk of the job cuts are expected at the bank’s main operations centers in New York City and London, but the impact will be felt worldwide.
Some 12,500 jobs will be lost through the pending sale of Citi Global Services Ltd., an Indian business unit that handles processing and other “back-office” operations. Another 5,600 positions will be eliminated through the sale of the firm’s retail banking operations in Germany.
Citigroup is one of the most powerful and politically-connected financial institutions in the world. Its director is Robert Rubin, the former Treasury Secretary under the Clinton administration who played a critical role in the deregulation of the banking industry during the 1990s.
And just last year, the banking giant was forced to write off $11 billion in toxic mortgage-backed assets. It then became one of the first nine banks chosen by Treasury Secretary Henry Paulson for a cash injection from the $700 billion Wall Street bailout, receiving $25 billion in taxpayer funds.
Monies received from the bailout, including that received by Citigroup, have chiefly been used to buy up smaller institutions and consolidate power in the hands of four mega-banks—JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup itself. This is resulting in a rationalization of the industry and the destruction of tens of thousands of banking jobs.
Banks and other financial institutions have already wiped out more than 166,000 jobs worldwide since the collapse of the credit markets. According to a September article in the New York Times, the credit-rating agency Moody’s had predicted that 45,000 to 65,000 financial workers in the New York area would lose their jobs by the middle of 2010. Now Moody’s is predicting that 70,000 employees will suffer such a fate, even while accounting for the fact that some of these workers will find new positions.
Citigroup—whose share values have fallen to single digits for the first time in over a decade—saw its shares fall 6.6 percent on Monday, while competitor Bank of America dropped 8.5 percent on continuing signs of a deep and protracted economic downturn. The Dow Jones Industrial Average ended 223.73 points lower on Monday, down 2.6 percent to 8273.58.
In its latest survey, the National Association for Business Economics said the US was in for a “prolonged” recession dragging well into 2009. It predicted that fourth-quarter growth results would show that the economy had contracted for the second consecutive quarter—meeting the official definition of a recession—but acknowledged that 96 percent of the economists it had surveyed said the US had already entered one.
Meanwhile, the Japanese economy entered its first recession since 2001, as third quarter results showed a second consecutive contraction of GDP. The collapse of demand in the US and other countries has sharply hurt export-oriented industries in Japan, as it has in Germany, which announced last week that it too had joined the growing list of countries officially in recession.
And in the US, gloomy retail sales, falling consumer demand and a collapse of manufacturing activity all point to a deepening economic crisis. Big box retailer Target and the home improvement chain Lowe’s saw revenues fall 24 percent each, as rising unemployment, falling home values and tight credit markets squeezed consumers.
The Federal Reserve said industrial production rose 1.3 percent in October, a bigger gain than expected. However, the slight increase was relative to a downwardly revised tally for September, when production registered its steepest drop in 62 years. "Manufacturing activity, which cushioned the economy earlier in the year on the strength of exports, appears to have plunged into a deep recession," wrote economists John Ryding and Conrad DeQuadros of RDQ economics.
Meanwhile, auto parts companies have joined Detroit’s Big Three automakers—General Motors, Ford and Chrysler—in seeking a portion of the $700 billion government bailout. Economists predict that if one or more of the automakers were to fail, some three million jobs could be wiped out throughout the economy. Congress is holding discussions on the bailout under conditions of a growing consensus—reiterated by President-Elect Barack Obama in his “60 Minutes” interview Sunday—that any government aid package would be contingent on auto workers accepting sweeping wage and benefit concessions.
The economic downturn is already taking a massive social toll. The number of personal bankruptcy filings jumped almost 8 percent in October over the previous month—after increasing sharply over the last two years—according to Mike Bickford, president of the Automated Access to Court Electronic Records, a bankruptcy data and management company.
The New York Times reported that bankruptcy filings totaled 108,595 last month, surpassing 100,000 for the first time since a law that made it more difficult and expensive to file for bankruptcy took effect in 2005. That translated to an average of 4,936 bankruptcies filed each business day last month, up nearly 34 percent from October 2007.
“Not only are filings up,” the newspaper reported, “but recent filers have had much more credit card debt, often run up in an attempt to keep current on a mortgage that now exceeds the value of their home, bankruptcy lawyers said in interviews. A recent study found that the typical family who filed for bankruptcy in 2007 was carrying about 21 percent more in secured debts, like mortgages and car loans, and about 44 percent more in unsecured debts, like credit cards and medical and utility bills, than filers in 2001.”
The sharpest increases in bankruptcies were in states where real estate prices have fallen the furthest, including Nevada, California and Florida. In Nevada and California, filings were up 70 and 80 percent respectively over last year.
As tens of millions face the loss of their jobs, homes and financial ruin, years of budget cutting by Democratic and Republican administrations have left the population with little if any government safeguards against destitution. While the current downturn is already developing into the worst seen since the early 1980s, the social safety net that existed then has largely been eliminated.
The Center for American Progress and the National Employment Law Project issued a report Friday noting that tighter restrictions on jobless benefits mean that just 37 percent of unemployed Americans are receiving such benefits today, down from 42 percent during the 1981-82 recession and 50 percent during the 1974-75 downturn.
The report also noted that under conditions in which 1.2 million people have lost their jobs this year, unemployed workers receive a maximum of only 39 weeks of benefits, down from 65 weeks in the 1970s. The average weekly benefit is $293, an amount that only ensures poverty.
Moreover, as a result of the gutting of welfare programs under the Clinton administration and the imposition of tougher restrictions by state governments, just 40 percent of poor families who qualify for public assistance today actually end up receiving it, compared with 80 percent in the recessions of 1981-82 and 1990-91, according to the Center for Budget Policy and Priorities.

Citigroup's Worries Mount
The bank's sinking shares indicate investors have lost confidence in CEO Vikram Pandit and it may be headed for a sale or another bailout
By Mara Der Hovanesian
Investors are quickly losing faith in Citigroup (C). Shares of the company, once the largest and mightiest U.S. bank by assets and market value, have fallen 66% in November, and finished down 1.85, to 4.55, on Nov. 20. The last time the shares traded that low was 14 years ago. While the stock sank, the price soared on its credit default swaps, which measure the cost of insuring Citi's debt—another worrisome sign. The market woes are raising speculation that some sort of government intervention or major outside investment may be necessary.
Says William Fitzpatrick, an equity analyst at Optique Capital Management: "Clearly the solvency issue is back on the table."
Citi is doing its best to calm investors, reiterating that the bank isn't in critical condition. Citi issued a formal statement on Thursday, Nov. 20, saying that it "has a very strong capital and liquidity position and a unique global franchise. We are focused on executing our strategy, including our targeted expense and legacy asset reductions, and we believe the benefits will be seen over time."
Saudi Prince Pledges Support
Indeed, Citi has bolstered the capital on its books in recent weeks. Less than two weeks ago, the bank—which is now fifth-largest in terms of assets—received $25 billion from the federal government, one of nine commitments made to large banks for a piece of the $700 billion bailout. Citi also received new assurances from Saudi Prince Alwaleed bin Talal, once the bank's largest shareholder, who said publicly he intended to increase his stake by $350 million, to 5%, from less than 4%, and pledged "full and complete support to Citi management."
After the Nov. 20 market close, analyst Richard X. Bove of Ladenburg Thalmann (LTS) dashed off a note reiterating his buy rating for Citi, arguing that the bank has positive net free cash flows, a strong capital base, and a diversified business base. Bove says in the end "cash flows are all that matters" and that it would "take a Depression every bit as large and long as the 1930s debacle to shake this company's viability.…I would be a buyer of this stock."
Still, the market shrugged off the support and Chief Executive Vikram Pandit continues to lose market confidence. Says Len Blum, managing director of Westwood Capital: "I don't think that Pandit has really shown the market that he has any direction. They are turning into an also-ran."
Counting on the Consumer
Losing the Wachovia (WB) acquisition to rival Wells Fargo (WFC) in October was "a big blow" to Citi, says Blum, and now "every one of its employees is absolutely distracted for fear of losing their jobs. They're not calling on accounts and clients." On Nov. 17, Pandit announced a plan to eliminate 52,000 jobs (, 11/18/08) as part of a program to cut expenses 20%. William B. Smith of Smith Asset Management in New York says it's not enough and has renewed his call for a breakup: "The board and management have breached their fiduciary responsibility to shareholders and employees. Can [anyone] still justify Pandit?"
Mostly, the market is spooked by two large unknowns: What is the extent of damage and losses in the bank's derivatives portfolio, and how bad will the consumer downturn continue to pressure results?

Citigroup Board Said to Weigh Options as Stock Drops
By Bradley Keoun and Christine Harper, Nov. 21 (Bloomberg) –
Citigroup Inc.'s board meets today to discuss the bank's options after Chief Executive Officer Vikram Pandit's efforts to rebuild investor confidence failed to halt the stock's descent to a 15-year low, a person with knowledge of the matter said.
The board, led by Chairman Win Bischoff and independent director Richard Parsons, will meet at Citigroup's headquarters in New York, said the person, who declined to be identified because the deliberations are private. The panel may choose to sell pieces of the bank or the entire company, the Wall Street Journal reported, citing unidentified people familiar with the situation. The New York Times reported that management isn't actively considering a sale or split up of the bank.
Citigroup, once the biggest U.S. bank, with a stock market value of $274 billion at the end of 2006, dropped yesterday to about $26 billion, slipping to No. 5 after Minneapolis-based U.S. Bancorp. A plan Pandit announced this week to cut costs by shedding 52,000 jobs and an endorsement by billionaire Saudi investor Prince Alwaleed bin Talal didn't assuage shareholders' concern that bad loans and securities writedowns may extend a yearlong run of net losses totaling $20 billion.
``Investors right now aren't convinced that we're done seeing dead bodies on the Citigroup balance sheet,'' said William Fitzpatrick, an equity analyst at Optique Capital Management Inc. in Milwaukee, which oversees about $1 billion and doesn't own Citigroup shares. ``That's what the sell-off is, concern over more and more losses over the next couple of quarters.''
Stock Market Rout
Citigroup spokeswoman Christina Pretto declined to comment on the board meeting. She reiterated a statement made by the New York-based company earlier this week that it has ``a very strong capital and liquidity position and a unique global franchise.'' Citigroup was up 92 cents at $5.63 in German trading today.
Including a $25 billion capital injection from the U.S. Treasury under the $700 billion Troubled Asset Relief Program, the company has at least $50 billion of capital in excess of the amount required by regulators to qualify as ``well capitalized.'' Capital is the cushion banks must keep to absorb losses and protect depositors.
The company's shares fell 26 percent in New York trading yesterday, closing below $5 for the first time since 1994, as stocks worldwide sank on concerns a global recession may deepen. JPMorgan Chase & Co., the biggest U.S. bank, fell 18 percent to $23.38, while No. 2 Bank of America Corp. declined 14 percent to $11.25 and Wells Fargo & Co. fell 7.7 percent to $22.53. U.S. Bancorp fell 6.4 percent to $22.12.
`Throwing in the Towel'
``What you're seeing here is more emotional selling, more people throwing in the towel and they are throwing everything out, not just Citi,'' said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati, which manages about $2.9 billion and doesn't own Citigroup stock or debt.
Pandit, 51, has pledged to preserve Citigroup's strategy of combining a wide range of financial businesses in a single company. They include branch banking, retail brokerage, trading, investment banking, credit cards and transaction processing.
Pandit was appointed last December to succeed Charles O. ``Chuck'' Prince, who was ousted as mortgage-bond writedowns saddled the bank with a record fourth-quarter loss of almost $10 billion. Prince was the handpicked successor of former Chairman and CEO Sanford ``Sandy'' Weill, who built the company through a series of acquisitions over 17 years before stepping down in 2003.
Bischoff, 67, was Citigroup's top executive in Europe until he was named chairman when Pandit became CEO.
Crittenden's View
Bank employees have been telling customers their deposits are safe, and so far corporate clients haven't moved their money elsewhere, said three people familiar with the matter who declined to be identified because they weren't authorized to speak publicly about the accounts.
Chief Financial Officer Gary Crittenden, 50, has told colleagues it would be unwise to make hasty decisions to dispose of good businesses to satisfy investor demands for a show of action, one person familiar with the matter said.
The bank may try to sell ``non-core'' units, similar to the divestiture earlier this year of retail-banking operations in Germany and Citi Global Services Ltd., an Indian unit that processes transactions and provides other ``back-office'' services, Optique's Fitzpatrick said.
``They're still going to stick with the game plan of selling off non-core assets, but I don't know what you can sell in an environment like this,'' he said.
`No Bottom'
Citigroup executives who spoke on condition of anonymity because they weren't authorized to comment publicly said they felt besieged by negative rumors propagated by short sellers betting on a decline in the share price.
Bank officials have discussed with the U.S. Securities and Exchange Commission and lawmakers the prospect of reviving a prohibition on short-selling financial stocks, according to a person familiar with the matter.
Few investors are willing to bet on the stock's recovery, said Laszlo Birinyi, president of Birinyi Associates Inc. in Westport, Connecticut.
``The problem is credibility,'' Birinyi said in a Bloomberg Television interview yesterday. ``There seems to be no bottom.''
Costs for bad loans have almost doubled in the past year to $9.07 billion in the third quarter, and Pandit told employees this week that net credit losses in the banks' consumer divisions may be as much as $2 billion per quarter next year. The cost cuts announced this week may save about $2 billion per quarter.
Government Intervention?
Citigroup is so integral to the global financial infrastructure that the U.S. government is unlikely to let the bank collapse, said Barry James, president of James Investment Research Inc., which manages $1.75 billion in Xenia, Ohio. He doesn't own Citigroup shares.
While the bank's debt holders may be spared, shareholders likely won't fare as well, Bahl & Gaynor's McCormick said.
``If I was a Citi shareholder I would expect to see increased volatility, more government stimuli and a possible merger or acquisition,'' McCormick said. Any government aid would be dilutive to stockholders, he said.
Pandit and three deputies who bought about 1.3 million Citigroup shares last week in a show of confidence already are sitting on paper losses. Pandit bought 750,000 shares at an average price of $9.25 apiece. At yesterday's closing price, they're worth about $3.41 million less.
Parsons, the 60-year-old lead director and chairman of Time Warner Inc., bought 35,000 shares this week for an average price of $8.15, Citigroup said yesterday in a regulatory filing.
The stock ``is for speculative investors,'' McCormick said. ``Let's face it.''

Bank of America sees record credit card losses

By Soyoung Kim and Nick Carey, 18 11 08, DETROIT (Reuters) –
Bank of America Corp Chief Executive Kenneth Lewis said on Tuesday the U.S. economy will get worse before it improves, and forecast record losses for the U.S. credit card industry.
"We, as an industry, may end up with possibly the highest credit card losses the industry has ever experienced," Lewis said.
Lewis said that in light of the ongoing financial crisis he saw a good chance of another half a percentage point rate cut at the next Federal Reserve meeting scheduled for Dec. 15-16.
Speaking to reporters, Lewis also said the largest U.S. bank will have "fairly significant" job eliminations resulting from its takeover of Merrill Lynch & Co Inc in September.
Bank of America, which has worried some investors over the past year with big-ticket takeovers of Merrill and mortgage lender Countrywide Financial Corp, is unlikely to make new acquisitions over the next few years as it absorbs the already-acquired companies, Lewis said.
Lewis spoke in Detroit, which bears the scars of many years of neglect in its housing stock, a blight that only worsened by the economic recession and deepening plight sweeping through the Big Three automakers.
Lewis spoke to reporters after delivering a speech to local business owners and students on the impact of the financial crisis on home ownership in the United States.
Over the last eight years, the state of Michigan has lost 300,000 manufacturing jobs, many of those in the declining U.S. auto industry.
The chief executives of General Motors Corp and Chrysler LLC [CBS.UL] took their case for a $25 billion bailout to the U.S. Congress Tuesday. They said a financial rescue is imperative if the industry is to survive the escalating liquidity crisis.
Lewis said that he would support a bailout for the U.S. auto industry if Americans back it, but added that not all of Detroit's three automakers should survive.
"The first thing would be that they (the U.S. automakers) acknowledge that there is one too many auto companies and that consolidation needs to take place," Lewis said, adding any bailout package must be based on viability and sustainability to make them competitive with overseas rivals.
Bank of America, the country's largest mortgage lender and one of the biggest credit card issuers, cut its dividend in half last month after rising credit losses contributed to a 68 percent decline in third-quarter profit.
The bank has already raised more than $22 billion in capital this year and is getting $25 billion from the $700 federal bailout program.
Asked whether the financial industry should slash bonuses and executive payouts in the wake of the bailout, Lewis said he opposed the use of golden parachutes that protect only those at the top even in the event of failure.
"Why would I, the highest paid individual in the whole corporation, have a safety net which my associates don't? That's inherently unfair," Lewis said.
Well over 100,000 jobs have been lost at the world's largest banks and brokerages since the global credit crisis began.
Citigroup Inc revealed on Monday it is cutting 52,000 jobs by early next year as the No. 2 U.S. bank combats mounting debt losses and sagging economies worldwide.
Lewis said the U.S. economy is clearly in a recession and forecast no recovery until the housing market stabilizes around the middle of 2009.
"I think the economy will get worse before it gets better. I wouldn't be surprised if we see another half a percent rate cut at the next Fed meeting," he said.
The deepening recession has bolstered market expectations the Fed would cut benchmark U.S. interest rates by a half-percentage point to 0.5 percent next month.
The Fed has slashed interest rates 4.25 percentage points since September 2007 to 1 percent to counter the credit crisis and support the faltering economy.
In wide-ranging remarks about the economy, Lewis blamed the mortgage crisis on government subsidies and excessively low interest rates, saying the industry needs a "realistic" view of the ability of customers to handle rising payments and rethink its view on short-term, low-interest "teaser" rates.
Mortgage lenders should also retain a portion of originated loans on their own balance sheets and keep servicing responsibilities to the extent possible, he added.
Bank of America became the nation's largest mortgage lender and servicer when it paid $2.5 billion for Countrywide Financial Corp in July.

JPMorgan may fire 10% of Investment Bank Staff
By Elizabeth Hester Nov. 20 (Bloomberg) –
JPMorgan Chase & Co., the largest U.S. bank, plans to fire about 10 percent of its investment banking staff, or about 3,000 people, as the global economy slides into recession, a person familiar with the bank said.
The reductions are in line with New York-based JPMorgan's rivals, including Goldman Sachs Group Inc., which said it will eliminate about 10 percent of staff. JPMorgan's cuts will be global and include various groups within the investment bank, the person said, speaking anonymously because the news isn't yet public. Some employees at the New York-based firm have been notified.
``There are aggressive cuts going on everywhere,'' said Rupert Della-Porta, the London-based chief operating officer of research firm Atlantic Equities. ``There are marked differences between business conditions now and the forward views that even the most conservative managers had. JPMorgan has to right-size their business model.''
JPMorgan also plans to freeze base salaries next year for most employees who earn more than $60,000 to $70,000, another person said. Tasha Pelio, a spokeswoman for JPMorgan declined to comment. JPMorgan's decision to fire employees was reported earlier by the Sunday Telegraph and Reuters.
Deutsche Bank
Banks are bracing for tougher economic times as government data show the recession may be prolonged. The index of leading U.S. economic indicators fell in October for the third time in four months, a report today showed. The index points to the direction of the economy during the next three to six months.
Deutsche Bank AG, Germany's biggest bank, will cut about 900 jobs in its global markets division, people familiar with the decision said yesterday. Those reductions, mostly in London and New York, will be made in the so-called exotic structured products, credit origination, and proprietary trading teams, said the people, who declined to be identified before a formal announcement.
So far this year, financial firms have eliminated almost 168,000 jobs worldwide and taken $966 billion in writedowns, losses and credit provisions, according to Bloomberg data.
JPMorgan Chief Executive Officer Jamie Dimon said Nov. 12 the U.S. recession ``could be worse'' than the credit-market crisis as unemployment rises and consumer credit worsens. The number of Americans filing for unemployment benefits neared a 26-year high in the week ended Nov. 15, the Labor Department said today.
Shares of JPMorgan, down 46 percent so far this year, fell $5.09, or 18 percent, to $23.38 as of 4:03 p.m. New York time.

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