Friday, January 11, 2008

Banking sector crisis in the last quarter

We all know that the banking (credit services, mortgages, investment banking) industry has gone for a toss in the last few months in the midst of the credit/mortgage crisis in the United States. We've seen a lot happen, in the last quarter especially. Some of the big RIFs that I can remember -

(1) 08/2007 - Lehman Brothers cuts 1200 jobs and shuts down its BNC Mortgage Business at a one-off cost of $52 million
(2) 09/2007 - Countrywide Financial slashes 12,000 jobs. Countrywide is the nation's largest subprime lending mortgage company.
(3) 09/2007 - Key Bank slashes 200 jobs, including call center jobs.
(4) 10/2007 - Bank of America, the largest U.S. bank by market value, cuts 3000 jobs, mostly in the Investment Banking division - 10/2007
(5) 10/2007 - Morgan Stanley cuts 600 mortgage jobs
(6) 12/2007 - Washington Mutual slashes dividend and cuts more than 3000 jobs
(7) 01/2008 - National City cuts 900 jobs and slashes dividend by 49%, and stops offering mortgages thro' brokers - 01/2008
(8) 01/2008 - Merill Lynch announces that it may cut upto 1600 jobs (10%) and unveil writedowns of as much as $10 billion from Q4. Merill was the largest underwriter of 2007.
(9) But the worst of all, came from Citigroup in 04/2007, which their then CEO Charles Prince announced that Citi may cut around 45,000 jobs during the year. Yes, he was made to leave the organization (Cramer had been long telling that Chuck should be fired), and given the market condition, there was no one (from outside and inside) willing to take up the job. Can you beat it? I mean, Citigroup is the world's largest bank and no one wants to lead it! Finally, Vikram Pandit, who was with the organization only for 6 months decides to step in and he gets sworn in as the new Citi CEO. Let's wait and watch if he turns around things. Well at least today, he's got the Saudi billionaire prince Alwaleed to invest in the bank, so that's definitely a good move.

So, where does one go if everyone else around is also cutting jobs?

Among the few that survived, is Goldman Sacchs which turned out to have a great record-breaking 2007 reporting $3.17 billion in Q4 profit. One man's meat - another man's poison?

Now, just today, Bank of America announces one of their stupidest bids ever. They've placed a takeover bid of $4.2 billion for the company that probably was the root cause for this whole credit crisis - Countrywide. I agree, it is a good number for such a huge organization, so from that perspective it may be a good bid. Nevertheless, I think it is gamble in the wrong direction - it's assets and stock prices have been continuously deteriorating.

Where is all this heading? Certainly towards a recession in 2008, with oil prices touching $100 / barrel recently to add to market crisis. Will a change in the government add any value to the current situation? The Democrats, Clinton and Obama are looking towards the economy in their campaigns and caucus speeches, but would they just be speeches? What can the government do? What is the Fed doing? Is Bernanke a failure successor to Greenspan? Or can he do anything?

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Anonymous Anonymous said...

That's a lot of layoff...

2:00 AM  
Anonymous JB said...

What to do when there are so may layoffs everywhere around? Migrate to the developing countries man. That's where all the jobs are. And that's how globalization is going to start helping.

11:05 AM  
Anonymous Anonymous said...

I think BofA is getting the bang for their buck with Countrywide, as there is a lot of stuff left there still. But you're right about the timing, it more looks like a desperate move to do something.

11:15 AM  
Anonymous Anonymous said...

I've given up on the government for these things, at least that's how it is in England.


11:45 AM  
Blogger Padmanaban Kumar (Paddu @ Just for Kicks) said...

They may be getting their bang for the buck, but one company in distress buying another company in disaster? Sounds counter-intuitive and desperate to me. If they are optimistic of turning things around, the economy is still not friendly for that, with economists predicting recession with a 0.7 probability.

7:56 PM  
Anonymous Liz said...

Bernanke is a big failure, and is out of luck. His interest rate plays certainly did nothing to help the economy and the housing/mortgage crisis. A recession in 2008 will only make things worse for him.

8:04 PM  

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