Writedowns At Global Banks Has Topped $292 Billion; Leading To Record Job Losses

Implications: Writedowns at global banks has surpassed $291 billion and the "writedown" meter continues to tick and could reach $460 billion or as high as $1.2 trillion by year-end 2008. U.S. financial institutions will account for about 40% of losses. Credit losses has prompted leveraged institutions to raise new capital of approximately $100 billion from domestic and foreign investors and the side effects is a decrease in dividend payouts and record job losses which could exceed 200,000 in 2008. Subprime writedowns from leveraged institutions include UBS's $19 billion writedown; Citigroup $18 billion; Merrill Lynch 14.1 billion; Morgan Stanley $9.4 billion; Deutsche Bank $7.1 billion; HSBC $3.4 billion; JP Morgan $3.2 billion; Bear Stearns $3.2 billion; BofA $3.0 billion; Barclays $2.6 billion; RBS $4.1 billion; Freddie Mac $2 billion; Credit Suisse $1 billion and Paribas $197 million. It's too soon to determine if the markets has bottomed out and 3Q08 & 4Q08 will be the litmus test. 

Analysis: As writedowns from subprime investments drag down the entire banking system, one in ten jobs in the U.S. commercial banking industry will be cut. In the past 40 years, the banking industry has never seen a downturn in its revenue growth, however, in 2008 it appears this trend will shift and revenues will decrease for the first time and the end result will be severe cost cutting measures and staff cuts seem to be one of the top remedies for cutting costs. In the next 12-18 months, commercial banks will slash a record 200,000 U.S. jobs to reduce costs as the credit crunch continues to pummel the "bottom lines" of some of the world's most prestigious financial institutions.

1.  In 2007, a record 153,000 jobs were cut in the U.S. financial services industry and more than 50% of those job cuts were mortgage related jobs. In 2008, job losses are projected to exceed 2007 figures to surpass 200,000. In March 2008, financial firms cut 5,000 jobs to contribute to the 5.1% increase in unemployment figures released with the U.S. job report and across the board, employers across all industries cut over 80,000 jobs

2.  U.S. banks have cut thousand of jobs since the credit crunch began its descent last summer, with Citigroup staff among the biggest casualties. Citigroup has announced over 20,000 job cuts and an additional 2,000 cuts may occur in 2008 

Takeaway:  The U.S. financial services industry is putting controls in place to try to stop the bleeding from record writedowns, shore up their balance sheets with additional capital and calm the fears of investors. 2Q08 may bring additional writedowns as financial institutions work to stabilize their risks with asset back securities and other investment vehicles. 3Q08 & 4Q08 could bring a welcome turnaround in the industry and possibly restore investors confidence and give the U.S. economy a much needed boost.