Posted tagged ‘Credit Crisis’

Bank of America To Cut Up To 35,000 Jobs

December 11, 2008

Bank of America has announced that it expects to cut 30,000 to 35,000 jobs over the next three years.

From the Associated Press:

The final number could be even higher, analysts say. Charlotte, North Carolina-based Bank of America said it hasn’t yet completed its analysis for eliminating positions, and won’t until early next year. The company and Merrill have about 308,000 employees in total, and the cuts will affect workers from both companies and all types of businesses.

Bank of America is considered one of the country’s healthier banks, and its decision to slash so many jobs illustrates the breadth of the layoffs hitting the United States. The nation lost more than half a million jobs in November alone, and economists expect many more to come.

Bank of America’s action is a particularly hard blow for Charlotte — which is also home to the beleaguered Wachovia Corp., a once strong bank that is now being acquired by Wells Fargo & Co. in what amounts to a fire sale. Just three months ago, when the Merrill Lynch deal was announced, Charlotte was dubbed Wall Street South; now, the banking center is being hit as hard as Wall Street and other towns across America, where people go to work in the morning unsure if they will still have a job that night.

Thursday’s announcement of job cuts at Bank of America was hardly unexpected, considering the merger and the wave of job losses seen in the banking industry and in other sectors over the past few months. Bank of America and Merrill Lynch have already eliminated thousands of investment banking jobs over the past year, as have other banks, in an effort to lower costs as they face increasing defaults in mortgages, credit card debt and other loans.

Citibank Hardship Reaches the Consumer (Me)

November 25, 2008

How surprised was I last Friday to get a notice in the mail from my credit card company, Citibank, who was raising my APR to 15.99%. I have been a Citibank customer for ten years and just a few months ago, finally got my APR down to 9.99%.

I contacted Citibank to see about this change and was hoping to keep my APR at 9.99%.

Here is the response that I got:

The change proposed to your purchase APR was due to a reexamination of our policies was needed given the severe changes in the financial markets. Our costs in borrowing the money we use to lend have gone up significantly.

In addition we are seeing dramatically higher loan losses and delinquencies for many of our customers. We must manage to the dramatic changes we are seeing by changing some of our rates and fees in order to continue to provide you with products, benefits and services we have today.

More information on the proposed changes can be found online at http://www.federalreserve.gov.

Thank you for using our website.

Well thank you Citibank for explaining that YOUR financial problems are the reason that MY APR is going up. I’m so glad to be doing business with you.

For now, I will NO LONGER be using my credit card for any purchases, and as soon as I can transfer my balance to another company, you will lose a customer of ten years.

Economy Is Shrinking and Home Prices Continue to Drop

November 25, 2008

The economy shrank more than expected in the third quarter and home prices fell to levels not seen since early 2004 as the government announced new plans to provide $800 billion to boost consumer spending and home buying. Things keep looking bleaker and bleaker each day for the US economy. When will we hit rock bottom?

From the Associated Press:

Treasury Secretary Henry Paulson said key markets for consumer debt such as credit cards, auto and student loans essentially came to a halt in October, and that the new programs are aimed to get lending back to more normal levels.

Meanwhile, data released Tuesday provided further proof the country is almost certainly in the throes of a painful recession.

The Commerce Department’s updated reading on the economy’s performance showed gross domestic product shrank at a 0.5 percent annual rate in the July-September quarter, weaker than the 0.3 percent rate of decline first estimated a month ago, and the worst showing since the third quarter of 2001.

GDP measures the value of all goods and services produced within the U.S. and is considered the best barometer of the country’s economic fitness.

Meanwhile, the Standard & Poor’s/Case-Shiller national home price index released Tuesday tumbled a record 16.6 percent during the quarter from the same period a year ago. Prices are at levels not seen since the first quarter of 2004.

In an effort to increase the availability of home loans to borrowers, the Federal Reserve said it will purchase up to $100 billion in direct obligations from mortgage giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. The Fed also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.

The $600 billion effort on mortgages came as the Fed also unveiled a new program to help unfreeze the market that backs consumer debt such as credit cards, auto and student loans.

Yes Virginia…There Will Be No Bonuses for Top Goldman Executives This Christmas

November 17, 2008

After months of internal debate at Goldman Sachs, the seven top executives at the firm, including Chief Executive Officer Lloyd Blankfein, have asked the board’s compensation committee not to give them bonuses in 2008. Isn’t that nice of them?

From the Associated Press:

Better to be a broker than a baron on Wall Street if you’re expecting a big bonus this year.

The decision by top Goldman Sachs executives to forgo bonuses in 2008 is forcing other investment bank bosses to consider following suit. But thousands of lower-tier brokers will still collect hefty bonuses as firms try to keep their top talent from bolting for boutique firms or other industries.

Wall Street employees often receive up to 80 percent of their total compensation from year-end bonuses. Now those payments are attracting more scrutiny from lawmakers and consumer groups because taxpayers are footing the bill for the government’s $700 billion financial bailout.

“Nobody is going to be stupid enough to pay their CEO an outlandish amount of money in this climate,” said Alan Johnson, managing director of New York-based compensation consulting firm Johnson Associates.

He estimates Wall Street CEOs will see their bonuses reduced by up to 70 percent this year.

Goldman Sachs Group Inc. announced Sunday that seven executives, including Chief Executive Lloyd Blankfein, would get no cash or stock bonuses for 2008.

Blankfein received total compensation of $54 million last year, according to calculations by The Associated Press, making him the sixth-highest-paid CEO of a Standard & Poor’s 500 company in 2007.

It’s the first time top Goldman executives have not received bonuses since the 139-year-old investment bank went public in 1999. The executives decided to forgo the payments this time “because they believe it’s the right thing to do,” Goldman spokesman Michael DuVally said.

From BusinessWeek:

Much has been made today of the news that Goldman Sachs’ top seven executives, including CEO Lloyd Blankfein, are giving up their bonuses for 2008. According to a story in today’s Wall Street Journal, the move follows “months of internal debate” at the Wall Street firm, and that now that Goldman has acted, other firms on “Lloyd watch,” as the Journal calls it, will follow suit. Indeed, Swiss bank UBS has already done so, axing bonuses for its executive board members. The WSJ’s DealJournal blog referred to the bonus cut as “The Neutron Bomb of Wall Street.”

But really, how much debate was there? Would Blankfein really have ever gotten a hefty bonus in a year when plenty of CEOs of other struggling companies not part of the bailout have passed up on bonuses and even taken pay cuts? Sure, $68.5 million—the total size of Blankfein’s enormous package last year—was a lot to consider giving up. But with the uproar over bankers pay at a fever pitch, did they really ever consider paying those bonuses?

More telling, if less substantial, I believe, is that some companies outside the maelstrom of the financial crisis have been trimming top executive salaries and slashing bonuses. Earlier this year, JetBlue Airways CEO Dave Barger and Continental Airlines chief Larry Kellner cut their salaries; Kellner also relinquished his bonus. Executive compensation consulting firm Equilar searched its database for BusinessWeek and turned up several recent examples of CEOs whose pay had been trimmed, including Gannett’s chief, who is taking a 17% pay cut. NVIDIA’s board accepted a management proposal (because these are always proposed by management, of course) to do away with cash incentives. Even directors’ pay is getting cut: At RV maker Thor Industries, each of the non-employee directors is forgoing 15% of pay “due to the decline in the Company’s profits in fiscal 2008.”

When companies are restructuring and laying off workers, as Goldman and many of the other banks are in the process of doing, many management consultants acknowledge it’s a best practice for CEOs to share in the pain somehow. When that firm is also receiving government bailout funds, cutting top executive bonuses should be a necessary practice. And one that doesn’t need a lot of debate.

AIG Suspending Millions in Executive Payouts

October 23, 2008

It’s about time! American International Group has agreed to suspend payments to executives from a $600 million bonus fund as well as $19 million in payments to its former chief executive, this according to New York’s attorney general Andrew Cuomo.

From the New York Times:

The moves are the latest steps in an effort by the attorney general, Andrew M. Cuomo, to prevent bonuses and other compensation to former executives at A.I.G., which in recent weeks has received tens of billions of dollars in loans from the Federal Reserve. “There should not even be any contemplation of bonuses for executive performance because I find it hard to conceive of a situation that you could justify a performance bonus for management that virtually bankrupted the company,” Mr. Cuomo said on a conference call with reporters on Wednesday afternoon.

According to a letter Mr. Cuomo sent to A.I.G.’s current chief executive, Edward M. Liddy, the company has agreed to freeze $19 million in remaining payments to Martin J. Sullivan, the company’s former chief executive who was ousted in June. Mr. Cuomo said he did not know how much Mr. Sullivan might have already been paid under his employment contract.

The company also agreed not to make any payments from a $600 million deferred compensation and bonus fund for executives of A.I.G.’s financial products unit, which undertook many of the complex financial transactions that pushed the company to the brink of collapse. Mr. Cuomo said that Joseph Cassano, who headed that unit, stood to receive $70 million from the fund.

“We have received the letter and the letter is consistent with our discussions with the attorney general and with actions we have taken,” said Joe Norton, a spokesman for A.I.G.

Mr. Cuomo has already called on A.I.G. to assist in efforts to recover payments already made to executives at the company. On the call with reporters, Mr. Cuomo suggested that his actions offered a template for dealing with executive compensation at companies now receiving taxpayer money through the bailout approved by Congress this month.

Stocks Drop Sharply as Dow Jones Drops Below 10,000

October 6, 2008

The selling on Wall Street began at the opening bell on Monday and only intensified as the morning went on. Shares moves sharply lower as the banking crisis tightened its grip on the global economy.

The Dow Jones industrial average fell below 10,000 for the first time since 2004 after losing more than 500 points in the first hour of trading. The index has lost more than 1,100 points in the past two weeks and no end seems to be in sight. It appears that whoever wins the election one month from now, Barack Obama or John McCain, will have to step up and find a way to end this crisis.

From the Associated Press:

The markets have come to the sobering realization that the Bush administration’s $700 billion rescue plan won’t work quickly to unfreeze the credit markets, and that many banks are still having difficulty gaining access to cash. That’s caused investors to exit stocks and move money into the relative safety of government debt.

Over the weekend, governments across Europe rushed to prop up failing banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France’s BNP Paribas agreed to acquire a 75 percent stake in Fortis’s Belgium bank after a government rescue failed.