...and meantime the economy...

Banks may shrink for good as layoffs near 160,000

Major banks have announced some 160,000 job cuts since early last year and with more layoffs to come as the industry restructures, many will leave the shrinking sector for good as redundancies outpace new hires by roughly two-to-one.

Reuters,

16 November, 2012

A Reuters analysis of job cuts announced by 29 major banks showed the layoffs were much bigger in Europe than in Asia or the United States. That is a particular blow to Britain where the finance industry makes up roughly 10 percent of the economy.

The tally of nearly 160,000 job cut plans, meanwhile, is likely to be a conservative estimate as smaller banks and brokers are also cutting staff or shutting up shop, and bigger banks have not always disclosed target numbers of layoffs.

The tally also does not include reports of 6,000 job cuts to come at Commerzbank, for example, which the German group would not confirm last week.

Well-paid investment bankers are bearing the brunt of cost cuts as deals dry up and trading income falls. That is particularly the case in some activities such as stock trading, where low volumes and thin margins are squeezing banks.

"When I let go tons of people in cash equities this year, I knew most would be finished in this business. It is pretty dead. Some will just have to find something completely different to do," said one top executive at an international bank in London, on condition of anonymity.

The job cuts eat into tax revenues usually reaped from the sector at a time when the global economic recovery is slowing.

This year's tax income from the industry in Britain could drop to around 40 billion pounds ($63 billion), compared to 70 billion in 2007/08, when the financial crisis hit, the Centre for Economics and Business Research (CEBR) think-tank said this week.

The job cuts announced since the beginning of 2011 come on top of job cuts already carried since 2009.

Of the 29 banks, from Europe's biggest bank HSBC to U.S. investment bank Morgan Stanley, just over 83,700 net jobs have been lost since 2009, with 167,200 jobs axed and 83,500 created.

Squeezed by regulations forcing banks to store up more capital in their trading businesses, firms are likely to shrink their investment banking units even further, as they overhaul their models to survive.

"It is structural as well as in response to cycles in the market. The market is still over-broked," said Zaheer Ebrahim at recruiters Kennedy Group.

Swiss bank UBS last month outlined a further 10,000 layoffs after announcing a plan for 3,500 job cuts last year. It said in October it had decided to exit most of its rates and debt trading units.

Workers in retail banking operation will not be immune to job cuts either, particularly in slowing European economies. In France for instance, bank executives predict retail revenues will falter.

"There are still 300,000 too many full-time employees in the top financial services players in Europe," said Caio Gilberti from the financial services practice of consultancy AlixPartners. Gilberti said cutting those jobs could lop just over 20 billion euros off banks' collective cost base.

LEAVING FOR GOOD

As banks shrink, fewer of those leaving are able to find equivalent jobs at rivals, head-hunters and bankers said, and only a small proportion of those are qualified to move into other jobs at hedge funds, for instance, which look for specialized, skilled traders.

Mergers and acquisition dealmakers are now also coming under pressure, with fees in that area down 21 percent worldwide to $13.9 billion in the first nine months, Thomson Reuters data showed.

More senior investment bankers are among those in the line of fire. Those ranking as managing directors (MDs), who can command base salaries of around 350,000 pounds ($556,000), are becoming costly to keep - and difficult to take on.

"At MD level, it is tougher to accept smaller jobs, and they do not have the same drive and ambition as the young bankers who have just graduated," Ebrahim from the Kennedy Group said.

Many of those that have enjoyed lucrative careers in the fatter years are instead leaving big banks for good, setting up their own small consultancies or different types of businesses.

Minor Glitch Emerges In Spanish "Bad Bank" Deployment: No Investor Interest

Zero Hedge,

16 November, 2012

Two weeks ago, when Spain unveiled the specifics of the SAREB, also known as the Spanish Bad Bank initiative, which is simply the haphazardly put together chaotic plan to shift toxic assets from Spain's already insolvent banking sector to a bank that is even more insolvent than all others as it is fulled to the brim with "assets" such as land which has already been discounted by 80%, and backed with Spanish government guarantees, which are largely worthless as the entire country has been on the verge of demanding a bailout for 4 months now, we summarized it simply as follows: "it is ugly - far uglier than many had expected. And while the Spanish government expects private interest to take some of this massively discounted 'crap' off their hands, we have three words: 'deleveraging' and 'no bid!" We were right, although one wouldn't get that impression if one reads the official party line. Here is how Reuters summarized the government's party line: "Spain's bad bank is generating a lot of interest amongst international investors, an economy ministry source said. The bad bank would be possible with only domestic participation but non-resident investors gave the vehicle credibility, the source said." That's a lie. Here is the truth.

From Spain's El Confidencial:

The government postponed for a month the launch of the Sareb. The 'bad bank' that will manage real estate assets and real estate loans of nationalized entities not formally ready for December 1, when committed to the European aid program set out in the MOU. To overcome this delay, the Fund for Orderly Bank Restructuring (FROB) will create a society preparatory to meet deadlines and allow time for entering the shareholders, to the difficulties in attracting private investors before 30 November.

In other words, not only was the Spanish government caught lying (hardly notable these days), but just as we expected, over two weeks after the launch of "Sareb" - the latest deus ex which was supposed to offload the need to issue ever more sovereign debt to fund Spain's nationalization of ever more insolvent sectors to private investors, said private investors have taken a long, hard look at the "deal" the Bad Bank offers them and have said "no bid." Oh yes, and so much for "vehicle credibility."

We can't wait to see what other Tim Geithner inspired financial contraptions a broke Spain, and an asset-less Europe, have up their sleeve next.

Europe's Economy: Look Out Below, Again

Businessweek,

16 November, 2012

It’s official: Europe has double-dipped. The 17-country euro zone has fallen into its second recession since 2008, as figures released on Nov. 15 showed gross domestic product declining 0.1 percent during the third quarter. That followed a 0.2 percent contraction during the previous three months, according to the European Union’s statistics office.

There were some unexpected bright spots. Germany and France posted 0.2 percent quarter-on-quarter growth, ahead of expectations. Even some of the region’s most troubled economies suffered relatively modest contractions, including 0.3 percent in Spain and 0.2 percent in Italy.

Overall, though, “Europe’s economic downturn has not only deepened; it’s broadened with a vengeance,” says Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. Usually solid economies in such countries as Austria and the Netherlands were among those posting quarterly declines.

In some countries, even worse times could lie ahead. “Whereas austerity is starting to ease in Italy, Spain is heading for the point of maximum pain,” economist Holger Schmieding of Berenberg Bank in London wrote in a research note. Recent austerity measures in Spain “will likely lead to a more pronounced recession” during the current quarter and in early 2013, Schmieding says.

France’s 0.2 percent expansion, which followed three quarters of flat growth, “is probably the result of a temporary rebound at the European level,” says Michel Martinez, an economist at Société Générale in Paris. France “is heading to a moderate recession or at best remaining flat.”

The picture isn’t likely to improve soon, Spiro says. “We’re looking at a period of extreme weakness. This is all because of the repeated failures on the part of politicians to shore up confidence in the single currency area.”