Employment Fallout From Credit Crisis [Housing Tracker]

Includes: C, CS, GS, JPM, MS
by: Judy Weil

Macro Effects of the Housing Slump 

Wall Street Losses Cut Tax Bill, Sap New York Revenue. “Mayor Michael Bloomberg: Wall Street's mortgage losses have grown so large that some firms may pay little or no taxes for years, widening NYC and state deficits and challenging their ability to provide services. Some companies are seeking refunds from the city on taxes they prepaid, saying losses have cut their tax liability to zero. The banks pay tax on 110% of earnings in advance as a “safe harbor,'' protecting against penalties for underpayment… State Comptroller Thomas DiNapoli: The tax drain is particularly serious in New York, where Wall Street accounts for 20% of state revenue and about 9% for the city.” (Bloomberg, Aug. 12)


Speculators Blamed For Mortgage Defaults Around San Francisco. “Subprime mortgage defaults are soaring in the northern Californian city of Merced and angry local officials are placing much of the blame for the rout on property speculators from the nearby San Francisco bay area… who, [officials say,] used subprime loans [or] low "teaser" rates on the loans to buy homes in the city, but ran into difficulty when the rates were reset at higher levels. The resulting defaults are causing no small measure of hardship in the city. In some cases, officials say people renting homes from these investors have been evicted as lenders prepare the properties for resale.” (Financial Times, Aug. 12)

Cost-Cutting in New York and London, a Boom in India. “Wall Street’s losses are fast becoming India’s gain… After exporting many back office jobs… banks are now exporting data-intensive jobs from higher up the food chain to cities that cost less than NY, London and Hong Kong, either at their own offices or to third parties… It is affecting just about everyone, including Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), JPMorgan (NYSE:JPM), Credit Suisse (NYSE:CS) and Citibank  (NYSE:C)— to name a few… Cost-cutting in New York and London has already been brutal thus far this year, and there is more to come in the next few months. NYC financial firms expect to hand out some $18 billion less in pay and benefits this year than 2007, the largest one-year drop ever. Banking consultancy Celent: Over all, U.S. banks will cut 200,000 employees by 2009.” (NY Times, Aug. 11)

Casinos Use Technology to Combat Downturn. “Bruce Barfield, president of The Rainmaker Group, which produces profit optimization software on gaming industry changes: “Customers [don’t have] as much disposable cash as they once had. Gas prices have affected driving traffic to Las Vegas, which is also experiencing reduced air capacity. Atlantic City has been also suffering from gas prices, as well as new competition from Pennsylvania and the smoking ban. Customers are reducing the durations of their stays… The gamers are still coming, but the cash business is suffering. People are spending the money they once had on food, gas and transportation, causing them to have less money (for entertainment).” (Commercial Property News, Aug. 11)

Whitney: Credit Crunch Far From Over. “Oppenheimer & Co. analyst Meredith Whitney's current concern is that banks aren't slashing costs and cutting losses in their loan portfolios fast enough. On the cost side, banks have yet to come to terms with the disappearance of the securitization market, which she believes will stay in hibernation for the next three years.  Why does this matter? From 2001-2005, for every dollar of bank capital used to make mortgage loans, ten were supplied via investors in mortgage securities. All that secondary-market capital is now sidelined, but the staffing levels of bank lending departments don't yet reflect it.  By Whitney's reckoning, banks have laid off about 7% of their employees; she thinks the cuts need to reach 25%.” (Fortune via CNN Money, Aug. 5)


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