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monsoon

Things are not so good at the Banks

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Apparently according to thisWall Street Article which came out today and which has made it onto the digg front page, BofA had a 32% drop in profits and huge losses resulting from attempts to grow it's investment banking business. As a result, Ken Lewis has vowed to "fix it" in part, IMO by doing what most CEOs these days and make job cuts. The article confirms this by saying That suggests job cuts are looming for the 20,000 corporate and investment-bank employees.

No doubt this is going to have an effect on employment in downtown Charlotte where I presume, a lot of these employees work. I do note the WSJ still refers to our city as Charlotte, NC.

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Is the Ritz superblock office building directly related to investment/corporate banking?

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No, but the new tower in Manhattan likely is.

If misery loves company, things were even worse this past quarter at Bank of America's archrival, Citi.

I've worked in human capital for 20 years and IMHO, Bank of America made a lot of quick (bad) hires to try to aggressively grow their IB bidness. Of course, they did not ask for 1979Heel's advice and counsel and you can see the result. ;) Leadership in the unit has been in turmoil all year long. Contrast Ken Lewis' statements with those of Ken Thompson at Wachovia who also plans cuts but probably not as deep and issued a statement confirming Wachovia's long-term commitment to IB.

I'd add that many of these guys were hired on their ability to put together big deals and make big profits. A 93% profit plunge in 1 quarter almost demands that they be let go. It's a dramatic screw-up. I don't feel sorry for guys (it's almost all guys) who make big promises and then fail to deliver. Had they delivered, they'd have annual comp of 7 and 8 figures. I think they razzled-dazzled (typical for this space) Bank of America and now they've been outed as frauds. So I'm not shedding too many tears about their impending severance.

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No doubt this is going to have an effect on employment in downtown Charlotte where I presume, a lot of these employees work.

Hmmm...dunno about that. I think a lot of these IBers are already in Manhattan waiting for the tower at Bryant Park to be completed. The hit might be greater for Manhattan than Charlotte, at least in numbers if not percentage, too. But I could be wrong.

I still think Ken Lewis is just taking a breather to regroup. IB is usually too profitable for a bank to ignore.

I'd love to know who did the searches for these guys. Their face must be red.

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An article by Rick Rothacker on Charlotte.com suggests that the great bulk of the IBers are in New York. Further, he reminds us that the IB business is highly cyclical with big paydays but fleeting job security.

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Combine with this with today's Observer announcement that Wachovia is cutting about 200 investment banker jobs IN CHARLOTTE. The employees (that live in my building) have been anticipating this for a while now.

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Job cuts, even relatively small ones at the two main employers in Charlotte is bad news along with the slowing real estate market. Broadly speaking though maybe these reality checks will help to pierce the pervasive attitude in this city that there is a permanent bubble protecting Charlotte from the economic vagaries roiling the rest of the country and the world. (vagaries is such an awesome word I wish I could use it more ^_^ ) .

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Combine with this with today's Observer announcement that Wachovia is cutting about 200 investment banker jobs IN CHARLOTTE. The employees (that live in my building) have been anticipating this for a while now.

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Actually, the article said that the unit was based in Charlotte, that it employed about 6200 worldwide and that the 200 RIFs would occur worldwide including Charlotte-not IN CHARLOTTE.

"You will not see a substantial shift in our business model," said Ken Thompson, Wachovia CEO. (Emphasis added.)

Job cuts, even relatively small ones at the two main employers in Charlotte is bad news along with the slowing real estate market. Broadly speaking though maybe these reality checks will help to pierce the pervasive attitude in this city that there is a permanent bubble protecting Charlotte from the economic vagaries roiling the rest of the country and the world. (vagaries is such an awesome word I wish I could use it more ^_^ ) .

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A few more LIBOR spikes and it will be BAC and WB employees everywhere, especially Charlotte.

Yield curve was inverted for nearly a year with no apparent ramifications for the big boys; methinks chickens are finally coming home to roost.

This is probably the tip of the iceberg. 20-ish quarters of double digit earnings growth is unreal, and if this earnings seasons plays out as nasty or nastier in future quarters, be glad the banks have already announced and started construction on their towers. Might be a long time before they build more.

P.S. Most of those IB guys in Charlotte aren't making 7 or 8 figures. SVPs make 400 in Manhattan, MDs 2M at Goldman, 1M at Lehman and down from there. They're sure as hell not getting paid seven. much less eight down here unless they're a division prez.

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The talk is up to 3000 job cuts at Banc of America Securities (in Hearst Tower locally). A vast bulk of the employees live/work in NYC, Chicago, and San Fran. Also, expect a lot of Contractors getting released...you won't see those posted in any numbers by the Banc.

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A few more LIBOR spikes and it will be BAC and WB employees everywhere, especially Charlotte.

Yield curve was inverted for nearly a year with no apparent ramifications for the big boys; methinks chickens are finally coming home to roost.

This is probably the tip of the iceberg. 20-ish quarters of double digit earnings growth is unreal, and if this earnings seasons plays out as nasty or nastier in future quarters, be glad the banks have already announced and started construction on their towers. Might be a long time before they build more.

P.S. Most of those IB guys in Charlotte aren't making 7 or 8 figures. SVPs make 400 in Manhattan, MDs 2M at Goldman, 1M at Lehman and down from there. They're sure as hell not getting paid seven. much less eight down here unless they're a division prez.

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Wachovia announced 200 job cuts today in their corporate and investment banking unit. 100 of the jobs will be in Charlotte, the rest in in NYC and elsewhere.

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The talk is up to 3000 job cuts at Banc of America Securities (in Hearst Tower locally). A vast bulk of the employees live/work in NYC, Chicago, and San Fran. Also, expect a lot of Contractors getting released...you won't see those posted in any numbers by the Banc.

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Contractors: People who are actually employed by someone else (Adecco, or maybe even higher-end firms like Resources Connection) who are onsite at a Bank of America or Wachovia (or other facility.) They do work for the bank (or other corporate entity) but are paid by Adecco, Deloitte, whomever. These cuts will not be made part of the total unless so called out, which is unlikely to happen.

These are likely not forever cuts, but cuts for poor performance or cuts related to businesses that have lost lots of money. I know that makes it no easier for those who've lost jobs, having lived through the .com bust myself, but IBers live a life of feast or famine so they shouldn't be surprised and shouldn't be hurting financially. Adecco contractors, on the other hand, are much more likely to live paycheck to paycheck and so will sadly feel more pain and not because of their own poor performance.

Wachovia (and I suspect Bank of America as well, when all is said and done) are committed to IB. They just need time to regroup and sort through the credit crunch.

Edit: Yes, you're right-Wachovia does their lower-end hiring through 1st Place. I think Bank of America used to rely upon Hewitt but I think that may have changed now.

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I stand corrected Vos. Sounds like I need to get back to the QC. Wow. 1M in Charlotte as a Director is monopoly money.

However, I will say this: I remember as recently as five years ago the Ds at Goldman making 400k. Whether or not we're in some LBO/PE/IB bubble is a long topic for a much different community, but I think it's very safe to say that some places have grown too far too fast without a great grasp of what they're trying to do.

And, seriously, I hope that WB/BAC/BBT/any of the employers in NC can save as many jobs as possible. I don't live down there any more, but being a North Carolinian, I know that what's good for the banks is good for Charlotte and NC. Unfortunately, the inverse also holds true.

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......

Wachovia (and I suspect Bank of America as well, when all is said and done) are committed to IB. They just need time to regroup and sort through the credit crunch.

Edit: Yes, you're right-Wachovia does their lower-end hiring through 1st Place. I think Bank of America used to rely upon Hewitt but I think that may have changed now.

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On the first point they will be committed to it as long as there is a reasonable chance they will make money at it. If not and their efforts drag down the overall earning of the bank for not too long, they will drop it like a hot potato and not look back.

On the second point, Wachovia does a lot of hiring of people these days on 6 month contracts. These are employees of the bank but only have a guarantee of work for 6 months. So when the contract ends they are not counted as being layed off. A lot of their technology people come in this way.

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I remember as recently as five years ago the Ds at Goldman making 400k.

5 years ago, in Manhattan, Directors at Goldman, sounds like a base to me. The big money likely came at year's end.

I think you're right they grew very fast. I also think they made bad hires just to get bodies in seats. Neither Goldman nor JPMorgan Chase had such a bad quarter. Of course, Citi, Bear and others had miserable quarters.

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While contractors should be fully prepared to get laid off at any moment, that doesn't mean that it isn't usually a devastating turn in life. It doesn't do the city good to have skilled, white collar employees sitting around reading the classifieds and telemarketing from their living rooms. If these people aren't hired back into the workforce pretty quickly, they are more likely than the average citizen to just pick up and head to greener pastures.

Just as Charlotte has benefited from these kinds of industry-wide layoffs in the past, drawing a large portion of the white-collar workforce from cities like Buffalo and Pittsburgh, it could just as easily be looted by competing metros if the local banks take a downturn. I wouldn't consider this a panic-button moment, but it does us good to remember that these kinds of industry collapses CAN happen and we need to be diversified enough to survive them.

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Your first sentence kind of goes without saying, doesn't it? That's the way all businesses behave. Nothing new there, nor specific to either bank......

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Not really. The Japanese automobile industry is a primary example of companies that will enter new markets and are willing to lose money for years until they get it right. I suspect there isn't this kink of patience at BofA and Wachovia. In regards to IB banking, in the article listed above, the head of BofA has said he may completely drop it.

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IB is a broadly defined area. There could be permanent cuts in certain areas while keeping the overall IB business. Time will tell.

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I know I'm getting off topic a little Metro, so I apologize in advance, but I think I can make it germane.

In 2000, base + bonus at Goldman for MDs was in the neighborhood of 1.75M. Two years later, the MDs were still making 200-250 bases but *only* making 150k to 300k in bonuses.

Fast forward to this year when we're way above the bubble peak of 2k, and it should be apparent that we've run pretty far pretty fast.

I know Charlotte is a banking capital, but I can't figure out how there's enough deals out there to support the overhead and the apparent 7 figure bonuses guys down there are getting. The industry has always run in cycles, but you look at Wachovia and think "really"? 1M bonus? Really?

Looking at Merrill's announcement this morning is an UGLY omen for everyone else. If Merrill's profit can drop 90+%, look out everyone else.

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