Citigroup To Cut 50,000 Jobs
By Philip Palij
The term bankster derives from the words Banker and Gangster it describes a class of predatory operators within the financial services industry that preys upon the citizens of the countries in which they operate.
The Citigroup banking corporation is the largest bank in the world by revenue it employs 300,000 people worldwide, and administers over 200 million customer accounts. On 4th November 2007, Charles (Chuck) Prince, Chairman and CEO of Citigroup resigned and cited the following reasons :
"...as you have seen publicly reported, the rating agencies have recently downgraded significantly certain CDOs and the mortgage securities contained in CDOs. As a result of these downgrades, valuations for these instruments have dropped sharply. This will have a significant impact on our fourth quarter financial results. I am responsible for the conduct of our businesses. It is my judgment that the size of these charges makes stepping down the only honorable course for me to take as Chief Executive Officer. This is what I advised the Board."
Chuck Prince resigned with a reported payoff package worth $US 38 million after the company was forced to write down billions of dollars of mortgage backed assets accumulated under his directorship. Latest reports put the figure at a staggering $US 64 Billion.
It is unlikely those laid off will receive similar severance deals.
50,000 people are to lose their jobs as the toll caused by staggeringly irresponsible lending and investment policies come fully into view. Citigroup will point to the general recession as a reason to deflect criticism but it does not wash away the part it played in bringing this recession about.
On April 19 2008 Bloomberg reported
"...Citigroup's writedowns and credit losses from the collapse of the subprime mortgage market now total almost $40 billion, more than those reported by Zurich-based UBS AG and Merrill. The charges bring the total charges for the world's biggest banks and brokerages to more than $260 billion since the beginning of last year..."
On October 16 2008 The International Herald and Tribune reported
"...Citigroup took more than $13.2 billion in charges in the third quarter, bringing the total amount of write-offs and credit losses since the credit crisis began last year to more than $64 billion..."
"...Vikram Pandit, Citigroup's chairman and chief executive, said in a statement that the bank's results reflected a "difficult environment" and write-downs as the bank sheds more than $400 billion in noncore operations, low-returning assets and toxic mortgages. Citigroup also eliminated 11,000 jobs in the third quarter, bringing the total number of layoffs to 23,000 this year..."
Chuck Prince and the board of Citigroup had invested heavily in things called CDO's. For the record here is a description of them
Collateralized debt obligations (CDOs) are a type of asset-backed security and structured credit product. CDOs are constructed from a portfolio of fixed-income assets. These assets are divided by the issuer into different tranches:
- senior tranches (rated AAA)
- mezzanine tranches (AA to BB)
- equity tranches (unrated).
Losses are applied in reverse order of seniority and so junior tranches offer higher coupons (interest rates) to compensate for the added default risk. Since 1987, CDOs have become an important funding vehicle for fixed-income assets. source Wikipedia
Essentially these are financial shitcakes. The cake is stuffed with low grade high risk junk mortgage debt and coated with a veneer of AAA rated mortgage debt, the higher risk is disguised and the higher interest payable on them makes them infinitely more attractive to greedy investment funds, speculators and banks. These shitcakes are sold around the world. Citigroup had a lot of them.
In June 2007, two hedge funds managed by Bear Stearns Asset Management Inc. faced cash or collateral calls from lenders that had accepted CDOs backed by subprime loans as loan collateral (They wanted their money back). The now defunct Bear Stearns, at that time the fifth-largest U.S. securities firm, said July 18, 2007 that investors in its two failed hedge funds will get little if any money back after "unprecedented declines" in the value of securities used to bet on subprime mortgages. This stumble has turned into a rout at the time of writing.
Because these CDO's are not traded on the open market their price cannot be determined easily so the losses cannot be determined at any given moment hence the announcement of the losses in tranches by all the banks over the past year. As more and more mortgage defaults are announced the notional value assigned to CDO's at birth declines, reality strikes.
Banks start looking at eachother wondering if they are even still solvent so they don't want to lend to eachother in case the bank they lend to folds and they dont get their money back.
The Federal Reserve Bank of America has a statutory duty to oversee and prevent disorderly and irresponsible practices among The US financial institutions. The Bush administrations obsession with deregulation of the US financial markets over the last eight years undermined this obligation and led us directly into the coming recession.
The unchecked greed of gamblers masquerading as respectable leaders of the worlds financial institutions beggars belief but pales into insignificance when you consider the governments of the world led by the US stimulated the crisis through deregulation then stood by, despite warnings, and let it happen.
Why?
On 17th November 2008 Citigroup announced plans for about 52,000 new job cuts, on top of 23,000 cuts already made during 2008.
***************************************************************************************************************Update 21, November 2008 from the Seeking Alpha Newsletter
Citigroup's (C) stock fell 26% on Thursday, capping four days that saw the company lose half its value and bringing the company below the institutional threshold of $5/share. Pressure is increasing from investors and analysts to support the stock price by any means, including splitting or selling the company. The board will meet today to discuss Citi's options, amid mixed reports on whether a possible sale or spin-off will be considered. In the meantime, the company is pushing for the SEC to reinstate a ban on the short-selling of financial stocks. CEO Vikram Pandit assured employees that "we are entering 2009 in a strong position... We will be a long-term winner in this industry," but some of Citi's traders have begun to joke that the troubled bank should be renamed the Titanic.
Based on this article: Wall Street Journal: Share Slump Tests Citi Limits