-Caveat Lector-
Begin forwarded message:
From: [EMAIL PROTECTED]
Date: April 11, 2007 10:58:00 AM PDT
To: [EMAIL PROTECTED]
Cc: [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED]
Subject: Quiet Shock Waves in the Banking World from US Mortgage &
Credit Losses
CITIGROUP TO AXE 17,000; MAY SEND JOBS TO INDIA
April 11, 2007 17:04 IST
http://inhome.rediff.com/money/2007/apr/11citi.htm
Citigroup Inc, the world's largest financial services firm, on
Wednesday said it will eliminate 17,000 jobs or nearly 5 per cent
of its global workforce, [in addition to its] plans to move 9,500
positions to India and other lower-cost locations.
With an aim to cutting its annual expenses by $4.6 billion in the
next three years, the US-based banking giant on Wednesday said that
its restructuring plans also include shutting down some offices and
relocating employees.
While announcing these large-scale job cuts, Citigroup said that
its total headcount would continue to grow in 2007, but the rate of
growth, excluding acquisitions, new branches and other investments,
would slow significantly.
The company could move a large chunk of its jobs -- which could be
in the range of 5,00-8,000 -- to India, especially for equity
research, investment banking and back-office transaction-related
activities, sources close to the development said.
The total number of jobs to be eliminated equal more than half of
the total number of positions Citigroup added to its workforce in
2006.
More than 9,500 jobs will be moved to lower-cost locations, both
domestically and internationally, the company said.
"Ultimately these changes will streamline Citi and make us leaner,
more efficient, and better able to take advantage of high revenue
opportunities," Citigroup chairman and CEO Charles Prince said in a
statement.
Industry observers said that the job cuts were more aimed at
achieving an optimal level of performance, rather than plain cost
savings as the company was also aggressively going ahead with
acquisition plans.
Earlier this week, Citigroup agreed to buy Taiwan's Bank of
Overseas Chinese for about $426 million, while it is also in talks
to acquire Japan's third-largest brokerage firm Nikko Cordial Corp
for more than $13 billion.
Besides, it is also reported to be in discussions to buy New York-
based hedge fund Old Lane LP to bring in Vikram Pandit as head of
its alternative-investments group, which includes private equity
and real estate businesses.
The company is looking to achieve savings worth $2.1 billion in the
current year alone from the proposed restructuring initiatives, for
which it would assume a pre-tax charge of $1.38 billion in the
first quarter of 2007.
Citigroup said it would also eliminate certain layers of
management, consolidate certain back-office, middle-office and
corporate functions at the business, regional and headquarters
levels to eliminate duplication of effort.
The job cuts are part of a review report prepared by Citigroup
chief operating officer Robert Druskin to bring the company's costs
in line with its rivals.
The company's top brass has come in for sharp criticism from
certain shareholders, including Saudi Prince Alwaleed bin Talal, as
its equity returns have trailed most of the other US banking
giants, while the company's expenses rose at a rate twice to the
revenue growth in 2006.
Citigroup's total expenses stood at $52 billion last year.
The company, which will announce its first quarter results on
Monday, has also said that it will simplify and standardise its IT
platform to increase efficiency, drive lower costs and decrease
time to market.
-----------
WHEN $24BN PROFITS ARE NOT ENOUGH:
HSBC'S SHARES HAVE STAGNATED FOR THREE YEARS AND NOW THE CITY IS
DEMANDING SOME ANSWERS
Jill Treanor
The Guardian (UK), January 10, 2007
http://business.guardian.co.uk/story/0,,1986587,00.html
HSBC is the world's third largest bank and estimated to be on track
to make record profits of $24bn, but as 2007 begins it is facing a
crescendo of complaints about its performance.
Its chairman, Stephen Green, a thoughtful and collegiate executive
who is a lay preacher in his spare time, has been accused of being
"asleep at the wheel" while analysts and investors are concerned
about mistakes in its US operations and an increase in costs of
$2.5bn (£1.3bn) over the past two years in its investment banking arm.
Even supportive investors admit to being "disappointed" and the
performance of the shares highlights the problem. Over three years
HSBC's shares have risen 6% compared with an increase of 27% in the
FTSE banking index. Of the major UK banks, only Lloyds TSB has had
a more torrid time.
Investors hoping for a rising dividend have been let down too. The
bank reports in dollars and the weakness in the US currency means
UK investors are having to accept a second-quarterly dividend fall
even though the dollar amount is unchanged. They are receiving
7.759p for the third quarter compared with the 7.792p the same time
last year.
Mr Green took over the top job only in May. But he is the one
shareholders are looking to for answers.
Some of them are talking about the need for changes to the wider
HSBC board, which has some 19 members, in part reflecting the
bank's geographic spread. It has operations in around 80 countries
and makes only 18% of its profits in the UK. Most of its money -
34% - is made in North America, where the current trading problems
are dogging performance. Hong Kong makes up 21%, the rest of Asia
13% and South America - a relatively new market for the bank - 3%.
The calls for boardroom reorganisation stem from the changes to the
executive team made in May when Mr Green was elevated from chief
executive and replaced by Michael Geoghegan, breaching the City's
codes on corporate governance, which rule that the chief executive
should not inherit the chair.
HSBC, which prides itself on breeding its own management - "we grow
our own timber" is a favourite phrase - had always been seen as a
prime candidate to make such a move. But one investor said:
"Unquestionably it was made clear at the time of the elevation that
the shareholders didn't consider the non-executives to be strong
enough."
Though HSBC plays this down, it is making some boardroom changes.
Simon Robertson, a former Goldman Sachs banker, has been named as
senior independent director, the main sounding board for investors,
and three other non-executives are leaving in May. Other long-
standing members such as Sir Brian Moffatt and Baroness Dunn are
also thought to be nearing the end of their tenure.
Mr Green is also letting it be known that he is approaching the
chairmanship in a different way to his predecessor, Sir John Bond,
the statesman-like banker who now chairs Vodafone. Sir John was the
bank's first chief executive - appointed in 1992 when the group was
buying the Midland bank, so the legacy of chief executives at a
bank traditionally run by dominant chairmen is short. Mr Green
leaves day-to-day management to Mr Geoghegan, putting more of his
efforts into big-picture strategy and the ambassadorial hand-
shaking that the job of chairing such an international bank entails.
The City will be hoping this starts to bolster performance. The
current sticking point stems from the acquisition of Household in
the US in 2003, when Sir John was chairman. The bank paid £9bn for
Household, a specialist in lending to those without the best credit
records. It is now known as HSBC Finance and has generated a return
on capital invested of 17% a year. But still the City is not
convinced. In its recent trading statement, the bank admitted that
some mortgages granted only six months ago had turned sour.
Mark Thomas, analyst at Keefe, Bruyette & Woods, said: "We want our
clients to be well aware of our concerns about the US correspondent
mortgage exposure of HSBC ... With 20 years' experience in the
business we cannot recall any UK banking group having material
credit issues on mortgages originated just six months before. It
takes some doing to get it that wrong, especially when the overall
market conditions are favourable."
----
HSBC SAYS US LOAN DEFAULTS WILL HIT PROFITS
Jill Treanor
The Guardian (UK), February 9, 2007
Michael Geoghegan, HSBC's chief executive, has taken personal
responsibility for the bank's growing problem with US mortgages,
which have forced Britain's biggest bank to issue its first profits
warning.
"The buck stops with me," Mr Geoghegan said after the bank revealed
the extent of the problems in its US business late on Wednesday
night. As a result, analysts cut their profit forecasts by up to 10%.
While HSBC has made some management changes in the US, questions
were being asked last night about the future of Bobby Mehta, head
of the troubled division. HSBC refused to comment.
The unprecedented profits warning piled further pressure on Mr
Geoghegan and the chairman, Stephen Green, both of whom have been
in their roles since May, when Sir John Bond retired as chairman.
They already faced criticism over their stewardship of the world's
No 3 bank.
HSBC shares - the worst performing among UK banks - were at a nine-
month low in early trading but they recovered some losses to close
14p lower at 917p as London investors digested the third piece of
bad news about the US business in as many months. The bank has
alerted the markets to some customers' problems repaying loans
twice before. The latest warning helped drag down Wall Street
yesterday. New Century Financial, a US firm with a similar business
to HSBC, also warned that customers were defaulting.
Analysts had forecast bad debt provisions of $8.8bn (£4.5bn) but
HSBC said it would overshoot this by 20%, taking the figure to
$10.6bn. It is the bank's largest provision against bad debts and
shocked analysts said it was the first time in memory that HSBC had
released information ahead of its results on March 5.
Analysts at the investment bank Merrill Lynch, JP Morgan and
Dresdner said they would cut their 2006 profits forecasts by
5%-10%. The previous consensus was for $24bn - the biggest profit
ever of a UK bank. Even after the downgrades, HSBC may still be
able to make record profits.
HSBC's problems are at what was Household International, which it
bought for £9bn in 2003 in what was the bank's biggest ever
acquisition - a deal which analysts and shareholders have since
queried. Now part of HSBC Finance, Mr Geoghegan defended the
business, which specialises in customers with lower credit ratings.
"I've got 35 million customers and all of that [credit] data in
middle America. This is a dream portfolio," he said.
The problem lies in a part of the business that focuses on "second-
lien" loans, often known as piggybank loans because they are taken
out as well as mortgages. As the US housing market has slowed,
householders have been repaying their first mortgage but have been
slower to make payments on their second home loan, which had been
taken out on the back of higher house prices. The loans, from 2005
to 2006, largely sit in a portfolio of business that HSBC bought
from rivals when it was trying to expand rapidly.
Mr Geoghegan said that he could not say that "it won't deteriorate
any further" but said: "It won't happen again ... I'm embarrassed
by what I saw happening. I'm committed to be as hands-on [as
necessary]."
He made it clear that it was his responsibility to put it right,
after more than 30 years with HSBC. "In this particular
organisation we take our responsibilities very seriously. You don't
put me in this position to not take it seriously," he said.
The previous US management had run the US mortgage business for
volume. New managers have been installed, including a new chief
operating officer and finance director, and Mr Geoghegan has been
introducing new practices to set limits along geographic and
product lines.
The City has been surprised by HSBC's problems in the US. It is a
share that investors traditionally hold for when times turn bad so
they are perturbed by the problems emerging when other UK banks are
not suffering. British banks are expected to report record profits
in the coming weeks.
----
BANK PROFITS GO THROUGH ROOF DESPITE BAD DEBTS
Jill Treanor
The Guardian (UK), February 19, 2007
Britain's banks are on track to report more than £40bn of profits
in the coming days despite being saddled with the cost of unpaid
loans from customers trying to protect themselves from their
burgeoning debts.
HSBC, the country's biggest bank and the third biggest in the
world, may even break last year's record of $20.9bn (£10.7bn) of
profits despite its unprecedented warning about problems in its US
arm, which caused City analysts to knock up to 10% off their
forecasts.
Barclays, which reports tomorrow, is likely to make profits of more
than £7bn despite being hit by debts from customers failing to make
credit card payments. The country's third-biggest bank may signal
an attempt to pull back from riskier loans with reports yesterday
that it was considering the sale of its Monument operation, which
targets lower-income customers.
Banks set the scene for their record tally after reporting a
combined £20bn profit for the first six months of 2006. They
swallowed charges of more than £2.5bn in the first half to cover
the cost of customers struggling to repay loans.
Though bad debts will again be closely watched, there is also
speculation that the end of "free" banking is not far away.
Intervention by the competition authorities into a variety of areas
- ranging from credit cards to payment protection and last week the
voluntary banking code itself - has led to forecasts that banks
will soon start to charge for even the most basic facilities.
HSBC's phone bank First Direct has initiated charges in some
instances and others may follow, according to Natasha Miller at
Accenture. "More of that will happen as banks show they've got to
fund the cost of banking," she said.
Scrutiny of bad debts may occupy investors most, though. Lloyds
TSB, the country's largest unsecured lender, and Barclays have felt
the most pain. In trading statements issued ahead of the reporting
season, they indicated that the picture may be stabilising. The
City will be watching for any fresh information about the impact
that individual voluntary arrangements are having on bad debts.
"They are going to be big numbers and they are going to be going
up," said John-Paul Crutchley, analyst at Merrill Lynch. "But there
should not be a lot of surprises and we should start to see
evidence of them stabilising."
Analysts at Keefe, Bruyette & Woods believe there will be only a
marginal deterioration in the situation.
Most of the rapid profits growth is expected to come from outside
the UK. Banking experts at Accenture believe that the major banks'
high-street businesses will show pedestrian growth in comparison
with the faster pace of expansion in investment banking, corporate
markets and investment management.
Some banks also face scrutiny of strategies on acquisitions and
disposals. Analysts at KBW wonder if Barclays - often cited as a
target for Bank of America - is eyeing a deal in the US after
taking out a $400m sponsorship deal. Standard Chartered may also be
planning acquisitions, the KBW analysts said.
At Fox-Pitt Kelton, analysts regard Barclays as a "hunter, not the
hunted" and they see Alliance & Leicester and Bradford & Bingley as
the mostly likely targets.
Lloyds TSB, often also seen as a takeover target, will face
questions about its plans for Abbey Life amid reports that it may
sell off the insurer, which has been closed to new business for the
past six years. Lloyds declined to comment.
HSBC caused most excitement in the run-up to the reporting season
by admitting it is increasing its bad-debt provision to cover poor
lending decisions in its US mortgage business. The chairman and
chief executive usually split up to present the figures to
audiences in Hong Kong and London simultaneously, but this year
Stephen Green and Michael Geoghegan will both be in London to face
hostile questions. They may point to rapid growth in Asia to
deflect attention from their US problems. Even so, the consensus
for its profits - in the range of $21.9bn to $23.2bn - signals that
the City believes the bank will still produce record results.
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