How Much Will Financial Aftershocks Imperil Recovery?

Two large financial events are brewing that both reflect the poor lending practices of the past several years and that have the potential to further weaken Anglo-Saxon economies. First, (and found in many other sources), the large lender CIT is in trouble:

CIT Hires Bankruptcy Specialist Skadden as Bond Access Wanes

July 11 (Bloomberg) -- CIT Group Inc., the century-old lender to 950,000 businesses that has been unable to persuade the Federal Deposit Insurance Corp. to guarantee its debt sales, hired bankruptcy specialist Skadden, Arps, Slate, Meagher & Flom LLP as an adviser amid a plunge in its stock and bonds. . .

The Wall Street Journal, citing people it didn’t identify, said the hiring comes as CIT prepares for a possible bankruptcy filing. . .

The federal agency, run by Chairman Sheila Bair, is in discussions with CIT about how the lender can strengthen its financial position to get approval, including raising capital, said one of the people. CIT’s measures to improve its credit quality, such as by transferring assets to its bank, have been insufficient, the person said.

Could a CIT bankruptcy create important negative aftershocks?

On a less macro issue, will a CIT filing help GE, which can pick up business as well as enjoy wider margins, or will it raise questions about whether GE Capital is as strong as Mr. Immelt claims?

Across the pond, the Sunday London Times reports (courtesy CR) in Lloyds braced for 13 (billion pound) writeoff:

LLOYDS BANKING GROUP is poised to write off as much as £13 billion on its loans to commercial property, businesses and mortgage holders as the crisis engulfing the taxpayer-backed bank deepens.

First-half results due to be posted in three weeks will show that its losses are accelerating, in spite of recent suggestions that the worst of the recession is over.

UBS analysts expect Lloyds to announce a bottom line half-year loss of £6.3 billion as a result of the soaring provisions.

The writeoffs for the first six months of the year would match the losses recorded by Lloyds TSB and HBOS in 2008, as they consummated their disastrous merger. The expected bad debt charge is almost twice what Lloyds paid for HBOS when they came together under the government’s watch last autumn. Total writeoffs for this year at Lloyds could exceed £20 billion.

These are large numbers. What's left of the company?

Things are so bad at Lloyds that:

Lloyds is also fighting off a full-frontal assault from Brussels, over claims it may have benefited too much from state aid.

Full-frontal?

The article goes on to praise the profitability of Lloyds. Profitable while losing money under the British equivalent of GAAP is a nice trick. Yes, of course when all Bank of England and British Government policy is directed at helping Big Finance, Lloyds can be profitable, but it continues to look just as Nassim Taleb has said, which is that over long periods of time, the banking industry is just like the airlines industry: net, it has not made a dime: losses have equalled or exceeded profits.

In the meantime, the Democratic National Committee is not readying the 2010 equivalent of "Springtime in America" ads for the midterm elections.

Dry financial powder may come in handy.

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Signs of the Tines

Signs of the tines (read on to find out about the "tine-y" porcupine):

First, from Calculated Risk:

Friday, January 16, 2009

Layoffs: I read the news today, oh boy! (DoctoRx: About an unlucky man . . .)

by CalculatedRisk on 1/16/2009 05:33:00 PM

WSJ: Circuit City to Liquidate, Meaning 30,000 Job Losses

Bloomberg: GE Capital May Cut as Many as 11,000 Jobs This Year

WSJ: Pfizer to Cut Up to 2,400 Jobs

WSJ: Google Plans 100 Layoffs of Recruiters

AP: AMD to cut 1,100 workers, 9 pct of staff

Reuters: Hertz to cut more than 4,000 jobs

Bloomberg: WellPoint Cuts 1,500 Jobs, Blames ‘State of Economy’

AP: Blue Cross Blue Shield to cut up to 1,000 jobs

Tampa Bay Business Journal: Report: Layoffs looming at Clear Channel

Clicking on some of these links provides more bad news. Google is also closing some engineering offices. Two days ago, GE Aviation (jet engines) announced that it planned to eliminate over 1000 salaried jobs.

In addition, consider the following: Layoffs at wind turbine and solar parts manufacturers described in a NY Times article today.

Oil layoffs begin (Williston Herald)January 16, 2009 – 11:11 am About 150 people are no longer working for Nabors Drilling USA in Williston as falling oil prices have produced layoffs that are likely to expand.

Seattle has a more or less weekly layoff update, it appears. Click on the link for gory details if you want to listen to a brief audio report.

As an ex- New Yorker and animal-lover, the saddest layoffs relate to the following (from the Gothamist):

Bronx Zoo, NY Aquarium Face Layoffs

"There's more bad news for New York's animals, and the humans that take care of them: The Daily News is reporting that Bronx Zoo and New York aquarium staffs are facing layoffs in light of the proposed budget cuts. "As many as 130 staffers could be laid off," they told the paper, who reiterates that "The Wildlife Conservation Society, which runs the facilities, is facing $15 million in government funding cuts from its $103 million annual budget this year, and the state will cut off all funding in 2010." The layoffs will hit everyone (and the porcupine was already let go), from administration to sales to groundskeeping—sending both union and non-union employees to the unemployment office. The news was delivered to staff yesterday by WCS President Steven Sanderson, who told the paper that, in the end, if they can't afford to keep the animals, "then we have to try to find a better place for them."


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