Earnings Season: Jobs, Balance Sheets Teeter
A key piece of Wall Street's employment outlook will emerge this week, via layoff and write-off numbers that Citigroup and Merrill Lynch may announce alongside their full-year financial results.
Citi will unveil an estimated 20,000 layoffs as part of a comprehensive plan to slash costs and raise capital, CNBC reported late Sunday. This is the second time the network has scaled down its estimate of potential layoffs at Citi since reporting back in November the bank was planning to slash as many as 45,000 jobs.
CNBC also says Merrill Lynch has already begun laying off people, "but layoffs will be minimal." Instead, departures sparked by disappointment at the size of bonuses will account for the bulk of an expected 800 job cuts at the firm, according to the report.
Citi is set to report Tuesday, Merrill on Thursday.
Also, CNBC now says Citi's fourth-quarter balance sheet write-down due to sub-prime and other credit-related losses could be as high as $24 billion. That's above analysts' estimates, which center around $18 billion, according to Monday's Wall Street Journal. Two months ago, the bank estimated it would have to write down between $8 billion to $11 billion. For the third quarter, Citi took a $5.9 billion write-down.
Estimates of Merrill's fourth-quarter mortgage related write-down range from $12 billion to $15 billion. The larger figure was reported last Friday by the New York Times, citing unnamed sources the paper said were briefed on Merrill's plans. Merrill wrote off $8.4 billion in the third quarter and never issued its own estimate for the fourth-quarter toll.
To replenish capital, the banks could reduce stock dividends, sell off assets such as Merrill's minority stake in Bloomberg, and obtain outside investment. Both Citi and Merrill are widely reported to be close to announcing further equity injections from Asian and Middle East sovereign wealth funds and other big-ticket investors.
Saudi Prince Alwaleed bin Talal, already Citi's largest individual shareholder, is mentioned as the lead investor for the coming round in which the bank reportedly aims to raise $8 billion - $10 billion. However, Monday's Journal reports that China's government may block China Development Bank from investing $2 billion. In December, the Abu Dhabi Investment Authority paid $7.5 billion for a 4.9 percent stake in Citi.
For its part, Merrill Lynch is wrapping up a $4 billion capital deal led by the Kuwait Investment Authority, according to the Financial Times.
However, signs of a backlash are beginning to emerge. The Senate Banking Committee reportedly ordered the Government Accountability Office to investigate the resources and investing practices of sovereign wealth funds - including "what action can be taken to discipline them if they misuse their power."