If you’re a big-time banker or trader, you should be happy. Fees and commissions are soaring. Your year-end bonus may set a record, again. The economy is humming. Customers are paying their bills. Life is good.
Too bad that was a year ago. Fast-forward. The easy money era is on hold. The private equity boom is over. Trading losses are mounting. So are write-downs, and there may be more. Jobs may be cut. Your bonus too. The housing boom: done. Mortgage defaults are soaring. Credit cards may be next. Analysts worry if your company has enough capital. And that common stock dividend?
It may be cut. Sure, stocks are near record levels, and it’s still cheap for many companies and individuals to borrow. But expectations for slowing economic growth, rising loan losses and debt write-downs make this a time for the banking industry to focus on limiting risks, not taking unnecessary ones. Those concerns mounted this week as CIBC World Markets analyst Meredith Whitney downgraded Citigroup Inc to „sector underperformer” from „sector performer.”
She said the largest US bank may need to raise more than $30 billion of capital and cut its dividend. Whitney said that could send its stock down to the low-$30s, about a third below where it was when Chief Executive Charles Prince took over in 2003. „When you have the biggest, supposedly safest financial company being accused of not having enough capital, what does that say about a lot of other banks?” said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York.
„It’s a major issue, and it’s not just Citigroup.” How bad those problems are, and how they might be fixed, or at least patched, will be among issues weighed at the Reuters Finance Summit in New York and London from November 5-8. Investors haven’t stuck around to see what happens. Through Wednesday, since Wall Street investment banks finished their last collectively strong quarter on May 31, the Amex Securities Broker-Dealer Index and Standard & Poor’s Financials Index were down 11%. The S&P 500? Up 1%. (Read more at Reuters)