Wall Street’s New Priority: Generate Cash and Stabilize Operations
Following the subprime meltdown and the resulting credit crunch, many Wall Street brokerage firms and investment banks are frantically working to generate the hefty sums of cash required to stabilize their operations.
Numerous banks have sold loans – especially leveraged buyout (LBO) loans – at big discounts in order to produce cash and strike these loan liabilities from their balance sheets. Since the beginning of the year, bank holdings of LBO loans plummeted from $163 to $129 billion. Banks are even stepping out from their lending groups to sell their pieces of the LBO loans for a portion of their face value. For instance, Goldman Sachs offers its part of Chrysler’s $7 billion in loans for as low as 72 cents on the dollar.
The selling isn’t just limited to loans; some banks are trimming parts of their business. Citigroup’s Australian retail brokerage unit is reported to be on the market. In addition, Citi will reportedly shut down branches in Taiwan and combine others in Singapore and Hong Kong. UBS, AG, the large Swiss bank, may sell business units to generate cash. So far, UBS denies reports of selling its U.S. PaineWebber brokerage unit.
Throughout Wall Street, job cuts continue. Because of weakening credit conditions, Wall Street firms eliminated around 10,000 jobs last year. Citigroup is expected to lay off at least 5% of its securities unit employees. In January, the firm said it plans to trim 4,200 employees. According to a report this week, Citi will fire 2,000 investment bankers and traders by the end of this month. (It’s uncertain whether these cuts were included in the plans previously announced.)  Richard Bove, a Punk Ziegel & Co. analyst, says Citigroup will drop a total of 30,000 jobs.
At Goldman Sachs, as many as 1,500 people, or 5% of the firm’s employees, may lose their jobs – but, according to the firm, not because of layoffs. Goldman Sachs maintains that these cuts only affect underperformers. UBS recently announced that it may eliminate up to 8,000 jobs across various business units, totaling 5% to 10% of its workforce. Then, of course, there are the many Bear Stearns employees who will lose their jobs after the merger with JP Morgan Chase.
For those who work on Wall Street or run a Wall Street firm, shaky times lay ahead, to say the very least. For the public, watch your investments in the coming months to see how these troubles may affect you.
Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.Â
