Financial-Sector Job Cuts Announced: 200,000

By Simeon Hyman | January 30, 2012
  • What's Happening

    What???s Happening

    (Corrects to remove inaccurate statement about ING Groep reducing positions.)

    More than 200,000 job cuts were announced in the global financial-services industry last year and many of those will take place this year and next. Among those chopping heads: Bank of America is cutting 34,075 employees and HSBC Holdings plans to reduce staff by 33,295. Other layoffs are in the works at Citigroup and Northern Trust, which plan about 4,500 layoffs each. That dismal news mirrors dismal fourth-quarter earnings -- thus far one-third of all financial companies have reported numbers and they are down 26 percent from the prior quarter. That's much worse than analyst expectations of a 9 percent decline.

    Editor's Note: This slideshow has been corrected.

    Photograph by Stephanie Pfriender Stylander

  • Why It Matters

    Why It Matters

    Weakness in the global financial-services sector isn't stopping investors from buying shares. Since Jan. 1, the S&P Bank Composite Index has performed twice as well as the S&P 500 Index, itself up 4 percent. The earnings picture is rosier at smaller commercial and regional banks, whose fourth-quarter earnings were up 21 percent over the previous year, according to Bloomberg data. Still, even big, diversified financial-services companies such as Goldman Sachs, Bank of America and Morgan Stanley -- which reported an aggregate 44 percent drop in earnings -- haven't been punished in the market. The S&P's Diversified Financial Companies Index is up 12 percent this year.

    Graphic by Charlos Gary/Bloomberg

  • What It Means for Your Portfolio

    What It Means for Your Portfolio

    Companies that announce big cuts in their work force -- on top of poor earnings -- presumably anticipate slow or no growth. Investors may wonder why their stocks are rising. Fundamental analysis suggests that financial services stocks are undervalued. The financial sector price-to-book-ratio (market value relative to the accounting value of a company's assets) of 1 is far below pre-financial-crisis levels when price-to-book was as high as 2 in 2006. Of course, if more bank writedowns materialize, these stocks may be hit again. However, if the worst bank losses are over and the industry's job cuts have brought down costs, investors may find investing in financials rewarding.

    Graphic by Charlos Gary/Bloomberg

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