Barclays likely to layoff 2,100 jobs

Financial services major Barclays is to layoff 2,100 in investment banking and money management, as part of its cost cutting measures.

"Barclays is cutting about 2,100 jobs worldwide in investment banking and money management as it slashes costs to cope with the fall-out from the credit crisis", The Financial Times said.

According to FT, the company is cutting 1,300 people from Barclays Capital, the debt-focused investment banking business, 500 from the Barclays Wealth private banking arm, and 330 in asset management business Barclays Global Investors. Overall, the cuts amount to 7 per cent of the three divisions' staff, it added.

Noting that Barclays declined to reveal where the job cuts would come, the newspaper said that the axe is expected to fall heavily in London and New York.

However, the bank would continue to hire in areas such as equities, the report published online said.

Last year, Barclays had acquired the US operations of bankrupt Lehman Brothers.

Financial Times reported that at Barclays Wealth, cuts are expected in London, Glasgow and the Channel Islands. Quoting Unite, which represents staff at Barclays Wealth's division, the daily said, "We cannot continue with this situation of daily job cuts without any justification or explanation of the broader strategy for the bank."

"The bank, which built the units aggressively over the past five years to account for almost half of revenue, said it wanted to be 'appropriately sized', given the current market conditions," it added.

The move is likely to spark fears of further cost-cutting in Barclays' retail and corporate banking division, which includes its bank branch network, the report noted.

Agencies

Will oil, gas spending drop in 2009?

Global spending on oil and gas exploration and production will shrink 12 per cent to $400 billion in 2009 as the steep slide in energy prices and tight credit markets reverse a six-year trend of rising budgets, analysts at Barclays Capital said on Friday.

Those spending cuts threat to curtail growth in oil and gas output, potentially supporting energy prices that have been in a freefall since hitting peaks in July. A steady stream of energy companies have been announcing budget cuts for 2009 as the price of oil slumped this week to its lowest levels in 4-1/2 years, and Barclays said that could be pushing spending even lower than its report showed.

Another analyst agreed, saying companies were being prudent during the economic crunch to protect cash reserves they had built up during the four-year run-up in energy prices. "My guess is the (report) is probably overstating what is going to be spent," said analyst James Halloran of National City Private Client Group, which manages $26 billon in assets.

Analysts said that while the drop in spending threatens to slow down growth in world energy production, the impact depends on how the smaller budgets are used. "It may be that a combination of higher utilization of more efficient rigs and lower costs of drilling will equal or more than compensate for the decline in the absolute amount of capital devoted to upstream expenditures," said Edward Morse, chief economist at LCM Commodities.

He added that oil firms may be negotiating with their suppliers and contractors to lower project costs. The soft energy market has also darkened the world oil supply picture by leading OPEC to announce three rounds of cuts that would trim 4.2 million barrels per day of oil production, or 5 percent of global output.

Spending in the United States is expected to show the sharpest drop, falling 26 percent to $79 billion from the 2008 mark of $106 billion, Barclays analysts James Crandell and James West said in their semiannual report based on a survey of oil and gas companies.

In the United States, Chesapeake Energy, the largest US natural gas producer, is expected to cut spending by 51 percent, the analysts said, while Devon Energy is likely to cut by 44 percent, EOG Resources by 34 percent and SandRidge Energy by 78 percent.

Oil prices peaked above $147 a barrel in July, but have tumbled more than 75 percent since then to trade near $35.75 a barrel as economic weakness hits fuel demand. Shares of oilfield service companies face the greatest risks from the cuts in spending, since it is their drilling rigs, maintenance operations and other activities that energy producers reduce when budgets are slashed.

But those stocks have already been battered, Halloran said, and may see only a limited impact from new reports of spending cuts. The Philadelphia Oil Service index, which includes companies like Schlumberger Ltd, Halliburton Co and Transocean Ltd, has fallen 68 percent since July.

Still, the Barclays analysts said they recommended shares of Weatherford International, Halliburton, Cameron International, Oceaneering International, Tidewater, Dril-Quip, Core Laboratories NV as the best sector bets.

Regions under pressure

Overall, companies' Canadian spending budgets will fall 23 percent to $22 billion, the lowest level since 1999. Husky Energy is likely to cut its spending 47 percent in Canada, while Devon's budget there will fall 71 percent, Talisman Energy by 47 percent and EnCana Corp by 16 percent.

Spending in the United States by Exxon Mobil, the world's largest publicly traded oil company, is likely to drop 17 percent, or $450 million, to $2.15 billion, while its Canadian budget will shrink 14 percent to $375 million. Its spending elswhere will rise 14 percent to $14.98 billion.

The overall drop in spending outside North America is expected to be a more moderate 6 percent to $300 billion. Russia, the UK North Sea, Saudi Arabia and Venezuela were expected to see some of the sharpest spending declines, while the rest of the Middle East, North Africa and Mexico were likely to post increases.

In 2008, spending rose about 22 percent globally, the analysts said. The analysts said the budget forecasts were based on average prices of $58 per barrel for oil and $6.35 per thousand cubic feet for natural gas.

Source; Agencies

Barclays to offshore 66 jobs to India

Banking major Barclays has announced plans to offshore 66 jobs from its site in Poole, Dorset, to India, sparking protests by bank employees and worker unions.

The bank said the redundancies were part of 1,100 job losses at Poole announced last year, alongside a decision to farm out some work overseas.

Finance union Unite, however, said that the scope of the job cuts was changing and that the 66 job losses were new.

Unite official Steve Pantak said, "The latest job cuts by Barclays in Poole are very alarming for us. The 66 roles are to be offshored to India. Unite believes that there is now real doubt about the future of Barclays in the Poole area.

"The decision earlier in the year to cancel the new building, coupled with the accelerated winding down of jobs in Barclays House, leads Unite to believe that there is a real threat to the future of all staff in Poole."

Pantak called on the bank to give solid assurances on its "commitment to Poole and the remaining jobs in Barclays House."

Earlier this week, Barclays said that it was cutting more than 100 jobs in Cardiff under plans to outsource work in a department that deals with accounts when a customer dies.

Source: Agencies

US govt bails out Citigroup, but will it survive?

“Amazing how much damage the lame ducks can do in the time remaining.” — Paul Krugman, Noble Prize Winner in Economics, on the bailout of Citigroup by the incumbent US government
America’s cup of woes is spilling over, rather messily, with its long-venerated financial institutions suddenly faced with obliteration and forced to seek a bailout.

Citigroup, the latest in a list getting longer, has just been promised a $20 billion cash injection, besides a whopping government guarantee for its troubled assets and mortgages.
As its stock price fell 60% over last week, the world’s largest financial services firm with revenues of around $159 billion last year, kept repeating over and over that it had “very strong capital.”

US govt agrees to $306-b rescue plan for Citigroup
It took just one weekend for it to go from very strong to very weak, necessitating a bailout of this order.

On Friday, the stock tumbled by over 60% to $3.77, down from a peak of $56 in 2006.
Predictably, the bailout news did it some good on Monday. At the time of writing this piece, the stock had gained around 61% to $6.08 on the New York Stock Exchange.

Barclays gets $10 b as Citi rescue resounds
DNA Money attempts an overview of the situation, the intervention and its implications near and far.

What’s the rescue all about?
The US government has decided to guarantee $306 billion of troubled mortgages and other assets of Citigroup. The Treasury department will also inject $20 billion of cash into the firm.
This will be over and above the $25 billion Citigroup got under the Troubled Asset Relief Programme (TARP, as the $700 billion bailout package is officially named).

On its part, the firm will issue preferred shares worth $27 billion to the government and pay a dividend of 8% a year.

Analysts following the firm have been expecting this move. “While the conventional wisdom says Citi is too big to fail, the reality is it’s too big to manage,” wrote Vernon Hill, founder and former chairman, president, and chief executive officer of Commerce Bancorp on www. seekingalpha.com a couple of days back.

“As a result, the company has become a publicly traded incarnation of Murphy’s Law: anything that can go wrong almost certainly will — and probably sooner rather than later. And $25 billion in TARP money isn’t going to do much to turn things around.”

What will be the cost of the bailout?
Citibank will have to pay a dividend of $2.16 billion per year to the government on the preferred shares. It will also have to pay $1.25 billion @5% on the $25 billion it received through TARP. This means the bank will have to make a profit of more than $3.41 billion before the shareholders can take home anything.

Citigroup shareholders will be diluted in the “near term by the cost of the incremental preferred stock,” Morgan Stanley analysts Betsy Graseck and Cheryl Pate wrote in a report on Monday.

Who will absorb the losses?
Citigroup will have to absorb the losses to the extent of $29 billion, including the reserves. Beyond that, any losses will be shared between the government and Citi. The government, through its three agencies — the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp — will take on 90% of the losses, leaving 10% for Citi to bear.

What are the conditions associated with the bailout?
Under the terms of the deal, the institution has been prohibited from paying common stock dividends of more than $.01 per share per quarter, for the next three years, without the approval of the US government. Further, any executive compensation plan including bonuses to employees must get the approval of the US government.

But experts aren’t happy with this move. Robert Reich, a former labour secretary of the US government under Bill Clinton wrote on his blog : “This is not a particularly good deal for American taxpayers, but it is a marvellous deal for Citi… The senior executives of Citi, including those who have served at the highest levels in the US government, have done their jobs exceedingly well.”

Ironically, the same executives who got Citi into the mess in the first place, continue.

Who was responsible for the mess?
Like other banks and financial institutions in the US, Citigroup also got carried away while investing in sub-prime mortgages. Also, its risk management system had stopped working.
New York Times said in a report said that Charles O Prince III, Citigroup’s chief executive before Vikram Pandit took over, learnt for the first time in September 2007 that the bank owed $43 billion in mortgage related assets. At that point, Prince asked Thomas G Maheras who oversaw trading at the bank if things were okay.

Maheras replied in the positive, then and every time the question cropped up. By the time the risk management team of the bank got around to assessing the risk related to these mortgages, it was too late. The bank had to announce billions of dollars in losses.

Analysts are even questioning the business model of Citigroup. They feel the company had spread itself too thin. “The whole idea behind Citigroup was flawed from the start. Unbeatable scale in financial services? Forget it. We now see the good Citi’s size has done for investors: the company has an incoherent, unworkable business model. It is run by a senior management team that’s largely unproven, with scant experience, operating a large financial institution,” wrote Hill.
Will the bailout and the guarantee be enough?
This is a tricky question. Citigroup has assets worth nearly $2 trillion on its books. It also has nearly $1.23 trillion in off-balance sheet assets.
“The roughly $300 billion pool of assets that are included in the rescue plan represent only a sliver of the company’s more than $3 trillion in assets, including its holdings in off-balance-sheet entities. Jitters about such “hidden” assets helped trigger the nose-dive in Citigroup’s stock last week. Among the off-balance-sheet assets are $667 billion in mortgage-related securities,” the Wall Street Journal reported.

Also, the troubled assets are not being taken off Citigroup’s balance sheet, and this has not gone down well with analysts.

What next?
Analysts are sceptical of the bailout.
“No one knows who’s going to lead it, over the medium term; hell, nobody knows who’s going to own it, over the medium term. The US government might have guaranteed a chunk of Citi’s assets, but it’s done nothing about Citi’s liabilities, including hundreds of billions of dollars in unguaranteed deposits,” Felix Salmon, a widely followed analyst in the US wrote on www.seekingalpha.com.

“Nothing in today’s announcement makes Citi immune to a bank run, which means there’s a very good chance the stock will remain under significant pressure. Given that it was the tumbling stock price which was responsible for this deal in the first place, one wonders if there was any point to this exercise at all,” Salmon wrote.

Analysts also feel that after the Citi bailout, it will be very difficult for the US government not to bail out the likes of General Motors, where so much more is at stake.

Source: DNA Money