According to the latest projections, more than 250,000 jobs will be lost in the American banking sector due to the ever deepening economic turmoil.
That Merrill Lynch, which in 2008 held assets in excess of $1 trillion, can be pulled under the leaking umbrella of Bank of America in search of shelter, is a telling indicator indeed of the how deep the wounds inflicted on the financial sector have become.
One of the key economic indicators that tell a story behind an economy is the unemployment rate. As of November 2008, the United States has experienced unemployment levels not seen since 1994 as American companies cut back on expenses, slash payrolls, and literally put thousands of workers to “the streets”. This sets the background for the sharpest decline of the economy in decade. It will be tough to get out of this financial rut for many years to come.
The jobless rate in October 2008 rose to 6.5% from 6.1% in the previous month. Companies slashed 240,000 jobs in September and 284,000 jobs in October, the largest two-month loss since 2001. As the surge of job loss continues, the government is pressured to put together an economic plan that will help America’s unemployed.
The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S. government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access and capital.
As part of the agreement, Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.
To read full press release click here.
Bank of America and JP Morgan Chase — two of the US’ top banks, and now both in the limelight.
Aside from having equally received a huge chunk of the $700 billion government bailout plan, $25 billion each to be exact, the two banks have also been rather busy lately expanding their respective financial empires with a series of takeovers and mergers involving no less than once-mighty names in the banking and investments industry: Bear Stearns and Washington Mutual, Countrywide Financial and Merrill Lynch.
Under the program, Treasury will purchase up to $250 billion of senior preferred shares on standardized terms as described in the program’s term sheet. The program will be available to qualifying U.S. controlled banks, savings associations, and certain bank and savings and loan holding companies engaged only in financial activities that elect to participate before 5:00 pm (EDT) on November 14, 2008. Treasury will determine eligibility and allocations for interested parties after consultation with the appropriate federal banking agency.
“Today we are taking decisive actions to protect the US economy. We regret having to take these actions. Today’s actions are not what we ever wanted to do – but today’s actions are what we must do to restore confidence to our financial system.” - said Secretary Henry M. Paulson, Jr.
At stake is the $339 billion in Wachovia deposits and its network of more than 3,300 branches throughout the country that would solidify the winner as being in the top tier of U.S. retail banking.
Here is quick overview from last week events:
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