Are Citi and Goldman Finally Facing the Music?

Citigroup's CEO Vikram Pandit held a town hall meeting intended to boost morale, and then announced that the bank will be eliminating more than 50,000 jobs or about 14% of its workforce.  I'm not sure how that town hall meeting was supposed to bring anyone back from the ledge, but at least the bank is getting realistic.  Citigroup announced that the company was planning to reduce expenses by 20%, targeting 2009 expenses of $50 to $52 billion.  The reports do not mention whether Citi plans to cuts the rest of its dividend.  But at some point it should sink in that paying a government-sponsored dividend in these times is flat-out moronic, not to mention politically unwise.

Meanwhile, in a masterful public relations move, top executives at Goldman Sachs have decided to forgo their 2008 bonuses.  Although Goldman has (so far) had a reasonably profitable year in what has been a disaster for other banking institutions, senior management has figured out that it is far less painful to give up a bonus than try to explain their compensation to Henry Waxman.  It is hard to make a case that your executives "deserve" millions in pay when the investment bank is surely being kept afloat by the Fed through its numerous new toxic-asset financing facilities.  Furthermore, partners at Goldman make $600,000 in salary and have all been showered with millions in compensation for the past several years.  Nobody at the senior ranks of Goldman is going to starve without a bonus this year.  Employees of Goldman Sachs are no doubt nervous about this announcement as it has implications for their own end-of-year compensation.

It is widely known that securities industry professionals are an extremely well-compensated lot.  The industry is clearly shrinking and many who were accustomed to getting paid hundreds of thousands and even millions a year are now facing the prospects of living off of their salaries or being unemployed for a very very long period of time.  The interesting follow-up question remains:  How will the contraction of the securities industry affect other sectors of the economy that thrived off of the Wall Street boom of the last few years?  It is widely known that investment banks were leveraged 35-to-1 during the boom.  But how leveraged were the bank's employees?  While it is certainly probable that some percentage of securities industries professionals lived within or even beneath their means, it seems more likely that a large percentage expected to collect huge bonuses every year to maintain their extravagant lifestyles.  How many of those shiny new Manhattan luxury condos are going to come on the market within the next two months?  What will this do to other luxury goods retailers?  Villa rentals in the Caribbean?  Prices on contemporary art?  Ferrari dealerships?  Secondary home prices in the Hamptons and Nantucket?  The list goes on and on.  But I suspect that if you're in the market for a slightly used Rolex, you're probably going to get a great deal.