Friday, March 6, 2009

Unemployment Hits 8.1%

The jobs report was as dreadful as expected by those who can still stand to look at economic headlines.  The economy lost 651,000 jobs and the unemployment rate leapt to 8.1%.  Revisions for the prior two months showed losses of an additional 161,000 positions bringing the total number of jobs lost since the recessions began in December 2007 to 4.4 million.  The jobs report is sobering and yet really makes you want to have a drink all at the same time.

Following the lead of other financial institutions looking to retrench, Wells Fargo slashed its dividend in order to save $5 billion annually.  Clearly there is no longer a stigma related to reducing the dividend as investors have begun to prefer the idea of their banking institution actually remaining a going concern over a quarterly dividend check.  JP Morgan and GE made the same announcement recently and I view these actions as prudent, but necessary, if an institution is going to survive the brutal downturn.

Finally, in the "investment bank that needs to finally go away" category, Merrill Lynch is once again in the headlines.  The bank informed regulators that it had discovered discrepancies in certain trading positions.  Conveniently, the losses, which occurred last year, weren't discovered until after Bank of America purchased the investment bank and allowed it to pay out accelerated bonuses.  The details are sketchy so far, but apparently a London currency trader who had recorded a trading profit of $120 million for the fourth quarter, may instead have lost a "large amount."  The Bloomberg story doesn't specify whether we are talking Nick Leeson-large or Jerome Kerviel-large.  At least we have some insight into how Merrill managed to punt $15 billion in the fourth quarter.     

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