A Stern Glance

I’d like to start with an overview of the industry’s performance, and then talk about emerging liquidity problems that we’re seeing across the industry, and the need for a rainy day backup plan to raise cash quickly.

2nd quarter bank earnings

As you’ve probably heard by now, industry results in the second quarter were pretty dismal.

The industry earned just $5 billion in the second quarter, which is well below the $30 billion-plus record earnings that we had been seeing over the past few years.

By any yardstick, it was another very rough quarter.

But the results were not surprising as the industry coped with financial market disruptions, the housing slump, worsening economic conditions, and the overall downturn in the credit cycle.

The main reasons for the drop off are the same that we’ve been seeing since the second half of last year:

• declining non-interest income,
• rising non-interest expense,
• decrease in gains on securities sales,
• and mounting loss provisions.

The most significant negative factor overall in the second quarter was increased expenses for credit losses. Read the rest of this entry »

The nation’s unemployment rate zoomed to a five-year high of 6.1 percent in August as employers slashed 84,000 jobs, dramatic proof of the mounting damage a deeply troubled economy is inflicting on workers and businesses alike.

The Labor Department’s report, released today, showed the increasing toll the housing, credit and financial crises are taking on the economy.

The jobless rate jumped to 6.1 percent in August, from 5.7 percent in July. And, employers cut payrolls for the eighth month in a row. Job losses in June and July turned out to be much deeper. The economy lost a 100,000 jobs in June and another 60,000 in July, according to revised figures. Previously, the government reported job losses at 51,000 in each of those months.

The latest snapshot was worse than economists were forecasting. They were predicting payrolls would drop by around 75,000 in August and the jobless rate to tick up a notch, to 5.8 percent. The grim news comes as the race for the White House kicks into high gear. The economy’s troubles are Americans’ top worry.

Job losses in August were widespread. Factories cut 61,000 jobs, construction firms eliminated 8,000 jobs, retailers axed 20,000 slots, professional and business services slashed 53,000 positions and leisure and hospitality got rid of 4,000. Those losses swamped employment gains in the government, education and health.

Job losses at all private employers — not including government — came to 101,000 in August.

The government said workers age 25 and older accounted for all the increase in unemployment in August.

The Commerce Department reported today that productivity, the amount of output for every hour of work, jumped 4.3 percent at an annual rate in the April-June quarter, as labor costs fell at an annual rate of 0.5 percent.

While rising wages and benefits are good news for workers, if those gains outstrip the increase in productivity, it raises the risk that inflation could surge. But the newest productivity report should be welcome news at the Federal Reserve, which has been worried that a big jump in energy and other commodity prices earlier this year could lead to a boost in inflation pressures. Read the rest of this entry »

Construction spending took a bigger-than-expected tumble in July as housing activity dropped to the lowest level in seven years and nonresidential activity fell for the first time in seven months.

The Commerce Department reported today that construction spending declined 0.6 percent in July, double the 0.3 percent decrease analysts had been expecting.

Housing activity fell for a 16th consecutive month, declining 2.3 percent to a seasonally adjusted annual rate of $357.8 billion. That was the lowest level since March 2001, the start of the last recession. Read the rest of this entry »

Personal income tumbled unexpectedly in July and inflation-adjusted spending shrank at sharpest rate in four years as the lift from government stimulus checks waned, a Commerce Department report on Friday showed.

A big jump in prices pushed inflation to a 17-year high, the Commerce Department said, eroding what little spending power consumers had. The report suggested the economy’s stimulus-related momentum was fading after a surprisingly strong second quarter. Read the rest of this entry »