The Global Financial Industry Continues to Crumble

Nearly lost in the news that MF Global (NYSE: MF) has collapsed under the strain of poor gambles about the EU’s future were announcements from larger banks that will cut their staffs. This is further evidence that the global financial industry is in deep trouble.

Nomura (NYSE: NMR) posted a loss of $591 million last quarter and said it would triple the size of planned cost cuts to $1.5 billion. Analysts who watch the company expect thousands of layoffs in the Japanese firm’s European operations.

Credit Suisse Group (NYSE: CS) reported that it would need to cut 3% of its staff, which will take total layoffs announced by the bank to 3,500 this year. The financial firm said its investment bank business is in trouble.

Bank of America (NYSE: BAC) will lay off 30,000 people. Goldman Sachs (NYSE: GS) also will cut staff. The announcements now stretch from banks to investment houses and from U.S. firms to those based outside America.

The personal tragedy of the layoffs is coupled with a realization that the financial industry’s problems have started to worsen again. Companies within the industry appear to be ready to cut costs through this year into next. That certainly will happen if current earnings forecasts for many firms within the industry are correct.

Bank earnings are, to some extent, a proxy for the health of the entire credit and financial system. Bad bank results means that corporations and individuals that do business with banks have begun to struggle in greater numbers. Each time a bank cuts a worker, it is a sign that there is some problem with a set of that bank’s customers. Banks may make money or lose money when they trade for their own accounts, but their primary role is to fund people and enterprises across the entire economy.

Bank layoffs are not just bad for banks. They are an omen for the financial prospects of the rest of the economy.

Douglas A. McIntyre