Weak Housing Blamed for Rising Financial-Sector Layoffs
The deepening housing slump has caused an alarming surge in job losses at financial services companies, and the end is nowhere in sight, consulting firm Challenger, Gray & Christmas said on Tuesday.
The industry has announced 87,962 job cuts so far this year, 75 percent more than the 50,327 recorded for all of 2006, Challenger said. Nearly one-fourth of this year's cuts have been announced in August alone.
Of this year's cuts, 35,830, or 41 percent, were tied to housing market troubles, including riskier subprime mortgages. Job cuts set by real estate and construction firms total 21,620, more than twice the number for all of 2006, Challenger said.
"Many companies expected the mortgage situation to implode; they've just been wondering when the bubble would burst," Chief Executive John Challenger said in an interview.
"But many are stopping on a dime, shutting down operations," he said. "Companies are not surprised by what's happening, but the reality of the situation and the speed with which it occurred is shocking."
The CEO said it could be months before housing-related job cuts peak.
Many companies exposed to the housing market have struggled with rising delinquencies and foreclosures, as mortgage rates reset higher and housing price appreciation slowed.
Meanwhile, credit in debt capital markets has tightened as investors grew unwilling to buy home loans once thought safe, starving many lenders of the cash they need to operate normally. Dozens of mortgage lenders have quit the industry this year.
In the last week, investment bank Bear Stearns, credit card issuer Capital One Financial and mortgage lenders Countrywide Financial and privately-held First Magnus Financial have announced 8,640 mortgage-related job cuts, Challenger said.
Another 2,400 cuts were announced by SunTrust Banks as part of the bank's existing cost-cutting program.
Only April has been a busier month for financial services job cuts, Challenger said. In that month, companies announced 33,789 cuts, including 17,000 by Citigroup and 3,200 by bankrupt mortgage lender New Century Financial.
John Challenger said it's understandable for workers to feel whipsawed. Countrywide, for example, cut 500 jobs last week after having added 6,931 jobs from January to July, with increases in every calendar month.
"It's devastating [for morale]," he said. "It's hard to keep morale up, given the boom-bust nature of the mortgage sector."