With the market still trying to digest the effect of sub prime mortgage defaults and with many players taking assertive action to refinance themselves , such as CIT on March 20 ( see previous entry. “CIT Unveil Downsizing Strategy”) April proved to be another eventful month in terms of corporate refinancing or disposals.
Not surprisingly, CIT announced the cessation of its Student Loan Origination business which has previously haemorrhaged losses. April 17 also saw CIT announce a 1st Qtr Loss of $257 million, an ROE of -15.8% albeit they also confirmed that their liquidity plan was progressing well. Employee headcount totalled approximately 6,100 at March 31, 2008, down from 6,700 at December 31, 2007, and 7,500 a year ago. CIT “eliminated” to quote Jeff Peek, 8% of the global workforce and with the closure of the Student Loan operation, he expects to add another 150 people to that list in the second quarter. Talking to analysts, Jeff Peek stated “We were disappointed with the Vendor Finance results this quarter, which were impacted by a $33 million impairment charge related to the Dell buyout. Also the continued illiquidity and syndication and the securitization markets, and, of course, the lack of equity income from the DFS joint venture all contributed to the results for Vendor Finance. We have initiated several changes in this business, including a reduction in operating expense levels. In the quarter, we reduced staff in vendor globally about by 7%, which would be 150 positions, and we will take additional actions going forward to better align operating expenses with revenues, particularly in some of our business in Europe.”
Elsewhere in April, Siemens Financial Services offloaded three business, selling Siemens Leasing & Siemens Finance to De Lage Landen in Hungary whilst it also sold its single invoice factoring business to UK based Bibby Financial Services.
Economic bellwether, GE also unveiled 1st Qtr Earnings albeit below previous expectations that according to Jeff Immelt (as quoted by the The New York Times) “were in the bag”. Earnings were off, Immelt said, due to “……the financial services environment was very difficult and became even more difficult late in the quarter and Commercial Finance and GE Money were down about 20%”
Being such a vast group GE enjoyed the ability to offset these financial services double digit earnings decreases by double digit increases elsewhere with its infrastructure businesses. Explaining the decline, Keith Sherin, CFO cited falling commercial real estate sales, down almost 60% in the quarter in addition to GE’s inability to syndicate or sell off tranches of business it had expected to generate fees on. Essentially this is an issue facing all lessors today with such tight liquidity in the market with those willing to invest being able to be choosy about credit quality and pricing.
Regardless of the downturn in fortunes, GE was still able to buy 7 equipment financing businesses from CitiCapital, who themselves are undergoing a restructuring brought on by the current economic climate. With 1400 employees in North America and $13.4billion in assets GE will now look to integrate Healthcare Finance, Private Label Equipment Finance, Material Handling Finance, Franchise Finance, Construction Equipment Finance, Bankers Leasing, and CitiCapital Canada. It is unclear at this stage, just how many of 1400 employees will now be in duplicate roles.
Elsewhere Royal Bank of Scotland, is seeking to re-enforce its capital base with a £12bn rights issue, leading some industry analysts to question the sanity of the recent ABN Amro purchase.
Summary
We can expect more news of “corporate restructures”, “business re-alignment”, “liquidity actions” and mergers or acquisitions as many of the larger and mid size players seek to survive or in some cases search for troubled competitors looking to sell. The one thing for sure is that, redundancies, lay-offs or “eliminations” will continue and when there are jobs around there will be a plethora of over-qualified individuals shooting for the same position. Happy days !