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Monday, June 13, 2011
Analysis of the BLS Employment Situation Report - Private Industry adds 83,000 Jobs.
Bank CFOs: Pink Slips At The Ready If Revenues Come Up Short
By Matthew Monks, American Banker
June 9, 2011
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In banking, the phrase "expense reduction" is often a euphemism for "layoffs."
The chief financial officers of Comerica Inc. and Huntington Bancshares Inc. avoided the L-word when speaking to investors on Wednesday but said their institutions are prepared to cut workers if revenue stays weak or the economy gets worse.
Both are hoping to avoid layoffs by attracting new customers: Comerica, of Dallas, is in the midst of buying a rival Texas bank. Huntington, of Columbus, Ohio, is keeping branches open longer and spending heavily to advertise its no-new-fees approach to banking.
But mounting pressure to cut costs means both are ready to send out pink slips if growth does not materialize.
Roughly "60% of expenses are people," Beth Acton, the chief financial officer of the $55 billion-asset Comerica, said at a New York investor conference sponsored by Deutsche Bank. "That's the key driver of what you can do to really impact the bottom line."
Donald Kimble, the CFO of the $53 billion-asset Huntington, said new employees represent a substantial proportion of the "incremental investments" that it has flexibility in "adjusting." Payroll costs — like its advertising budget — can be cut swiftly, he said.
"The investments we have been making for the most part have been in variable costs, whether it's traditional marketing dollars or head count," Kimble said. "I think those adjustments can be made within a quarter. So I think it is something that can be managed very efficiently and [be] very timely."
Comerica and Huntington are in similar positions in terms of spending. They are among a class of banks committed to investing to promote expansion, even if in the short term it causes expenses to trend higher than many investors would like.
Last quarter, Comerica was spending about 69 cents for every dollar of revenue; Huntington, about 65 cents per dollar of revenue. Those expense-per-dollar ratios are high compared with other large and midsize banks. Wells Fargo & Co.'s, for instance, is about 63 cents.
Investors pay close attention to expense-to-revenue ratios because they indicate how efficient an institution is at making money. Banks can improve the figure by cutting costs, increasing revenue or both.
"What happens in many large companies, particularly financial services companies, when they just focus on cost … it makes the relationship with the customer worse," said Jim Rowe, investor relations director at Wells Fargo. "It affects their ability to raise revenue, and we're not going to do that," he said.
Wells recently launched a cost-cutting initiative but has not shared many details.
The company did not mention layoffs on Wednesday, though it said last month that it was in the midst of letting go of several thousand mortgage specialists amid the housing downturn. In addition, the $400 million to $500 million Wells is spending per quarter to integrate the former Wachovia Corp. should decline by the first quarter of next year, Rowe said. Wells had 270,200 full- and part-time workers at the end of last quarter, up about 2,800 from a year earlier.
Comerica sees cost-saving and revenue-generating opportunities in its pending acquisition of Sterling Bancshares Inc. of Houston, Acton said.
It will consolidate some back-office functions and gain access to more clients for Comerica's treasury and wealth advisory services, she said.
Comerica's biggest tool for cutting costs has been layoffs, Acton said. A 17% head count reduction in the three years through 2010 enabled the bank to hold expenses steady despite increases in merit pay and rising regulatory costs, she said.
It had 8,955 full-time employees as of last quarter, 260 fewer than a year earlier.
Comerica has found it can earn just as much revenue with fewer people and is not planning to hire as the economy rebounds. Instead, a double-dip could lead to more staff cuts, Acton said.
Huntington had about 11,300 employees at the end of last quarter. That is about 641 more than a year earlier.
June 9, 2011
PrintE-mailReprintsDiscuss this article Share
In banking, the phrase "expense reduction" is often a euphemism for "layoffs."
The chief financial officers of Comerica Inc. and Huntington Bancshares Inc. avoided the L-word when speaking to investors on Wednesday but said their institutions are prepared to cut workers if revenue stays weak or the economy gets worse.
Both are hoping to avoid layoffs by attracting new customers: Comerica, of Dallas, is in the midst of buying a rival Texas bank. Huntington, of Columbus, Ohio, is keeping branches open longer and spending heavily to advertise its no-new-fees approach to banking.
But mounting pressure to cut costs means both are ready to send out pink slips if growth does not materialize.
Roughly "60% of expenses are people," Beth Acton, the chief financial officer of the $55 billion-asset Comerica, said at a New York investor conference sponsored by Deutsche Bank. "That's the key driver of what you can do to really impact the bottom line."
Donald Kimble, the CFO of the $53 billion-asset Huntington, said new employees represent a substantial proportion of the "incremental investments" that it has flexibility in "adjusting." Payroll costs — like its advertising budget — can be cut swiftly, he said.
"The investments we have been making for the most part have been in variable costs, whether it's traditional marketing dollars or head count," Kimble said. "I think those adjustments can be made within a quarter. So I think it is something that can be managed very efficiently and [be] very timely."
Comerica and Huntington are in similar positions in terms of spending. They are among a class of banks committed to investing to promote expansion, even if in the short term it causes expenses to trend higher than many investors would like.
Last quarter, Comerica was spending about 69 cents for every dollar of revenue; Huntington, about 65 cents per dollar of revenue. Those expense-per-dollar ratios are high compared with other large and midsize banks. Wells Fargo & Co.'s, for instance, is about 63 cents.
Investors pay close attention to expense-to-revenue ratios because they indicate how efficient an institution is at making money. Banks can improve the figure by cutting costs, increasing revenue or both.
"What happens in many large companies, particularly financial services companies, when they just focus on cost … it makes the relationship with the customer worse," said Jim Rowe, investor relations director at Wells Fargo. "It affects their ability to raise revenue, and we're not going to do that," he said.
Wells recently launched a cost-cutting initiative but has not shared many details.
The company did not mention layoffs on Wednesday, though it said last month that it was in the midst of letting go of several thousand mortgage specialists amid the housing downturn. In addition, the $400 million to $500 million Wells is spending per quarter to integrate the former Wachovia Corp. should decline by the first quarter of next year, Rowe said. Wells had 270,200 full- and part-time workers at the end of last quarter, up about 2,800 from a year earlier.
Comerica sees cost-saving and revenue-generating opportunities in its pending acquisition of Sterling Bancshares Inc. of Houston, Acton said.
It will consolidate some back-office functions and gain access to more clients for Comerica's treasury and wealth advisory services, she said.
Comerica's biggest tool for cutting costs has been layoffs, Acton said. A 17% head count reduction in the three years through 2010 enabled the bank to hold expenses steady despite increases in merit pay and rising regulatory costs, she said.
It had 8,955 full-time employees as of last quarter, 260 fewer than a year earlier.
Comerica has found it can earn just as much revenue with fewer people and is not planning to hire as the economy rebounds. Instead, a double-dip could lead to more staff cuts, Acton said.
Huntington had about 11,300 employees at the end of last quarter. That is about 641 more than a year earlier.
Friday, June 3, 2011
Actual employment numbers not that bad
Outside the Box
June 3, 2011, 2:48 p.m. EDT
Actual employment numbers not that bad
Commentary: Just take a look at the not-seasonally-adjusted data
By Lee Adler
QUEBEC (MarketWatch) — The market was disappointed with today’s employment data. But actual total employment, as opposed to the widely reported seasonally adjusted numbers, was nowhere near the catastrophe that the market’s reaction made it seem. The problem was that economists’ expectations were misguided, partly as a result of their focus on seasonally adjusted fictitious data, which showed a gain of 54,000 for May.
Actual (not-seasonally-adjusted) payrolls were up 682,000, according to the BLS establishment survey. That’s not gangbusters in relation to other years, but it’s not that bad. Since 2001, the average gain in payrolls in May has been 764,000. 2010 had a very strong gain of 1.10 million. That number was an outlier. The best year before that was 2007 at 942,000.
Today’s reported numbers were worse than non-recession years, however. Only 2008 at 570,000 and 2009 at 269,000 were worse.
In addition to the establishment survey, the BLS also surveys households. The total number of employed persons (actual, not seasonally adjusted) according to the BLS household survey rose by 367,000. The average gain in total employed in May from 2001 to 2010 was 344,000. From this perspective, today’s number was a little better than average.
Employment growth had been slowing early this year. The histrionics surrounding today’s announcement are an artifact of the fact that many economists had assumed without good reason that the numbers would be much better. However, the unadjusted actual numbers in the household survey had shown a decline in growth momentum since the end of last year, and today’s data simply continues that trend. The slowing employment growth momentum this year has been concurrent with the decline in stimulus spending that spurred the employment gains in the first place. In that context, slowing employment growth should have surprised no one.
Employment usually peaks in July of each year. Total employment usually peaks in July. Therefore, we should find out just how weak the employment trend is over the next couple of months. The question is whether last year’s peak employment numbers will be broken, and if so, by how much. The first few months of seasonal decline in the second half could show a shift to negative momentum if the usual second half employment declines are greater than last year’s.
The population has been growing faster than employment. Even if total employment grows slightly year over year, if the growth is less than population growth, the employment-to-population ratio will continue to fall. Even though the economy might grow in nominal terms life will get harder for a growing number of Americans.
But to Wall Street and the markets, that matters not.
Lee Adler is the publisher of The Wall Street Examiner.
see full article: http://www.marketwatch.com/story/actual-employment-numbers-not-that-bad-2011-06-03?link=MW_latest_news
June 3, 2011, 2:48 p.m. EDT
Actual employment numbers not that bad
Commentary: Just take a look at the not-seasonally-adjusted data
By Lee Adler
QUEBEC (MarketWatch) — The market was disappointed with today’s employment data. But actual total employment, as opposed to the widely reported seasonally adjusted numbers, was nowhere near the catastrophe that the market’s reaction made it seem. The problem was that economists’ expectations were misguided, partly as a result of their focus on seasonally adjusted fictitious data, which showed a gain of 54,000 for May.
Actual (not-seasonally-adjusted) payrolls were up 682,000, according to the BLS establishment survey. That’s not gangbusters in relation to other years, but it’s not that bad. Since 2001, the average gain in payrolls in May has been 764,000. 2010 had a very strong gain of 1.10 million. That number was an outlier. The best year before that was 2007 at 942,000.
Today’s reported numbers were worse than non-recession years, however. Only 2008 at 570,000 and 2009 at 269,000 were worse.
In addition to the establishment survey, the BLS also surveys households. The total number of employed persons (actual, not seasonally adjusted) according to the BLS household survey rose by 367,000. The average gain in total employed in May from 2001 to 2010 was 344,000. From this perspective, today’s number was a little better than average.
Employment growth had been slowing early this year. The histrionics surrounding today’s announcement are an artifact of the fact that many economists had assumed without good reason that the numbers would be much better. However, the unadjusted actual numbers in the household survey had shown a decline in growth momentum since the end of last year, and today’s data simply continues that trend. The slowing employment growth momentum this year has been concurrent with the decline in stimulus spending that spurred the employment gains in the first place. In that context, slowing employment growth should have surprised no one.
Employment usually peaks in July of each year. Total employment usually peaks in July. Therefore, we should find out just how weak the employment trend is over the next couple of months. The question is whether last year’s peak employment numbers will be broken, and if so, by how much. The first few months of seasonal decline in the second half could show a shift to negative momentum if the usual second half employment declines are greater than last year’s.
The population has been growing faster than employment. Even if total employment grows slightly year over year, if the growth is less than population growth, the employment-to-population ratio will continue to fall. Even though the economy might grow in nominal terms life will get harder for a growing number of Americans.
But to Wall Street and the markets, that matters not.
Lee Adler is the publisher of The Wall Street Examiner.
see full article: http://www.marketwatch.com/story/actual-employment-numbers-not-that-bad-2011-06-03?link=MW_latest_news
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