Enjoy the next few days if you can, but don't expect a 'Happy New Year' if you work in the financial markets. You might think that the last 3 months have been tough, but you ain't seen nothing yet, as large firms get ready to announce even more huge write-downs and cut more heads.
CNBC's Charlie Gasparino (who seems to have a handle on these things) has now said that Merrill Lynch is expected to announce a further 1,600 job losses when it posts its fourth-quarter results (which are expected to be terrible because of another bout of asset write-downs) next month. Gasparino has said that around 3% of the firm's global headcount will be cut, mostly in trading and sales and related areas. The investment banking and private client groups, however, which continue to do well, are thought likely to be largely left alone.
Merrill Lynch, however, will certainly not be the only firm feeling the pain in early 2008. Goldman analyst William Tanona has now come out and said in a report that 'fourth-quarter trading results are likely to be among the weakest we have seen for some time (no kiddin'!)'. Reuters reports that he expects Citi to write-down as massive $18.7bn for CDOs in the final quarter, with the figures for Merrill coming in at $11.5bn and JPMorgan at $3.4bn. Tanona also said that 'it will be a couple of quarters before the current credit crisis is fully digested by the markets', and estimates that, even after the expected fourth-quarter write-downs, Citi will remain exposed to around $24.5bn in CDOs, with Merrill on $7.7bn and JPMorgan $5bn. Citi and Merrill, with new CEOs who will want to clean house early, are expected to write-down assets more aggressively.
Bloomberg reports that Citi, Goldman, JPMorgan Chase and Morgan Stanley are currently hawking around discounts of up to 10% to clear a $231bn backlog of high-yield bonds and loans. And The Wall Street Journal reports that, in the short term, some firms will continue to seek foreign investors, sell businesses and snap up loans from central banks in order to shore up their finances. Citi and HSBC are rumoured to be thinking of ditching what are now seen as non-core businesses to raise funds.
The Financial Times reports that over 10 North American banks and fund managers have now collectively injected $3bn into their own troubled money market and cash funds since October to stem losses. Fund manager Janus became the latest firm to do so, putting up $109m to buy asset-backed securities from its funds.
Finally, an analysis undertaken by Bloomberg News reveals that analysts, investors and traders expect Gold to hit new highs in 2008 - a sure sign that things are thought likely to be tough most everywhere else. Gold gained 30% to 827.20 an ounce in London this year, its best year since 1979.