Headlines about big company layoffs always attract attention, and Citigroup's (C +1.13%) news that it'll let go around 120 employees in its residential real estate unit is no different. 120 pink slips is a small amount, however compared to the company's tens of thousands of employees in the U.S. alone. So why is Citi stock notably lagging the Dow today?
It's because of what those job cuts portend. In the wake of wafer-thin interest rates, mortgage refinancing had been a hot area of the economy for quite some time. Naturally, the car can only go so far on that low interest rate fuel; before long, rates either stabilize or rise, hitting the brakes on refi. So the gravy days of easy money from that activity are quickly drawing to a close -- to put it optimistically -- hence the layoffs.
Citi is hardly alone in rolling up the windows to keep dry from the coming rainstorm. Last month, the nation's top mortgage player Wells Fargo (WFC +1.34%) said it'd let go of around 2,300 people in its mortgage division. Ouch. Not surprisingly, Wells is also trudging behind the broader index, as are fellow mortgage Godzillas Bank of America (BAC 0.02%) and JPMorgan Chase (JPM 0.91%).
In the case of JPMorgan, the problem is compounded by its own downbeat, share price-hurting news. Investors are uncomfortably digesting the bank's admission earlier this week that its bond portfolio stands to lose something in the neighborhood of $15 billion if interest rates rise by 2 percentage points. The terms "$15 billion" and "lose" are terrible when they appear in the same sentence, so it's no wonder the stock is trading down more sharply than its peers.
Amid the gloomy news of layoffs and swelling interest rates is a very sunny development in the direction of corporate finance. Verizon's record bond issue -- in which it's floating $49 billion worth of debt to help finance its buyout of Vodafone's stake -- is going to rain fees on the banks in the largest font size on the list of underwriters. These lucky beneficiaries are B of A's Merrill Lynch, JPMorgan Chase's J.P. Morgan, Barclays, and Morgan Stanley (MS +0.09%).
According to a report in The Wall Street Journal, each stands to pocket around $41 million from their involvement in the already-well subscribed flotation. That's a fat payday for a single issue. And there's plenty of business to go around; in addition to the four mentioned entities, nine other banks crowd the underwriter list. This includes Citigroup, Wells Fargo's Securities arm, Credit Suisse, and RBS.
Still, finance sector players don't like the latest news of layoffs and the decline of the lucrative refi market they signify. Apparently, it'll take more than a monster bond issue to push them into market-beating territory.
