Thousands of Utah financial-industry jobs could be lost in the next year or two in the wake of this week's global crisis that has roiled major banks and Wall Street firms, according to the Utah Department of Workforce Services chief economist.
Department economist Mark Knold said Utah will probably lose about 3,000 jobs during the next two years.
"I'm not sure exactly how big it's going to be in magnitude, and by whom, but we do have to do some forecasting," he said. "There's going to be some consolidations and some closings."
He attributed the potential for such job losses to the global financial crisis, magnified by this week's bankruptcy filing by Lehman Brothers, Merrill Lynch's sale to Bank of America, and a U.S. government rescue plan that would use more than a half trillion in taxpayer dollars to buy bad loans and debt weighing down U.S. financial companies.
Experts call the events part of the worst financial crisis on Wall Street since the Great Depression. President Bush contends that the risks to taxpayers in the rescue plan are outweighed by the risk of doing nothing. How this will play out in
Utah is yet to be known. But for now, most Utahns will be conducting their daily financial business as usual.
A series of dominos began falling Sunday when investment giant Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy following huge losses in the mortgage market and its inability to find a buyer. Shortly afterward, another Wall Street giant, Merrill Lynch, agreed to be purchased by Bank of America in a $50 billion all-stock transaction. The stock markets plunged to the worst levels since the 2001 terrorist attacks.
Then, troubled American International Group Inc. (AIG), the world's largest insurer, received an $85 billion loan from the Federal Reserve the second time this week federal officials used taxpayer money to rescue a private financial company. The thinking was that letting AIG fail would further rock markets and an already fragile U.S. economy. In response, Asian and European markets rebounded.
On Thursday the Federal Reserve and central banks in Europe and Asia put as much as $180 billion into money markets to stop a lending logjam between banks. Then came word the government was crafting a larger rescue plan, resulting in a stock-market rally.
The Bush administration on Friday laid out its plan to buy a half-trillion dollars worth of bad mortgages and other bad debt that has been weighing down U.S. financial companies the most sweeping government intervention to rescue failing markets since the Great Depression. Details will be worked out this weekend.
The Treasury Department and Federal Reserve also moved to protect money-market mutual funds, which were feeling the effects of the financial crisis. The protections for the mutual funds would be similar to those for money-market accounts sold through retail banks, which are FDIC-insured.
The government's plan was well received in U.S. and global markets, with the Dow Jones industrial average rising 368 points Friday.
The rescue plan is even larger than the Resolution Trust Corporation created in the late 1980s in the savings and loan crisis, whose resolution took six years and $125 billion in taxpayer money. President Bush said the risk of doing nothing was greater than the rescue's risk to taxpayers.
"The long and the short of it is it became very evident that some major, dramatic change has to occur," said Kelly K. Matthews, executive vice president and economist for Wells Fargo in Salt Lake City.
So what does this mean for Utahns?
Knold predicts some 3,000 job losses in the financial, insurance, real-estate, rental and leasing industries. That's out of some 56,000 workers in the financial sector who make up about 4.5 percent of Utah's labor force. The Department of Workforce Services reported this month that the financial sector already has lost jobs in Utah the number was down 1,100 jobs in August 2008, compared with August 2007.
But exactly which companies will cut jobs remains to be seen.
"I would say there will almost certainly be some layoffs of Merrill Lynch employees," Utah Division of Securities director Keith Woodwell said. "Whether that will touch some Utah employees, it's way too early to say."
Merrill Lynch has 250 employees in Utah, the company said.
Lehman Brothers has 535 agents licenced in Utah, though none are reported to live here, according to the Utah Division of Securities. The company owns Lehman Brothers Commercial Bank in Millcreek. But the commercial bank's president and chief executive officer Julie Boyle said the bank was not included in the bankruptcy filing. The commercial bank makes loans only over $50 million and has no Utah customers. Boyle said the company chose to locate the bank here because of Utah's "unique laws" for industrial banks.
"We are well-capitalized, we are profitable, and all of our deposits are insured by the FDIC," Boyle said.
Financial institutions beyond this week's headline grabbers also were feeling the effects of the market turmoil. But Goldman Sachs, for one, was holding steady. The company in June said it planned to double its Utah work force to more than 700 employees in the next three years. The plans followed a $20 million tax rebate incentive approved by the Governor's Office of Economic Development Board late last year.
Howard Headlee, president of the Utah Bankers Association, said he would be surprised to see layoffs by local banks, especially if the government's plan relieves financial companies of their bad debt. He said predicting job losses was premature.
"Banks (in Utah) are well-capitalized, and we're well positioned to endure this downturn, even in its worst-case scenario," he said.
The federal government is trying to shore up the financial industry so people don't lose confidence in their banks. But Woodwell said the government's actions are having some of the opposite effect among mainstream consumers. "That worry spreads. It's like a contagion ... a function of a lot of fear and uncertainty in the markets."
But the current financial dark clouds seem ominous to Kearns resident Alvina Slaughter. The 87-year-old recalls weathering the Great Depression just fine when she was a little girl from a well-off North Dakota family. But she wonders whether the current financial storm will pack the same punch as the Dust Bowl storms that finally forced her family to sell its 350-acre farm and move west.
"I have been concerned for my kids" losing their money, said Slaughter, who, with husband Roy Edward Slaughter Sr., have no big investments. One daughter recently pulled her money out of the market to prevent further damage.
But financial experts hope to assuage such fears. People who owned stock in one of the troubled financial companies lost money this week.
But people who simply have a 401(k) or an account or insurance with those companies are all "perfectly safe," Woodwell said.
"It's really the business side where they're in trouble," Woodwell said. "They're not allowed to commingle their own funds with client funds ... those are insured by the federal government."
Generally, pulling your money or 401(k) out of the market now is probably the worst thing a consumer could do, said Jeff Salisbury, principal at Beacon Financial Planning, which has offices in Cache and Davis counties.
"I don't want to say there's not a problem (in the market) there's definitely a problem. There's been tremendous excess," Salisbury said.
On the other hand, "this is the buying opportunity of a lifetime if you happen to have money on the sidelines," he said. "History over and over and over again shows the market is resilient, it always comes back. People (who) just don't get too worried ... they're the ones that just make a killing over time."
People who make regular contributions to 401(k)s should continue to do so, financial experts say."Don't panic," Woodwell said. "It's a good time to take a look at your investments and make sure you're property properly diversified."
Contributing: Associated Press E-mail: [email protected]
E-mail: [email protected]