Wall Street Misses Jobs Rebound as Cost Cutting Continues

NEW YORK ( TheStreet) -- Bank stocks opened with strength on Friday, following a greatly improved set of national employment numbers, but banking industry employment growth lagged other service sectors, and the situation is likely to get worse.

The Bureau of Labor Statistics on Friday said that U.S. nonfarm payrolls grew by 146,000 during November, blowing past the consensus expectation among economists of a 93,000 rise in employment, according to a Reuters survey.

The U.S. unemployment rate in November declined to 7.7%, which was its lowest level since December 2008. Economists had expected the unemployment rate to stay at 7.9%.

Private service-providing industries saw their payrolls grow by 169,000 during November, mostly in trade, transportation and utilities, with 69,000 added positions, while 52,600 retail positions were added. Not surprisingly, in light of the Hostess debacle, which led to the loss of 18,000 jobs, there was a net loss of 12,300 food manufacturing jobs.

Total employment growth in the broad "financial activities" category was just 1,000 positions, with commercial banking payrolls growing by just 2,000, while the "securities, commodity contracts and investments" category was flat. Insurers saw their employment rolls grow by 4,000.

The anemic employment growth in financial services will no doubt be good news for the shareholders of large banks, in the hopes that efficiency improvements will drive earnings growth during 2013 and 2014, or at least mitigate the effect of narrowing net interest margins, but the picture is rather grim for financial industry workers.

Many of the largest U.S. banks have branded long-term cost-cutting programs in place, including Bank of America ( BAC), with "Project New BAC," Wells Fargo ( WFC), with "Project Compass," KeyCorp ( KEY), with "Keyvolution," and SunTrust ( STI), with its "Playbook for profitable growth."

While the company does not have a branded cost-cutting program in place, Citigroup ( C) has taken a very heavy hand in right-sizing its balance sheet and lowering its personnel costs, through the long-term runoff of assets placed in its Citi holdings subsidiary. This process is being accelerated under new CEO Michael Corbat.

Citigroup announced on Wednesday that it would lay-off 11,000 employees and close 84 branches, in order to achieve annual expense savings of $900 million in 2013, increasing to $1.1 billion in 2014. The company expects its annual revenue to decline by only $300 million as a result of the cuts.

Even before the latest announcement by Citigroup, the company had reduced its total full-time equivalent headcount by 118,397 since the end of 2007, according to regulatory data supplied by Thomson Reuters Bank Insight. Like all large banks, the company is working to shore up its capital in order to eventually comply with the enhanced Basel III capital requirements, while looking over the shorter term for regulatory approval to begin buying back common shares and raise its dividend above the current nominal quarterly payout of a penny a share, following the next round of Federal Reserve stress tests in March.

Citigroup's efficiency ratio -- essentially the number of pennies of overhead expense for each dollar of revenue -- was a rather high 73.94 during the third quarter, although the results were affected by a $4.7 billion loss on the company's stake in the Morgan Stanley Smith Barney joint venture. The efficiency ratio has ranged has low as 63.14 over the past five quarters, according to Thomson Reuters Bank Insight. There's no doubt that the company would like to push the efficiency ratio lower than that level, and even though CFO John Gerspach on Wednesday refused at the Goldman Sachs Financial Service Conference in New York to provide a "near-term target," according to a transcript provided by Thomson Reuters.

Bank of America's third-quarter efficiency ratio was 81.32, as the company recorded $1.6 billion in total litigation expenses, after settling a class action suit related to its acquisition of Merrill Lynch in 2009, and also took a charge of $0.8 billion related to a reduction in UK tax rates. The efficiency ratio has ranged as low as 62.70 over the past five quarters.

Project New BAC began during the fourth quarter of 2011. The company's total number of full-time equivalent employees declined by 16,145 from a year earlier to 272,594 as of Sept 30. Bank of America said in its third-quarter presentation that it had added roughly 4,800 employees for its Legacy Assets and Servicing group over the past year, but also said that the group had "stabilized" and was "expected to decline."

Wells Fargo has been a much stronger and more stable earner through the credit crisis and beyond. The company's operating returns on average assets have increased from 1.27% to 1.46% over the past five quarters, according to Thomson Reuters Bank Insight, and its third-quarter efficiency ratio was 57.55.

Wells Fargo had 267,000 full-time equivalent employees as of Sept. 30, and bucked the trend, with headcount increasing from 263,800 a year earlier.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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