Bleak Outlook for US Banking Sector in 2023: Layoffs Surge, Stocks Hit Record Lows, and Commercial Real Estate Crisis Looms

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In 2023, major financial institutions such as Citigroup, Goldman Sachs, Farmers Insurance, Robinhood, Charles Schwab, Wells Fargo, Ally Financial, Morgan Stanley, Bank of Nova Scotia, and RBC have collectively announced layoffs, totaling more than 20,000 employees according to Forbes. These layoff announcements contribute to the ongoing struggles in the US banking sector, with bank stocks hitting record lows relative to the S&P 500, and major banks holding $650 billion in unrealized losses, as reported by Moody’s.

The commercial real estate (CRE) crisis adds to the challenges, particularly for small banks, which currently hold approximately 70% of all CRE loans in the US. About $1.5 trillion of these loans need refinancing by 2025, raising concerns about the stability of the banking system.

Simultaneously, Wall Street is expressing concerns over the Federal Reserve’s Quantitative Tightening (QT) and reduction of Overnight Reverse Repurchase agreements (ON RRPs), with critics fearing potential liquidity crises in banks. The ON RRP balance has significantly decreased, from $2.3 trillion to $935 billion, leading to calls for the Fed to halt QT to prevent destabilization.

Additionally, the Federal Housing Finance Agency (FHFA) released a report recommending changes to the Federal Home Loan Bank system after questionable practices were observed before the recent banking crisis. The report aims to realign the banks with their intended purpose of providing liquidity for housing finance and community development.

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Citigroup’s stock performance highlights the challenges, having lost 92% of its value since January 2007. There are indications that Citigroup may further cut jobs, possibly up to 24,000, reflecting its ongoing struggles.

The economic indicators paint a concerning picture, with the Conference Board’s Leading Economic Indicators (LEI) experiencing its 19th consecutive monthly decline in October, marking the longest streak since the 2008 financial crisis. The decline, driven by lower consumer expectations and reduced manufacturing orders, suggests an impending recession. The Conference Board predicts a brief recession in 2024, influenced by high inflation and rising interest rates, raising doubts about achieving a ‘soft landing’ for the economy.

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Wall Street Wants Fed To Stop QT. They Wag the Drop in Overnight RRPs That’ll Blow Up the Banks

During Banking the Recent Crisis, Banks Borrowed Over $1 Trillion from Federal Home Loan Banks

Citigroup Stock Has Lost 92 Percent Since January 2007; May Slash 24,000 Jobs

Worst Streak ‘Since Lehman’ – US Leading Indicators Tumble For 19th Straight Month

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