At first glance Citigroup, a giant of American banking, and Wolseley, a British firm that makes building products, have little in common. The former is part of the plumbing of the global financial system; the latter is the world’s biggest distributor of pipes, bathroom fittings and other plumbing paraphernalia. Yet both have found themselves on the rapidly growing list of victims of the global economic turmoil. Citigroup has been hammered by the fallout from the subprime-mortgage debacle and its repercussions in financial markets. But as the chaos spills into the real economy, firms in many different industries are being infected by it. Hence Wolseley has seen demand for its products dry up as the number of new homes being built has plummeted.
Now they have something else in common: this week both announced a further round of mass lay-offs. On November 17th Vikram Pandit, Citi’s boss, said his bank would shed a whopping 52,000 jobs in the next few months, bringing the total number of planned job cuts to 75,000, or 20 percent of the bank’s workforce (see article). On November 18th Chip Hornsby, Wolseley’s boss, announced another 2,300 job cuts at his firm. Once these employees have departed, his company will have cut 14,500 jobs, or roughly 18 percent of its total.
With Messrs. Pandit and Hornsby, bosses at many other firms have been cutting hundreds of thousands of jobs. Apart from carmakers and other manufacturers, the list of those laying people off now includes Pepsi bottlers, law firms, retailers, media companies, chemicals producers and even technology firms. All are desperately seeking a cure. And the most attractive medicine on offer looks like cash.
Hoarding for Hard Times
Preserving cash in such formidable times will present managers with an unprecedented test of their skills. “We’ve come through a half-century of history where recessions have been sort of mild,” notes Richard Sylla, a professor at New York University’s Stern School of Business. “But never have problems in the financial sector been as great as they are now.”
Faced with huge difficulties of their own, banks have tightened their purse strings, lending less and driving up the cost of credit to consumers and corporations. That is compounding an already grim prognosis for the world economy. This week Japan said its economy had shrunk for the second quarter running. Much of Europe is in a similar state. And a new survey by the Federal Reserve Bank of Philadelphia has shown that many economists believe the United States went into recession in April and will not emerge from it until the middle of 2009.
Opinions differ as to how long and deep the global slowdown might be. But the combination of a battered banking system and shell-shocked consumers mired in debt suggests it could be particularly hard for many businesses, whatever the duration. So bosses are rushing to secure as much cash as they can now to see their companies through the downturn.