The recent layoffs announced Pacific Capital Bancorp highlight the risk that Santa Barbara County may simply lag California in terms of economic weakness and more specifically, job losses. And, we certainly run the risk of additional layoffs stemming from other banks in the county, such as Bank of America and Wells Fargo, both of which have recently completed mergers with Merrill Lynch and Wachovia respectively, as well as from other employers within our county. With this in mind however, last week’s announcement of 300 job losses is not, in and of itself, reason to believe that the county is slipping to the depths that the recession is taking California as a whole. And if we work together, we can have a meaningful, positive impact on jobs, profitability, and the local economy.
So far, the county’s unemployment rate, now at 8.3 percent, has held closer to the national average of 8.1 percent, and has been significantly better than that of California as a whole, which is currently 10.6 percent. Even adding the 300 jobs to be lost at Santa Barbara Bank & Trust and First Bank of San Luis Obispo (both owned by Pacific Capital), the county’s unemployment rate will still be far lower than that of the state.
The layoffs announced by Pacific Capital Bancorp represent 22 percent of the company’s 1,472-person workforce. A total of 80 employees will be laid off by March 31, with the remainder of the positions to be eliminated by June 30. About 800 of the 1,472 total employees work in Santa Barbara County, and although the layoffs, according to Debbie Whiteley, executive vice president for investor relations, marketing and public relations, will be based on departments and not percentages within markets, we should expect significantly fewer than the 300 jobs lost to come from our county.
“This is a community bank, which is family, so it was a very difficult decision to make,” she said. “But we absolutely have to protect our capital when we don’t know how long or how deep the recession will be. Although the recently-announced job cuts are the largest in the history of the bank and are very painful for our employees and for management, we are confident that they are necessary to reduce operating costs, and to properly prepare the bank for the possibility of a deepening and long-lasting recession. At the same time, management is confident that we will not need to layoff any additional employees for at least the remainder of 2009, if at all. ”
Although Pacific Capital will face a one-time cost of $3 million to $5 million for severance packages, the workforce cuts will result in $20 million in annualized savings. Last November, the bank agreed to accept $188 million from the U.S. Treasury Department’s Trouble Asset Relief Program, commonly known as TARP. Pacific Capital has been putting these TARP funds to good use, and according to Whiteley, originated $197 million in new loans during the fourth quarter of 2008. Also, deposits rose significantly during the quarter, growing from 4.81 billion at the end of the third quarter, to $5.31 billion by year-end, or by $500 million. Finally, the dividend was cut in half; from $0.22 to $0.11, starting this quarter, which will help the bank preserve capital, which can be used for additional loans.
A significant contributor to the growth in deposits has been the bank’s ongoing program of offering very attractive CD and other deposit rates. As deposits rise, the bank’s ability to make additional loans and additional profits improves. The combination of cost-cutting measures, including job layoffs and the dividend cut, and increasing deposits, should place the bank in a strong position as we emerge from the recession.
For Santa Barbara County, our worst-case scenario would be to suffer the same or a worse economic contraction as the state or the country, but to have the consequences of the recession lag those of the state or country, so that we are still contracting even after everyone-else starts to recover. As things stand, I am optimistic that this will not be the case, but it is early yet, and we still don’t know which additional companies in the local market, if any, will announce layoffs, so it is difficult to estimate the extent of the negative impact on employment we will experience from the recession.
The job losses in the county from the Pacific Capital layoffs, which will be substantially less than 300 total announced, while significant for those losing their jobs and for their families, represents less than 0.10 percent of the total workforce of the county, and therefore will not materially increase the overall unemployment rate for the county. However, to the extent that these layoffs are a sign of what may come, we could see additional, more significant layoffs from the likes of Bank of America and Wells Fargo, as a result of their recent mergers, in addition to other potential layoffs coming from employers along the central coast. On the plus side, the additional spending included in the President’s $787 billion stimulus plan slated for alternative energy initiatives could result in added jobs in the county, although we probably will not see an immediate impact from the stimulus on local employment.
Unemployment typically continues to rise for several months after the end to recessions, so even if my very optimistic prediction of an end to the recession by late this year comes to fruition, we could continue to see job losses well into 2010. My hope is that the impact of these layoffs does not have a ripple effect, causing additional job losses as overall economic activity suffers due to less spending stemming from lost incomes in the county. If the recession ends earlier than many predict, we could see firms rehiring some employees who lost their jobs through layoffs as early as next year.
Nuriel Roubini, the economist also known as Doctor Doom, and others like him, especially those from other countries, just don’t get it. They believe we are in a multi-year depression, and that we are nowhere near the end to this economic downturn. I disagree. Americans, unlike people from many other countries, are hopeful… we are optimists, and we enjoy life. We are the innovators and creators, and we drive the world economy. We do not want to be negative.
If I could point to one reason that the Great Depression lasted so long, I would say it was a loss of confidence by the public in our country and our economy. Today, despite all the negativity, we are confident and hopeful, and I believe we will see the economy turn positive late this year.
Santa Barbara is a great place to live, not just because of the weather and scenery, but also because of the people who live here. If we as a community work together to support our local businesses, we can collectively have a meaningful impact on their profitability, and help preserve jobs in the county. The world is not coming to an end, and if we have confidence in our economy, and if we spend locally, supporting our local businesses and our neighbors, we have a great chance to end the recession early for our local economy, and lead the country into the recovery to come.