According to the Credit Suisse research note we referenced earlier today, management at Goldman Sachs say the firm is on track for a second quarter as good as, if not even better than, the first -
'Customer flows continue to be robust, bid-ask spreads remain healthy, a scarcity of risk capital in the overall system continues. The difference in the second quarter is a robust equity market (for both asset values and the underwriting calendar) and improved fixed income pricing.'
Where Goldman goes, others are likely to follow. Thanks to the elimination of Lehman Brothers and Bear Stearns, business is now shared between fewer players. Lucrative rights issues by the likes of HSBC have generated generous fees, and underwriting and M&A are picking up. Goldman says that even proposed changes to the OTC derivatives market, widely expected to dent banks' profitability, will have the beneficial effects of increasing liquidity and reducing counterparty risk.
The upshot of all this, is that some banks are looking healthy again. The share prices of Goldman, Morgan Stanley and JP Morgan are slowly creeping back to pre-Lehman levels. The same goes for Credit Suisse and for Deutsche Bank. Goldman even thinks it can generate a 15% return on equity in 2009.
All of this is good news for banks, and for bankers, who are likely to be well compensated this year - particularly if TARP money is repaid.
But bumper compensation will do nothing to endear bankers to the rest of society. If the credit crisis is over, the crisis in the broader economy still has a long way to run; unemployment outside the City is rising fast.
This creates a dilemma for successful banks. They can pay individuals for what they've achieved, and risk a populist backlash and punitive regulation. Or they can pay modestly, and risk an exodus to less high profile competitors. It will be far simpler if this year ends with more of a whimper than it has begun.