Editor's take: From bad to infinitely worse?

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Amid signs that things are deteriorating, the current wave of redundancies may prove the calm before the 2008 storm.

Central banks' efforts at a coordinated resuscitation of the interbank lending markets are a sign of just how sclerotic things in the credit markets have become.

Bank of America's Ken Lewis says ultimate write-downs are "unknowable", and 4Q results "will again be disappointing".

And Sandy Weill has broken cover to suggest that the 74,000 positions added at Citigroup since he relinquished control in 2003 may require elimination in the interests of efficiency.

If the third and fourth quarters of 2007 have been bad, could it be therefore that the first and second quarters of 2008 will be worse?

The bleak picture

Yes, according to Kinner Lakhani, banking analyst at ABN AMRO. "Our view is that beyond the upfront mark-downs one should not underestimate the second-order effects caused by the credit crunch," he says. "This is not a one or two-quarter thesis - this is a 12 to 18-month thesis, and it's too early to say when it will play out."

Some clarification may be afforded by US brokerage houses' fourth-quarter results. Lehman is due to go first today, followed by Goldman on the 18th, Bear Stearns on the 20th, and Morgan Stanley at a date yet to be confirmed.

The good news, according to Lakhani, is that write-downs may soon peak as banks start marking to market rather than marking to model - when UBS revealed an additional $10bn in write-downs this week it said it had incorporated a "very limited number of observable market transactions in US sub-prime related securities" in its calculations.

The bad news is that write-downs could spiral out of control if sub-prime concerns spread to higher-rated debt.

What does this mean for jobs?

Since August, London-based investment banking redundancies have numbered in the low three figures. That could be about to change.

Job cuts have been limited so far because the crisis has been confined to the credit sector - investment banking fees are, after all, at record levels this year. But once second-order effects start to bite on the real economy, those fees are liable to fall.

How bad could things get? The Centre for Economics and Business Research calculates that 35,000 jobs went across the City between 2001 and 2003.

Philip Beddows, a partner at career consultancy IDDAS, who helped counsel those who lost their jobs in 2001, says we are still "a long way off" how bad things were then.

And if that nadir gets a little too close for comfort? Beddows says the keyword is flexibility: in 2001 and 2002, many of the international bankers who lost jobs in London were forced to return to their home countries and seek jobs both in and outside banking.

There will always be jobs somewhere. Beddows adds: "The really challenging thing for people coming out of top-tier firms is that they have to be flexibly minded and open to looking at second tier and beyond."