It's now amply apparent that the current banking downturn isn't the same as the ones that preceded it in 2001 and 1998. While this has been clear to arch-skeptics like Nouriel Roubini since birth, it's taken a little longer to sink in to lesser mortals like chief executives of banks.
Kenneth Lewis recently told a conference in North Carolina that, "If someone had told me a year ago that things would be worse in December 2008 than in December 2007, I would have thought that person was half crazy." Bloomberg says Lewis doesn't expect a recovery until midway though 2009. Even this may be a little deranged.
As the downturn drags on (and on), unfortunate new realities are emerging: Lloyd Blankfein is not God; the broker dealer model is defunct; hedge funds don't make money in any market; and the state is set to play a much larger part in the financial services industry in future.
An MD at one US bank says the big fear now among his counterparts is that it's "all over:" the big bonuses, the big holidays, the big money from stock sales, all gone. This is at odds with our recent survey, which found that only 25% of respondents were being forced to forego luxuries this Christmas, but maybe MDs are feeling it worst.
The real question is whether 2008 is the new normal. Revenues at most big investment banks are set to be down at least 40% this year. Worldwide issuance of bonds and securities fell 77% from over a trillion dollars to $247bn in the third quarter.
Will investment banking as it once was ever come back? Banks appear to be planning for a quieter future. According to Citigroup, the restructuring now underway at Credit Suisse would have left its investment bank with revenues 30% lower than they actually were in the froth of 2006. The upside is that CS would have made $10.9bn instead of zero revenues between January and November 2008.
With governments standing behind banks, leverage a lot lower, and complex structured products defunct, investment banking will certainly make for a more pedestrian career. It may also make for one in which the huge highs and the huge lows that have typified the industry become extraordinary rather than routine.