Back in the early 1990s, they defined an optimist as an investment banker who ironed five shirts on a Sunday night.

What goes around comes around.

After years of record revenues, record profits, and record bonuses, the banking is suffering from that not-so-fresh feeling: Since last summer, Wall Street firms have slashed approximately 26,000 jobs. More are expected to follow. Even Shearson Lehman, less hurt than its peers by the subprime mess, is expecting layoffsWall-Street-Layoffs to hit around 10 percent of its work force. The number of positions to be liquidated at Bear StearnsBear-Stearns-Troubles Nov-07 is as yet undisclosed but could hit 20-50% of the current workforce.

The U.S. banking industry is burning. Individual banks are losing amounts every quarter that are on par with the mature economies of mid-sized industrialized countries.

Long-term fall-out

But even worse than losses are the dimming prospects of revenues. Those bankers still ironing shirts are not exactly busy. Mergers are off by half. Investment-banking fees are off 48 percent from last year. Lending revenues have dropped 84 percent. And that’s just the beginning.

Private equity deals are also drying up. For every billion dollars not spent, $4 million in advisory fees will not be charged, $7 million in lending fees are not generated, and $5 million in mortgage fees remain unpaid.

Down the line, six to ten million dollars for every private- equity billion will not be created.

No wonder investors are bailing out and Bear Stearns sold for two bucks a share to its closest competitor.

Global dimension

There are analysts who consider this situation an American problem.

But those U.S. banks that are hovering at the edge of bankruptcy now are not U.S. institutions any more. They are global companies owned by and owning large chunks of other banks all over the world.

Nor are bad loans an American phenomenon. Look at China. Their four largest banks are sitting on over a trillion dollars worth of non-performing loans.

Will Chinese banks and their bad loan loads withstand global investor scrutiny as the U.S. importers of Chinese-made goods find it difficult to finance their purchases?

Or will we see a new Olympic discipline introduced at the Games in Beijing this August: After curling and beach volley ball, maybe we get treated to exhibitions of competitive shirt ironing. By the time Bob Costas launches into in-depth reports on your favorite athlete’s diets next summer, the field will be truly international.

Christoph Amberger
Today’s Financial News