And Rush Limbaugh loves Obama. And Pamela Anderson needs breast implants. And New Yorkers root for the Red Sox. What a bunch of silly notions, right? I have another big silly notion for ya: the investment banking industry is dead and will never regain its golden clout of old. Silly, yet widely embraced these days. Everybody and their brother have, following the credit crisis, rushed to proclaim the end of investment bankers and traders. Wall Streeters, the argument would go, have been forever humbled and subdued by a combination of disappearing institutions, monstrous losses, mass layoffs, tougher regulation, and uncontained public anger. Manhattan and London will never again be ruled by Masters of the Universe, as banks stop engaging in sexy daring activities and rather transform themselves into staid utility-like bores. If the conventional wisdom reigning supreme for the past couple of years is to be believed, the era of tiny bonuses, timid profits, and layback practices has been irremediably unleashed in financeland with no possibility for a turning back.
Why is all this quite silly? Well, taking a look at Goldman Sachs latest record-setting reported results or at the long Cuomo list of TARP-enjoying bankers who have received at least $1 million in compensation would be more than enough evidence that timidity is certainly not about to take over Wall Street. But numbers, illustrative as they are, are not the only reason why we can be pretty sure that banking, after all, is not going to see its sex-appeal eradicated into oblivion. I fact, we may be about to enter yet another gilded period, with glorious pickings for those entities lucky enough to have survived the tsunami in decent shape.
For one, competition had been sharply reduced. Some erstwhile impressive firms no longer play the game. Others have been severely weakened and downsized. As someone who has toiled inside a trading floor, I can tell you that less competition does wonders for the profitability of securities traders and salesmen. Markets where unbearable crowdedness guaranteed that whichever bank won the deal would not make money anyway, are suddenly open game. For many derivatives dealers, the next few years may feel like a return to the good old late 80s-early 90s days, with tasty wide bid-ask spreads and tons of brownie points to be derived from even the most vanilla of transactions.
Specific opportunities have also arisen as a direct result of the crisis. Take government borrowing for instance. Every finance minister in the world is busy begging for vast amounts of money from the capital markets, and fee-collecting bankers are only too happy to help them in such monumental quest. Bond issues, mind you, may also need to be hedged, and the profits-generating derivatives colleagues of the folks who issued the bond will gladly oblige too. The aforementioned reduction in competition will go a long way towards making those bond issues and hedging structures mouth-wateringly rewarding.
Or take distressed markets and companies. So many asset families have suffered so much of late that one could argue that they have nowhere to go but up (provided we don´t sink into irredeemable depression), and smart traders will be at the ready to collect. So many firms have so many problems (mountainous debts, bankrupt suppliers, tight-pocketed customers) that innovative restructuring plans from banks should be welcomed with open arms.
Some would argue that none of this matters one iota since banks are supposedly going to be populated by far less competent people, purportedly unable to do many splendid things. I don´t believe this one bit. For two reasons. First, many bankers are not brain-surgeons to begin with; it may surprise you how not extraordinarily difficult many banking chores truly are. Second, I don´t agree with those who affirm that no self-respecting brilliant person would want to be associated with Wall Street after what has happened; if anything, I think banking has become ever more attractive: the drama factor (always a big driver towards the industry) has certainly been compounded, the profession has been proven to be relatively riskless (the public purse will take care of you if you get into trouble), and the money is still there (again, take a look at Cuomo´s list). With everybody else around you desperately trying to hold on to modestly-paid, possibly uninspiring, questionably-enchanting jobs in the midst of an economic environment that promises to be lackluster for a long while, the prospect of a Wall Street career can't be that unappealing, notwithstanding the funny looks you may receive from your cousins at the next family reunion.
Wither the Masters? Call me an unrepentant contrarian, but I wouldn´t bet on it.