Investment Banks: Not Dead Yet

Jesse Eisinger has the cover story of the November issue of Portfolio with an obituary for Wall Street. I wonder what Barry Ritholtz thinks about this: Barry is structurally bearish, and might be inclined to agree with Jesse's thesis, but he's also fond of the magazine cover indicator, which says that bearish magazine covers are a buying signal and bullish covers are a sell signal.

My feeling is that investment banking, as an industry, will survive. And although it's possible that Bear Stearns will end up being sold to a big universal bank, it's equally possible that it will simply get bought by someone else entirely, and remain an independent investment bank. And of course so long as Jimmy Cayne is in charge, there has to be a very good chance that it won't get sold at all.

Meanwhile, it's entirely possible that a major shake-up at Citigroup will see Vikram Pandit's investment-banking and hedge-fund arm spun off to become a semi-independent entity. That would increase, rather than decrease, the total number of investment banks.

But Jesse has been right about a lot of things in the past, and he makes a bold prediction at the end of his article: "Bonus season this year," he says, "will make Montgomery Burns look generous." If he's right on that front, then I'll concede that he was much more right than I presently think.

But I think that bonuses this year will be nearly as astronomical as they were last year – and in many cases will actually rise. To be sure, there will be some areas of structured finance where bonuses will be slim-to-nonexistent. But in aggregate, I reckon that Wall Street will pay out an astonishing sum in bonuses this year – a sign that even when it loses money in some areas, it always seems to find a way to make money in others.