DAVOS: Top investment bankers have added to the sense of gloom that is depressing world markets, with some saying a long war in Iraq would devastate the sector, leaving only a handful of global survivors.
Cuts that had seen 50% of staff disappear at some banks could slice deeper if fears of a prolonged equity market paralysis come to pass, said Claudio Aguirre, the chairman of European investment banking at Merrill Lynch.
“I’ve been in banking for 25 years and I’ve never seen anything like this,” he said. “If it (the war) lasts a long time, it could be devastating for our sector.”
Aguirre’s gloomy view was matched by rivals attending the World Economic Forum in the Swiss ski resort of Davos, where bankers said Iraq fears had compounded a cyclical slump and a loss of investor confidence, leading to the deepest downturn in a generation.
Equity trading had perhaps been the hardest hit, forcing Merrill and other banks to slash or close trading operations in European financial capitals outside of London, Aquirre said.
“We feel that we now have the right size for the business,” he said. “But if this paralysis continues, we may have to cut more. It depends on the war.”
Aguirre said fears of a war in Iraq had weighed heavily on large portions of Europe's economy and this had affected his industry as companies delayed financing decisions and capital expenditures.
“In terms of our industry, the war is going to make it worse, if that were possible,” he said, echoing a theme heard often at the Davos summit, where soul-searching among global business leaders has supplanted the jubilation of years past.
Other top bankers said that even a positive resolution to the brewing Iraq conflict would not resolve fundamental economic factors pressing equity markets to multi-year lows.
Josef Ackermann, the chief executive of Deutsche Bank AG, said a quick and successful military operation in Iraq was likely to be positive for equity markets “at least at the beginning”.
“(But) I don’t think that some of the issues which...are much more fundamental would just disappear,” he said. “We are adjusting from an equilibrium at a very high level to an equilibrium at a very low level, and this is an adjustment that is costly and it will just take time.”
John Thain, the president and co-chief executive officer at US investment bank Goldman Sachs,agreed, saying corporate scandals had created uncertainty in the minds of investors over and above their fears about an Iraqi war.
“The positive resolution of the Iraq situation...will eliminate one uncertainty but it won’t overcome the much more long-term uncertainties,” he said. – Reuters