Remain Calm ...

Further to my extended woolgathering post yesterday on the potential future of the investment banking industry in general and the only two large remaining independent i-banks in particular, I would be remiss if I did not call your attention to the stock price performance of Morgan Stanley and Goldman Sachs today.

As of this writing, GS stock is trading down approximately 25% on the day, near $100 per share, and MS is sucking moose titty to the tune of minus 35%, around $18 per share.

This is important, Dear and Beloved Readers, because over the past five years Goldman Sachs' stock price has ranged from a high of $248 per share to a low of $84, with an average over the period of $146.78. The comparable figures for Morgan Stanley are $74, $18 (today), and $50.48, respectively. Given that investment bankers are usually paid a substantial portion of their mouthwatering annual bonuses in the form of restricted stock, options, SARs, and other stock-related funny money which typically vest in stages over a period of three to five years, this means that GS and MS bankers are looking at the evaporation of somewhere in the neighborhood of one- to two-thirds of their nominal deferred compensation from the last five, highly lucrative years.

I don't care how much cash you have in the bank, that'll leave a mark.

Furthermore, the percentage of funny money in your paycheck usually increases quite substantially the higher up in the organization you go and the more successful you become. Top-earning bankers can get stuffed with 60%, 70%, or sometimes even more company toilet paper in place of officially approved government tender. Therefore, you can just imagine the senior executives and big swinging dicks at these two shops probably feel like they have just undergone (another) bris today without anesthesia. Most of these will also realize later this afternoon as they pack up to go home that they're going to get another kick in the balls from their adoring spouses when they share the news that little Missy can't have a $500,000 Sweet Sixteen party at the Rainbow Room this year, after all.

So while it is probably too early to say that the majority of senior bankers at GS and MS are irretrievably disgruntled with their situation, it is far from clear that they are or will remain sufficiently gruntled for any length of time.

Further to my aforementioned thesifying, I would speculate that today's events—unless they are reversed quickly and handily in the very near future—will only accelerate the hemorrhaging of experienced investment bankers from these two remaining bastions of integrated capital markets and advisory services. Whether these bankers drop out completely and toddle off to St. Barts to squander their (diminished) accumulated wealth on hookers and blow or elect to sign up with the roving packs of predators known as advisory boutiques will depend, in large part, on how large a hole has been blown in their personal balance sheets. (Also how expensive and painful Sweetie-pie can make the potential alternative of divorce.)

Of course, there always is a more socially responsible alternative:

"Christ. Seven years of college down the drain. Might as well join the fucking Peace Corps."

— Future Senator John Blutarsky

I would vote for that.

© 2008 The Epicurean Dealmaker. All rights reserved.