If BofA and Citigroup's results reveal anything, apart from ongoing credit losses and TARP repayment costs, it is the ongoing importance of investment banking to earnings.
In 2009, BofA Merrill Lynch's global markets business generated 114% of total income at the bank (thanks to big losses in global card services and home loans and insurance). And Citgroup's Securities and Banking division generated 45% of the total.
In any normal market, key profit generators would be handsomely rewarded for their efforts. Needless to say, this market is not normal.
At Citigroup, expenses in the Securities and Banking business fell by an ominous 18% last year and the bank's said to be capping cash bonuses at $100k. It's not possible to assess the impact on a per head basis as Citi doesn't break out headcount in its Securities Division. However, given the bank apparently added 300 people in European capital markets between January and October, and has also been picking people up senior people in equity derivatives in the US and London, cost cutting doesn't bode well for pay.
Nor is it possible to establish precisely what's happening to compensation at BofA Merrill, apart from the fact that up to 85% of compensation for senior staff is being deferred.
The real question is what happens next. As fixed income revenues fall, investment banking businesses will have to work harder to generate returns. Nevertheless, analyst Glen Schorr at UBS is predicting that investment banking revenues at Citi will 'really move the needle' in 2010 as capital markets and M&A activity pick up.
Higher effort is unlikely to translate to higher popularity, however.
David Stockman, a director of the Office of Management and Budget under President Ronald Reagan, writing in the New York Times, declares, "The banking system has become an agent of destruction for the gross domestic product and of impoverishment for the middle class."
In the face of such vitriol, PIMCO's chief executive Mohamed El-Erian regaled readers of the FT with an uncomfortable thought on Tuesday. Obama's levy, said El-Erian, "marks the beginning of the era of banks being targeted for selective incremental taxation in advanced economies round the world."
In the new reality, investment bankers will have to work harder to offset losses in consumer businesses. They just can't expect any thanks for it.