Most firms struggled through an 'ugly' quarter in the second trading period of the year without announcing largescale job culls. The focus, instead, has been on non-personnel cost-cutting and general capital raising. The third quarter ends for the likes of Goldman, Lehman and Morgan Stanley in a few days (and most of the rest of the financial markets community in a few weeks), and the early indications are that this period, too, will have been tough. Although most are not expecting huge asset writedowns this time around (with one or two major exceptions), we are likely to see a dramatic fall-off in revenues which will detrimentally affect third-quarter earnings. This will undoubtedly result in many firms reviewing headcount once again, chopping in good time to save on bonus payouts.

Andrew Pullman, Head of Here Is The City Learning, said: 'Firms have been holding fire in the last few weeks, hoping that revenues pick up in order to avoid further lay-offs. The problem is that the third-quarter, which includes the traditional summer lull, has been a struggle'. With global M&A deal volumes down around 30% this year on 2007, a credit crunch and major market turmoil that is impacting debt and equity underwriting, many firms are finding it difficult to get their cost-base in line with their revenues. Despite the 80,000 or so financial markets jobs that have been lost so far this year, firms are still staffed up for a healthy market - and we are clearly nearer to bust than boom.

Pullman says that firms will now be looking at their 2009 business plans and budgets, and will be deciding which units are key going into next year. 'Firms will be re-evaluating what constitutes a core business', Pullman says. 'And it's going to be very tough for many to make their numbers work unless they dramatically cut costs, and that will certainly mean further headcount reductions in the coming weeks'.

Another issue to consider, of course, is bonuses. And clearly these will come in way down at year-end for the majority of staff. Most financial markets professionals are now resigned to more modest payouts this year, preferring instead to keep their jobs. The reality, however, is that many will now not make it to the year-end finish line, and will loose their job and their 2008 bonus too.

But firms cuttings heads and bonuses might not be the all of it. Many now feel that the time is right for another major consolidation in the industry. With too many firms chasing a shrinking revenue pot, there are simply too many players on the field. And with cynics suggesting that the investment banking model is flawed in the brave new world of deleverage, some feel that investment banks will be forced into the arms of commercial rivals, whose large balance sheets will help out in future illiquid markets. Whatever way you look at it, it's going to have another difficult 12 months.

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