THE INSIDER: The first quarter will be the cruellest
The first quarter 2009 is probably the most critical first quarter we have had in a long time.
In any normal year, a below budget performance in the first three months would be taken as a slow start and little more; nobody would seriously contemplate revising their whole revenue and cost model off of the back of it.
But after a particularly brutal final quarter to 2008, the question now being asked at every bank is whether revenue forecasts have been revised downwards sufficiently and whether last year's cuts were enough.
In this environment, such is the twitchiness of the firing-trigger finger, that any meaningful negative deviation from budget will be taken as a sign that we overshot on our revenue forecasts and undershot on our cost and headcount assumptions. Another round of cuts will very quickly follow.
The cruellest irony is that an end of Q1 cut, should it come, may well prove to be the final major round. However, most banks save the best until last, so this is also typically the round that includes the most talented people. These individuals will be set to receive the lowest severance payouts. They will also struggle to find new jobs as opportunities will have been filled by their less talented predecessors let go in 2008.
Q1 results will therefore be critical. Look carefully at pre-writedown revenue levels, as these will dictate resource requirements. If they're down meaningfully compared to budget, then brace yourself.
