Bankers are either unduly optimistic, delusional or thick-skinned. Lured by rebounding markets in 2009, they hired hard – and at great cost. But throwing more staff at a shortlived surge in business proved a big mistake. Now, client activity has again shrunk and the big banks are firing just as hard. Job cut announcements, mostly in Europe but also the US, come to 60,000 jobs in recent weeks, even before UBS chief executive Oswald Grübel said he will axe 3,500 staff, more than 5 per cent of the bank’s total. Bankers need to find a more lasting solution to pay and headcount.

Job cuts are a quick fix for falling profits. But declining profitability is not the banks’ only problem: the great post-crisis re-regulation also compounds their woes. They need more capital to fulfil the tougher requirements of Basel III, challenging returns for investors. And regulators’ clampdown on bonuses prompted higher base salaries, with bonuses deferred over three to five years. The outcome is high fixed costs now and, in effect, higher fixed costs (from the tail of deferred payments) later, when profits might be even lower.

Yet bankers have only themselves to blame. Too many are chasing too little business. Exiting unprofitable businesses is one option, but too many still think they will get by with modest shrinkage. Mr Grübel is trying the latter, for now, but may yet do the former after a November strategy review. His axe falls hardest on his investment bank, which only recently hired 1,700 staff but will suffer about half of the cuts.

The ratio of pay to revenue at the top 20 investment banks is almost 65 per cent. A more enduring solution to the cost problem is to pay less. If weak profits are not a signal for more moderate pay expectations, banks’ lacklustre share prices should be. Only the most thick-skinned bankers can have failed to notice that investors are not impressed.

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