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When Jamie “fortress balance sheet” Dimon adds an extra moat round JPMorgan Chase, raising $6bn of new capital late on Wednesday, it is hard to see why a firm such as Merrill Lynch would not follow suit. In spite of the broker dealer’s protestations that it does not need new money, there is a big difference between what is necessary and what is prudent.

Merrill kicked off the quarter with a $4.2bn capital buffer. That has already been savaged by a $2bn loss in the first quarter. Given that John Thain, chief executive, remains cautious on the outlook and still has billions of dollars of exposure to unpredictable mortgage-backed structured credit, it makes sense to raise new money while capital markets are receptive. Otherwise Merrill risks being forced to do so if further turmoil strikes. And raising too much would be no disaster. Merrill could avoid forced asset sales and provide flexibility to take advantage of opportunities when markets recover.

While Merrill is dragging its feet on raising new capital, it has started to bite the bullet on costs. Thursday’s 3,000 new job cuts are relatively small in the context of its 63,000-strong staff. But they will be severe in targeted areas. After all, the firm’s army of financial advisers will be spared and international operations are still in decent shape, leaving the axe to fall hard on specific Wall Street teams. Those in fixed income, especially structured products, are particularly vulnerable.

Across Wall Street, banks will be forced to make deeper cuts. That means making clear strategic decisions. Where the cuts are concentrated ought to give a sense of which businesses banks expect to disappear, or remain under serious pressure. Then again, Citigroup hopes to slash operating costs by 20 per cent. Cutting to that depth would mean no business escapes the pain.

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