COLUMN-Banking industry in search of a business model

By James Saft

LONDON (Reuters) - However long or deep the credit crisis turns out to be, it will change the business of investment banking profoundly, probably for good.

Unsurprisingly, it won't just be bankers who suffer.

The mortgage meltdown has led to a collective loss of faith in structured finance, credit ratings and the banking industry itself.

The upshot for banking: job losses, capital losses, balance sheets that need to be rebuilt, lower profit margins and an industry in search of a business model.

The upshot for the rest of us: besides the bill for what will be an ongoing bailout, expect more expensive and scarcer credit, perhaps even when the crisis is through, and possibly lower structural economic growth.

"We haven't seen anything as bad as this in the 30-year period we looked at," said James Davis at consultants Oliver Wyman, who recently conducted a review of investment banking with Nick Studer at Wyman and Huw van Steenis at Morgan Stanley. "You'd probably have to go back to the 1930s to get something quite as bad."

The study takes as a base case that net revenue in investment banking falls 18 percent this year, but might fall as much as 45 percent in a "bear" scenario.

What's more, it foresees a fundamental change in the way in which banks and investment banks manage the business of making and selling loans.