Carnage Beckons on Wall St.

Financial stocks have been battered and bruised over the past few weeks. Given the poor conditions prevailing in the credit markets, layoffs may be the only method available to senior executives eager to salvage something out of what is likely to be a very unattractive second-half performance.

The senior executive speculates that September serves as an ideal time for a bloodbath because banks would rather pay out severance than let workers lay full claim to the precious bonus pool.

Outsized bonuses have become the normal course of business in recent years, on the back of mega deal flow. But the credit markets are still seized up, and something in the order of $300 billion in leveraged loans remains on the balance sheets of banks.

The hope, for now, is that investors will finally take an interest in many of those loans when summer ends.

"People are gonna wake up on Labor Day with high expectations," the official says.

In the best case scenario, investment banks will be able to sell the loans at 95 cents on the dollar or better. But selling at anything short of par (i.e., 100 cents on the dollar) means that banks have to absorb losses that eventually trickle down to the officials who underwrote the deals -- and beyond.

Beyond boosting their share prices, layoffs also could help executives say they're ready to make a fresh start for 2008. How readily investors will accept this claim remains to be seen.

Then again, try telling that to former Bear Stearns honcho Warren Spector.