Banks continue to employ while laying off thousands

The true picture is more complex. Amid mass layoffs in some areas, banks are beefing up in others. In all sectors, they are using the downturn as an excuse to replace poor performers with better staff. They must also continue to replace natural wastage.

So hiring is still under way, even if it does not always dare to speak its name. Banks are sometimes reluctant to talk about it, feeling it would be in bad taste while they are turfing out so many others.

Even in these difficult days, a steady stream of hires is maintained in sectors that are by common consent as dead as a dodo. Examples in the last few weeks include Dresdner Kleinwort Wasserstein taking on board John McMillan, formerly of ING Barings, as a director in UK equity sales, while Lehman Brothers hired Jonathan Brown, formerly of JP Morgan, as a managing director in corporate finance.

In relatively buoyant sectors the activity is even more obvious. Merrill Lynch has just poached five fixed-income staff from Goldman Sachs to develop its corporate risk management operations in Europe, for example.

Such hires must make thousands of unemployed bankers feel like urchins on a street corner, noses pressed to the window of a sumptuous restaurant in which they are not welcome. To gain entry, they need to be cunning. They also need to understand that the ways in which banks recruit their staff are changing.

A senior human resources executive at a bulge-bracket bank says: "We are hiring far more staff directly than we used to. We are not using recruitment firms so much. They are expensive and nowadays we have the pick of resumes that individuals send straight to us."

The problem with this approach is that it cannot always match the right candidate to the right job. A CV sent in on a speculative basis risks being submerged in a flood of thousands of others. It makes no difference whether it is dispatched by post, e-mail or through a firm's recruitment website.

Jobseekers trawling banks' websites are often none the wiser about how they might get hired. Many do not advertise specific jobs. Those that do often advertise only some of those available.

Earlier this month Lehman's European site was listing just three vacancies in fixed income and none at all in equities or investment banking. It was, however, advertising for a butler to be based in Tokyo. But even in these straitened times few high-fliers will be attracted by the chance to put out wine and cigars and check if the silver needs cleaning or polishing.

A daily meeting with the chef at 11.45am is also unlikely to be quite what they have in mind.

As well as their own sites, banks are increasingly using external jobsites to advertise. They are also using other strategies to find staff directly, which go beyond the cold impersonality of an advert. One is employee referral schemes.

George Wilson, head of human resources at Rothschild, says staff can earn thousands of pounds if the bank hires someone on their recommendation. Tens of thousands of pounds of headhunters' fees can be saved as a result.

Banks are also putting more resources into finding out who rival firms employ, how much they earn and what their skills are. That makes it easier to decide who to poach and make a realistic offer.

A human resources executive at a European bank says financial services firms have been far too slow to do this. "A few years ago in the boom, some hardly even knew who was employed in their own bank. We used to joke that the only way to find out would be to stop paying everyone's salaries and see how many people complained."

Recruitment experts have spotted an opportunity here. One is Trevor Foster-Black whose company, Coalition Development, delivers publicly available knowledge about people in the industry - much of it culled from news reports - to banks. It comes with software that can merge the information with the bank's proprietary data. This can be used for various purposes, including hiring.

"The software is easy to understand because it works the same way the brain does," says Foster-Black. "It tells banks many things they don't know. It will help professionalise the recruitment industry."

Foster-Black says Coalition Development has done deals with a number of clients since opening for business in September.

Headhunters fear such developments are nibbling away at the edges of their territory. All agree that times are extremely tough. Tim Sheffield, chief executive of search firm Sheffield Haworth, says: "Recruitment firms are not making money at the moment. It's a very tough market."

Tony Tucker of the search firm Executive Resourcing Group estimates that the number of recruitment consultants in the City of London may have fallen by more than a quarter in the past three years.

Banks still need headhunters. They find people who do not apply to advertisements and can match up an individual with a business in creative ways that banks struggle to do themselves. But the squeeze on recruitment firms at all levels is inexorable.

In the last few weeks Royal Bank of Scotland (RBS) has set up a novel auction system that some recruiters fear will drive down the fees they can charge. They must compete with each other on price to gain a place on the panel of firms RBS uses to hire staff.

Firms do not know what fees rivals are offering to work for, but they are told what their own ranking is. They can then lower their bid to improve it.

RBS says it rates firms by many criteria and will not necessarily choose the cheapest.

But not all headhunters are happy. One said: "Maybe this makes things more efficient. But it could affect the quality of service the bank receives."

Another headhunter says banks are widening their "off limits" agreements, to the disadvantage of recruitment firms.

Before, an agreement might have barred a search firm from poaching staff out of the division of a bank for which it was recruiting. Now the bar sometimes extends throughout the bank.

Such developments show how far banks are in the driving seat when it comes to recruitment.

In some areas, such as credit derivatives and compliance, as well as specialist information technology skills, the job market remains relatively buoyant. But investment banking and equities look likely to remain tough for a while.

That butler's job in Tokyo could start to look very attractive.