Banks go on high-yield hiring spree

The strength of the high-yield market is creating a resurgence in recruitment. Headhunters say banks are struggling to rebuild their teams, which were cut heavily when markets plunged in 2001.

Sandrine Rossi-Fornelli of Cresta, a search firm, says banks are recruiting originators, researchers, sales staff and traders: "High-yield hiring has been quiet for a few years but it is picking up on every front. It is a question of expansion - desks are getting bigger."

High-yield debt issuance has more than doubled to $21.2bn (€18bn) in the first nine months of this year compared with last year, according to Dealogic, the data research company.

ABN Amro, BNP Paribas, Barclays Capital, Goldman Sachs, Merrill Lynch, Lehman Brothers, Morgan Stanley and Royal Bank of Scotland (RBS) are among those making European high-yield hires.

RBS has made several in the past few months, including Ed Venables as a senior analyst in high-yield credit research, Paolo Pascarelli as a director in high-yield capital markets and Steve James as head of high-yield credit trading. Credit Suisse First Boston strengthened its high-yield franchise with the appointment of Marisa Drew as head of European leveraged corporate finance in September.

Heavy redundancies have left many desks exposed. Banks including TD Securities, Bank of America and ABN Amro closed their teams while others, such as Morgan Stanley, Goldman Sachs and Merrill Lynch, moved staff back to the US.

Lee Thacker, a high-yield recruitment specialist at the Whitney Group, says: "As deal flow has increased, there are insufficient staff. Banks are trying to hire people back."

With big junk bond issues, such as EMI, Fiat Avio, Inmarsat and Debenhams, likely to take place in the next few months, the high-yield outlook is promising.

Brian Bassett, head of European high-yield capital markets at Deutsche Bank, says fallen angels - former investment-grade companies that have been downgraded to junk status - have taken the stigma out of high-yield debt. "The taboo nature of being a high-yield issuer has faded. Companies see it as just another part of capital markets."

Tim Flynn, head of European high-yield capital markets at Goldman Sachs, says fear of the junk bond label has faded in Europe and that returns on such bonds are increasingly attractive: "People have gotten over the label issue and have begun to view the market for what it is: a potential source of flexible capital."

Growth prospects are good for next year. Bassett says: "Based on what we are working on and what we hear in the market, new issue volumes will go up significantly in 2004."

Investor acceptance has opened up the market and is driving bigger deals, says Bassett, who adds that the European market is established and unlikely to experience another crash similar to the one in 2001. "The European market is now much more diverse. In 1999 and 2000 the market was all telecom companies. In 2002 and 2003, it has been driven by cashflow-positive companies from a variety of industries."

Flynn says that while the market this year was driven by fallen angel financing, if equity markets remain strong next year, issuance should be led by the need for capital to support acquisitions and growth.

This is good news for Europe's high-yield specialists, who are likely to receive good bonuses as banks seek to retain talent in anticipation of further hiring.

Alex Tracey at search firm Mantaray says top packages for high-yield specialists this year could reach $1m as banks try to protect their franchises.

A lack of European talent makes high-yield specialists particularly valuable.

Alice Stundl, a high-yield recruiter at Armstrong International, says: "It is very difficult to find new people. High yield in Europe is a small market: the talent pool is very small."

Bonuses should also benefit from strong fee growth. Dealogic suggests that high-yield fees in Europe more than doubled from $126m to $254m in the first nine months compared with the same period last year.