Moribund sectors stir after job losses slow down

Their buoyant mood was in stark contrast to last year, which began with abject pessimism.

The shaky start was partly a hangover from the preceding 12 months. In response to the investment banking downturn, banks cut tens of thousands of jobs in 2002. Coupled with the war in Iraq, headhunters say this took the wind out of the usual post-bonus hiring spree.

James Hogarth, managing director at Hogarth Davies Lloyd, said: "Uncertainty over the impending war and caution over the potential of markets during 2003 meant a lot of banks didn't do much hiring during the first quarter. The atmosphere was more positive by the second quarter and a number of institutions, on the hiring front, were still playing catch up late into the summer."

Tim Sheffield, chief executive at Sheffield Haworth, another search firm, said the usual pattern of annual recruitment was turned on its head in 2003. Normally the year begins with a rush to recruit after bonuses are paid and becomes progressively quieter. In 2003, Sheffield said it got busier and busier.

"The second six months of the year were substantially ahead of the first six months. Sentiment has changed and people are hiring across the board. December was our busiest month of the year. Usually it's the quietest," he said.

For some, the end of the summer was when spirits improved. According to some, September was the turning point. One consultant said: "Markets have come back since the summer break. There is not a massive amount of volume, but sentiment is moving towards a pick-up in business."

It was a long way from the third quarter of 2002, when plummeting equity markets meant as many

as 10,000 banking jobs were lost in October alone.

This time, even Merrill Lynch, which cut 4,000 banking jobs during 2002, was hiring. In its third quarter 2003 results presentation, Ahmass Fakahany, chief financial officer, said the firm had added 150 staff in its global markets and investment banking division.

Redundancies were not eliminated altogether. For the third year running, equities staff bore the brunt of the cuts. Goldman Sachs laid off 150 equity sales and trading staff in April 2003, most of them based in the US. Dresdner Kleinwort Wasserstein made five media analysts redundant in May. CSFB dispensed with top-ranking analysts covering the food, utilities, and oils sectors. HSBC announced a wholesale restructuring of its equities division in November.

UBS, Commerzbank and Citigroup also cut jobs. Commerzbank announced 425 investment banking redundancies in February. UBS and Citigroup made cuts in corporate finance and the back office in July.

In the back-office, 2003 was the year of outsourcing to India. In July, it emerged that Goldman Sachs was thinking of shifting 250 IT and administration jobs to the subcontinent. In October, HSBC announced its intention to move 4,000 call centre and back-office jobs in retail banking to India, China and Malaysia by 2006.

Fund managers were also wielding the knife. Aberdeen Asset Management, Baring Asset Management, Henderson Global Investors, Invesco, Northern Trust and Isis Asset Management cut staff during the first half of the year. In a display of how not to make redundancies, State Street set up a voluntary redundancy programme in the summer to eliminate 1,800 staff. When 3,100 volunteered for the programme, it was forced to embark upon an extensive hiring spree.

While fund managers, equities, and back office staff were cut, other areas were hiring. BNP Paribas, JP Morgan, and State Street all opened prime brokerage arms. Despite the collapse of bond markets in June, fixed-income hiring remained strong, particularly for structured products. Bank of Scotland, Barclays Capital and Société Générale made significant additions to fixed-income teams during 2003.

Monique Hansen, a consultant in the fixed-income practice at the Rose Partnership, said: "Most fixed-income divisions are operating on a skeleton structure, and so with the excellent performance achieved in the debt markets, many houses are beefing-up their product specialisation and continental European franchises. Structuring and distribution continue to be the main areas of growth."

Emma Childs of the Rose Partnership agreed. "Fixed-income headcount is being added across the board. Banks are beefing up with exotic product specialists, structurers, and distributors," she said.

If 2003 was erratic and unpredictable, the early signs are that this year will be sweet and even-tempered. Recruiters are already rubbing their hands in anticipation of a strong first quarter. Sectors that have been moribund since 2002 are expected to come back to life.

Simon Vaughan-Edwards, a director at Alexander Mann, said banks will be hiring equities traders: "People are dusting off business plans, and looking at beefing up. Customer trading, portfolio trading and proprietary trading desks will add staff." Even corporate finance departments, which made some of the deepest cuts in the downturn, are eyeing prospective recruits.

Elizabeth Hammond, managing director at search firm Hammond Haspel, said: "There will definitely be a lot of corporate finance hiring next year. Teams have been cut in half during the past couple of years. The pipeline looks like it's beginning to re-emerge for both IPOs and M&A, banks need more staff."

Nevertheless, corporate financiers who left the market in 2001 are unlikely to find themselves summoned out of retirement. Sheffield said the corporate financiers to be hired in 2004 would be a new breed: "The skills of a managing director in corporate finance today are different from the skills of those three years ago. They need to have a broader understanding of the products and services that an investment bank can offer. It is a technical role, as opposed to a pure question of relationships."

Resurgent demand for corporate financiers is already benefiting junior staff who suffered disproportionately from cuts during 2001 and 2002. John Axworthy, managing director at search firm Virtual IB, said second-year analysts are in big demand. Once bonuses have been paid in the new year, he said associates were likely to be in demand, too. "Banks have got big problems because they got rid of so many people. They were reducing junior headcount by 25% at a stroke," he said.

The shortage of junior talent is likely to be good news for graduate trainees. After two years of cutbacks and offers of sabbaticals to delay their start dates, graduates can expect to be enthusiastically embraced by banks in 2004.

The mood is likely to be one of mutual adoration.