Downturn puts hiring for cash equities on hold

This month's slew of quarterly results places cash equities back in the doldrums. It is bad news for a sector that had been quietly hiring after a strong start to the year.

Peter Smith, a consultant at Eban, a London-based executive search firm, said stagnant equity markets have prompted a slowdown in recruitment: 'There was a lot more optimism in the first quarter. The mood is now one of caution.'

Banks' latest results reflect the uncertain outlook. Last week, Credit Suisse First Boston (CSFB) blamed lower second quarter profits on a fall in equity and bond trading revenues. ABN Amro blamed poor second quarter revenue growth on slower growth in its cash equities market. US banks suffered a similar fate: Goldman Sachs, for example, suffered a $500m decline in equities revenues in the period between March and May.

It is a world away from the more upbeat mood at the start of the year, when banks such as UBS highlighted secondary equity markets as a source of revenue growth. Wall Street banks Lehman Brothers, Goldman Sachs, Morgan Stanley, JPMorgan, and Citigroup, saw their combined revenues from equity trading jump $2.5 billion in the first quarter of 2004 versus the same period of 2003.

Recruiters said banks took the opportunity to upgrade their teams. Morgan Stanley, Citigroup, Deutsche Bank, Lehman Brothers and Cazenove are among the banks understood to have hired cash equities staff this year. However, recruiters said few of the new hires have been publicly announced. 'Banks haven't made a big splash about hiring in cash equities. It's still viewed as a difficult sector and there's a reluctance to be seen to be recruiting.' said one.

There are exceptions. In the past few months, both HSBC and ABN Amro have made well- publicized additions to their equities teams. Since May, for example, HSBC has hired Peter Lewis from SG Securities, as head of global equities trading, Sean Cooper from UBS, as global head of equity sector trading, and Thomas Delzoppo from JPMorgan as head of equity sales in the Americas.

ABN Amro has been more active still. In July, the Dutch bank hired three analysts from Commerzbank for its equities strategy and economics research team. This followed the recruitment of 18 analysts and sales staff to its European equities team in June, a move prompted by the loss of around 30 of its equity analysts following the departure of Mark Brown, head of research, and Giles Fitzpatrick, head of European equities, earlier in the year. Brown has since re-surfaced as head of Arbuthnot Securities.

Merrill Lynch and CSFB have been developing their equities presence in Europe. In March, for example, Merril hired Magnus Von Schlieffen as head of its equity business in Germany and Austria. In July, CSFB hired Vladimir Bril to manage its equity sales and trading operations in Russia.

However, in the past three months, opportunities to make money in cash equities markets have deteriorated as higher oil prices, imminent interest rate rises, and geo-political uncertainty have taken their toll on trading volumes. Total equity trading volumes on the London Stock Exchange (LSE) in June were 164 billion, down from 193 billion in February. On the New York Stock Exchange (NYSE) average daily trading volumes for July are currently only marginally higher than during the difficult conditions of 2003.

Vasco Moreno, a banking analyst at Keefe Bruyette & Woods in London, said market conditions in the market could pick up in September: 'August is always a slow month. I am expecting a pick up in volumes towards the end of the year.'

Recruiters in the equities market are less optimistic. Mark Horlock at Alexander Mann in London, said the shift from strong conditions at the start of the year, to poor conditions currently, has made senior managers in equities divisions wary of increasing headcount: 'After a good first half, there is money in the bonus pool. With the second half looking uncertain, there is a greater than usual reluctance to dilute it with extra hires.'

Recruiters said some London equities divisions have imposed official and unofficial hiring freezes. Paul Tapp, a consultant at Longbridge International in London said the proactive hiring and guaranteed bonuses that were on offer to equities staff at the start of 2004 have vanished into the ether: 'Since June there hasn't been much going on. We're being told to look ahead to next February, when hiring may pick up again.'