Too Many Deals, Too Few Staff

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Wednesday's Financial Times reports that shortages have become so severe that senior executives at many bulge-bracket firms are worrying "overworked staff are in danger of making costly mistakes."

"My worry is that people will start cutting corners, will not do the due diligence and will damage the brand," one leading firm's head of investment banking told the FT.

The shortage is most evident at the vice president and associate levels, a consultant at headhunter Egon Zehnder said. While it's most severe in continental Europe and Asia, the pressure is serious in New York and London as well.

However, don't look for the street to begin a hiring binge any time soon. Recently, The Wall Street Journal reported that Goldman Sachs is on the verge of implementing a hiring freeze. That could prompt the rest of Wall Street to follow suit. It's also been reported that earnings for the top investment banks are slowing, and in some cases will fall short of analysts' second-quarter estimates.

Earlier this decade, most Wall Street firms pared headcounts in the wake of the burst stock-market bubble. In the last couple of years, hiring has picked up, but at a restrained pace as managements sought to avoid repeating the excesses of past boom-bust cycles. Meanwhile, fee competition and the use of more advisory firms on each deal have squeezed profit margins, which discourages banks from adding staff. The prospect that bankers will bolt to private equity firms and hedge funds is yet another restraining force.

The banks cited in the FT article include Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase, UBS, Credit Suisse and Lehman Brothers. JPMorgan has said it's generating roughly the same M&A revenues as in 2000 with half the number of bankers. This summer it's taking on 39 percent more interns than last year, and aims to hire about 85 percent of them full-time, the FT says.