All that credit hiring a few months ago is starting to look silly

April, May, and early June 2010 were characterised by what can be described as very, very enthusiastic hiring in credit sales and trading.

As a reminder of those halcyon times: Credit Suisse and Lloyds announced their intention to add a combined 55 people in credit flow sales, and credit sales and trading this year; Mitsubishi hired six people in credit sales; Morgan Stanley made 10 hires for European credit sales and trading , and UBS and Jefferies both hired a few people too.

This followed a wonderful first quarter in which trading volumes in US investment grade corporate bonds rose 18% year on year, and high yield volumes rose 23%. First quarter credit trading revenues at US banks appear to have risen...300% as a result.

More recently, however, things have gone horribly downhill. The second quarter is always worst than the first quarter in credit, but this year it appears to have been particularly dire. US banking analyst Dick Bove has taken to warning against poor credit revenues in the second quarter. Morgan Stanley analyst Huw Van Steenis is predicting that FICC revenues as a whole will be down 25-30% at Swiss banks for the past three months.

None of this has been lost on the banks which were at the forefront of all that credit hiring.

"At the start of this year, banks which were severely understaffed were rebuilding their credit operations," says one credit-focused headhunter. "But when the numbers didn't come through, they started putting on the brakes."

Michael Stubbs-Egginton, managing director at search firm Credent Partners, says it's not that bad: "Things that were in the pipeline are still being worked on, but additional hiring that might have happened in the second half is being dropped.

"Structured credit, for example, made a comeback earlier in the year, but has fallen off, as hiring in investment grade. However, areas like high yield sales are still very active," he adds.

The wonderful first quarter may simply have been a weird anomaly

Will credit revenues pick up from here on?

Dirk Hoffmann-Becking, an analyst at Bernstein Research, thinks they might, as volatility calms down. However, Simon Adamson, an analyst at Creditsights, is less certain: "Credit is particularly vulnerable to the uncertainties over sovereign risk," he says.

Adamson judges that things in credit might improve if sovereign risk dissipates due to confidence that countries are tackling their deficits, or if stress tests convince markets that banks are in a reasonable shape. However, it's very difficult to predict at the moment," he muses.

All those recent credit hires may well prove a drag on bonuses as a result.