BarCap's redundancies may merely relate to its Scottish hiring, but that doesn't mean everything's ok

It's happened: the first set of 2010 redundancies has been flagged.

The Financial Times reports that Barclays Capital is 'planning to cut up to several hundred employees,' 'across back office and administrative functions,' 'following a sharp fall in market activity in the second quarter.'

The FT doesn't elaborate on whether BarCap's redundancies will be in London. If so, they may simply be related to the bank's alleged plans to hire lots of operations people in Scotland, and may therefore be no huge deal.

Needless to say, however, any redundancies at BarCap are a bit of a reversal. The bank has added 2,300 people since January, of whom Dixit Joshi, the now departed head of BarCap equities indicated in March up to two thirds are in the middle and back office.

Equally needless to say, the bank has been on a bit of a recruitment drive in equities and IBD which has pushed compensation costs up, without generating a corresponding increase in revenues.

Interestingly, there was absolutely no mention of forthcoming staff extractions in last week's conference call. Instead, Bob Diamond intoned analysts concerned about costs to, "relax," while John Varley described, 'the decision by Bob and his colleagues to go hard' [on expansion] in early 2009,' as, "a great piece of timing."

Last week, Bob also said BarCap was now "virtually done," in terms of building European equities, 50-70% done in terms of building Asian equities, done building Japanese and Hong Kong equities, and 70-75% done in terms of building IBD.

Front office cuts coming next?

Clearly, the all-important question is whether BarCap's back office redundancies will spread to the front office.

Here the answer is, 'quite possibly.' Headhunters say BarCap's paid numerous guarantees to attract its new front office staff, so most recent recruits should be immune. But as a graph in BarCap's results presentation last week showed, revenues across most business areas are far from increasing.

Cuts at other banks coming swiftly after that?

Just because BarCap has gone first, it would also be unfair to suggest that other banks won't follow. As we noted yesterday, plenty of banks have jacked costs up beyond any discernable increase in revenues. Credit Suisse is the prime culprit. BofA Merrill Lynch has also done rather a lot of FICC hiring this year, with little to show for it yet.