Very major danger of redundancies in FICC

2011 could turn out to be a peculiarly nasty year for fixed income, currency and commodity professionals. Enthused by soaring revenues in 2009, most banks built up their FICC businesses in 2010.

This could be the year they decide to trim them back again.

Ominously, headhunters say banks are already putting their FICC hiring plans on hold.

"There's been an 80% drop in hiring volumes," says one. "Everyone's reining back their plans - Credit Suisse are pulling back, UBS's plans are getting picked to pieces by management. There's a lot of pressure to reduce hiring and get existing people up to speed."

Nasty outlook

The likely evolution of FICC revenues was a major question in the conference calls accompanying US banks' results last week. The crux of the issue is whether 2011 is going to be as bad Q4 2010 - when FICC revenues at US banks fell 24% year on year and 33% quarter on quarter.

Most banks were mutedly optimistic about prospects for 2011. For example, David Viniar at Goldman Sachs claimed there was a "pick-up" from fourth quarter in January.

However, analysts at Morgan Stanley are predicting a 10% decline in underlying FICC revenues in 2011. They say that only so-called 'flowmonsters' such as JPM, DBK - or players such as BNP which dominate a region or product category - with strong electronic trading and distribution, will really prosper in the new FICC 'paradigm.'

Equally, new Basel capital requirements are expected to make some FICC products (eg. correlation trading, securitisation) uneconomic.

Coming cuts

The problem is, that unless revenues pick up dramatically, banks will be obliged to trim costs.

BAML's Brian Moynihan admitted as much last week, when - under repeated questioning - he admitted, "trading revenue this quarter is down and it will come back up and if it doesn't, we'll adjust the size of that platform to make it up for it."

"Most banks will delay redundancies until the end of the first quarter to see if there's any improvement," predicts the headhunter. "But I'd expect HSBC and RBS to make cuts in March - before bonuses are paid - if there's no improvement soon."