Some banks will expand their commodities desks this year (but most will sit tight)

After a difficult 2010, this year is shaping up to be something of a mixed bag for recruitment opportunities in investment banks' commodities divisions.

As the Wall Street Journal has pointed out, commodities revenues were slumped by an average of 40% within the major investment banks last year, with low trading volumes in oil and gas - the staple of most banks' commodities desks - pushing down profits.

In London, it's not looking completely bleak. For a start there's the prospect of the City becoming the biggest centre of crude and oil product futures trading this year. Then there's the relatively aggressive hiring plans coming out of Citi, Deutsche Bank, UBS and Bank of America Merrill Lynch, according to various commodities headhunters.

"Our investment banking clients are suggesting that recruitment will be considerably stronger in 2011 than we witnessed last year," says Jakob Bloch, managing director of Commodity Appointments.

James Gorman also pointed out the importance of commodities during the bank's Q4 results conference call: "Our historic strengths have been in gas and oil. And I think as those markets are now starting to move, that business becomes more important to us."

Credit Suisse continues to make positive sounds about expanding into commodities, but a series of departures - latterly Adam Knight, its global head of commodities who was largely credited as a catalyst for the bank's growth in this area - suggests that replacement, rather than expansion, is a priority.

"There is definitely growth within origination around Gas and Power with specific regional knowledge of new and illiquid markets of particular interest," adds Ian Crouch, senior consultant - front office at Commodity Search Partners. "Most banks are consolidating rather than aggressively growing, because of the fact that there is a lot of uncertainty around trading regulations and remuneration schemes."

But with much of the market volatility centred on metals and agriculture, there are also tentative signs of recruitment emerging in these areas.

"Banks were hiring for soft commodities and metals in the latter part of 2010, and we're seeing this begin to pick up so far this year," says Jordan Lewis, senior consultant, commodities at Selby Jennings. "But, because there's a lot of movement currently, much of the recruitment has focused on replacement rather than expansion."

Moreover, banks are dealing with the prospect of an exodus of talent towards the commodity trading houses.

"Certainly a there has been shift of talent from the investment banks to the trading houses, and in some cases utilities, because of the allure of trading platforms with less regulations and bigger cash bonuses. This was particularly prevalent in 2010 and so we anticipate this trend will continue," says Crouch.