What Greece means for your job and pay prospects

At 9pm tonight, the Greek government faces a confidence vote to determine whether it has the support necessary to make €78bn of budget cuts now demanded by the IMF as a precondition to the crucial €12bn July aid payment that will stop it defaulting on its debts.

If tonight's Greek vote goes through, the immediate question will then become how to re-profile Greek debt in a way that will mean private bond holders take a hit as some Euro member governments now require, but won't constitute a default in the eyes of the ratings agencies. If ratings agencies downgrade Greek debt to default status, the ECB won't be permitted to use Greek bonds as collateral for providing liquidity to the Greek banking system. The Greek banking system will fail.

As various people have noted, a Greek banking failure could transmit panic through the banking system as liquidity freezes up and investors shift their focus to sovereign insolvency in Portugal, Spain, Italy and ultimately even the UK. The euro could plummet. And it could also leave the ECB itself even more overleveraged than it is already and probably insolvent.

Rather than risk this, the European Union is likely to vote for another government-led bailout of Greece later this week if necessary.

Longer term, however, the Greek problem won't go away and the Greek population, 80% of whom are against making concessions to the IMF and EU, may demand default.

With luck, it won't happen. However, what's happening now will have medium term repercussions for hiring and pay in the financial services industry. These are mostly bad, but occasionally good.

The great badnesses

1) Banker bashing will make a massive comeback

As Greek economics professor Yanis Varoufakis pointed out yesterday, the average taxpayer in northern Europe is currently being given the impression that his money is being used to prop up the laggards of peripheral Europe. The reality is that his money is being used to prop up various European banks which have significant exposure to Greek debt.

When this becomes apparent, another political backlash against banks is possible. In this situation, new and more punitive compensation constraints are likely.

2) European banking pay and revenues will dive

Last year, revenues at JPMorgan's investment bank in EMEA fell 25% due to European debt problems. This year could be worse.

"Business in Europe dropped off sharply when the sovereign debt crisis hit this time last year, and we could see that again," says Simon Maughan, head of banks research at MF Global. "In the event of a Greek default, it's hard to see how any area of a bank would benefit."

Maughan points out that a sovereign debt crisis would be far more damaging to banking revenues than the financial crisis of 2008. "This time, rates won't be cut and there won't be QE," he predicts. "In a sovereign debt crisis, rates go up, which is generally bad for banks' revenues."

Maughan predicts this will feed through to pay in Europe. "There will be differential pay in 2011," he predicts. Ie. Bankers in Europe will earn less than bankers in the US and Asia.

In an effort to defend the bonus pool, banks will also pull back from hiring in the rest of the year.

3) More redundancies in markets businesses

"The situation we're in now means higher volatility, which is a good thing," says Simon Adamson, an analyst at Creditsights. "On the whole, however, it will lead to a reduction in client activity, which is bad for banks that have become dependent on customer flow," he adds.

There are already signs that risk is 'off.' Last Friday, the Financial Times quoted Gary Baker, head of European equity strategy research at Merrill as saying there's been a "dramatic change" in risk appetite in just a few months. And a recent survey by Merrill Lynch showed investors are now holding as much cash as they were in mid-2010.

Most banks were expecting a comeback in equities revenues this year and an only marginal reduction in fixed income revenues. This may prove optimistic. As revenues fall, so must costs.

4) No comeback in IBD

2010 was supposed to be the year IBD revenues bounced back. Despite today's $10bn offer for SAB Miller, the uncertainty surrounding the Eurozone is likely to delay the IBD recovery again.

This year's €1.7bn float of Irish Life is the latest to look shaky.

"This is bad for M&A and IPOs," says Alex Potter at Berenberg. "Everyone's sitting on their hands at the moment."

Weak revenues in M&A and capital markets will spell bad news for banks betting on these businesses for growth. BarCap and Nomura look especially exposed.

The small goodness

1) Derivatives

Failing a systemic crisis and breakdown in counterparty trust Potter predicts that derivatives revenues could rise on the back of volatility. "Barclays often makes the case that its derivatives business is geared to benefit from rising volatility," he points out.

2) FX

Equally, volatility could yet prove good for FX businesses. In the event that Greece drops out of the Euro, there would be a massive spike in FX volumes.

FX hiring has proven resilient so far this year, with recruiters unsurprisingly citing strong demand for people to cover central bank accounts.

3) Sovereign debt issuance

People will also be needed to restructure European government debt. In the eventuality that Greece drops out of the Eurozone and the ECB loses credibility, government borrowing costs across Europe are likely rise. Sovereign debt businesses can only benefit as a result.

4) Macquarie could prove a good bet

While European banks like Dexia are particularly exposed to Greek debt and US banks have some exposure to the European debt crisis through CDS, Australian banks are looking comparatively healthy and have very little exposure to Greece.

5) Share prices may bounce

In the event that Eurozone governments do manage to agree upon some sort of bailout, share prices for European banks could bounce back says Dirk Hoffman-Becking, an analyst at Bernstein Research.

He writes:

"Either Europe messes things up so badly that a Lehman-like liquidity freeze is going to descend upon the markets (at which point all you can buy is gold, guns and agricultural land) or that they get their act together at least so far that they fend off immediate meltdown (at which point the sector as a whole and Credit Agricole and SocGen in particular should bounce sharply). We firmly believe the latter based on the experience of the last few times when the governments stood with the back against the wall."

A Greek bailout this weekend could therefore be good news for anyone with bonuses vesting imminently. Despite the risks, Becking rates Credit Agricole, UBS, SocGen and Credit Suisse outperform. Employees holding deferred stock in these banks will have to hope he's right.