Banks are slowly starting to think they've over-fired

2011 and 2012 were bad years for cash equities bankers. In 2011, Unicredit closed its European cash equities business, MF Global went under, and Investec hacked away at the research team it inherited from Evolution. In early 2012, Royal Bank of Scotland also closed its equities business, making hundreds of people redundant. Banks like Barclays, Citi and Credit Suisse followed with equities layoffs later in the year.

2013 started in a similar vein, with Nomura dramatically culling equity research jobs just before bonuses were paid. J.P. Morgan reportedly cut pay for its equities salespeople and traders by a 4% at bonus time and ejected nearly 40 equities traders in February.

And now?  After all that bloodletting, equities revenues have picked up again.

Yesterday's second quarter results from Bank of America Merrill Lynch underscored the extent of the improvement. The bank had its strongest quarter in equities sales and trading since the first quarter of 2011, with revenues rising 53% year-on-year. Nor was BofA the only bank whose equities business benefited in the second quarter. Last week, Citigroup reported a 68% year-on-year increase in equities revenues, despite announcing nearly 1,000 equities redundancies at the end of 2012.

The upturn in equities has taken banking analysts by surprise. Across Bank of America, Citi, Goldman Sachs and J.P. Morgan, analysts at Morgan Stanley were predicting a 12% year-on-year increase in equities revenues in the second quarter. Instead, the increase came in at 29%. The good quarter in equity sales and trading is being attributed to strong equities underwriting revenues and money flowing into equities assets, said analysts at CreditSights. It's helped that the S&P 500 is up 17% year-to-date, even if the FTSE 100 is only up 11%.

Strength in equities is leading banks to engage in some navel gazing, say recruiters. Have they fired too many people? Some banks are reportedly deciding that the answer is 'yes.'

"Banks are hiring again in equities," said Zaheer Ebrahim, executive director at search firm Kennedy Associates. "They've had several strong quarters and are starting to think that they over-did the firings last year. They've started looking at adding headcount back in again. Hiring is happening across the board."

If there's a rush of equities hiring, there hasn't been much sign of it in the larger banks. Barclays is said to be hiring eight people for its Japanese equities business and has been reshuffling its equities leadership globally. Bank of America Merrill Lynch has hired a new head of equities for Asia.  But there haven't been any big changes at the big name banks.

The real equities recruitment activity is at smaller firms, said Oliver Rolfe, managing partner at equities search firm The Spartan Partnership. "It's the European banks and European brokers which are hiring," Rolfe said, declining to name names. "Some have cut too much and some cut with a view to upgrading and are now taking advantage of people on the market."

Among smaller firms, Makor Capital, an agency brokerage firm set up by some Cantor Fitzgerald executives, is said to be looking for up to 20 people in London, with cash equities as its main focus. Berenberg has also been hiring, while Exane recently hired two top-ranked auto researchers from Morgan Stanley.

Rolfe said most of the hiring appetite is for salespeople and sales traders rather than researchers. Ebrahim agreed: "Banks want salespeople with good relationships with institutional hedge fund clients.

The alleged uptick in hiring hasn't made much difference to senior equity researchers who lost their jobs last year. One told us he was still struggling to find a new role. "The headhunters I speak to keep telling me that things are picking up, but I haven't really seen it. Most of the hiring seems to be cheaper people at lower levels," he said.