Banking jobs in 2023: After the over-hiring, the over-firing
If you're looking for something to sober you up after Christmas, how about this for a thought: between Q3 2017 and Q3 2022, headcount at Goldman Sachs increased 36%, an addition of 13,000 people.
Many of those new hires were in Goldman's consumer banking business and its acquisitions, but many were not. When Goldman cuts what are expected to be 4,000 staff in 2023, insiders say the cuts won't just be in the consumer bank but spread across divisions. Lists of the unlucky were being drawn-up into year-end.
Where Goldman goes, others will follow. On the record, many recruiters say they're bullish about next year. Off the record, they're a lot more circumspect, especially those who have seen a few cycles before.
"Every firm will need to rightsize next year," says the CEO of one global search firm, based in NYC. "Wall Street over-hires and then it over-fires, it's the way it works."
When Wall Street firms fire, they fire with a vengeance. Between 1992 and 2000, New York City-based securities firms increased headcount by around a third, or 50,000 people, according to the most recent report of the New York State Comptroller. By 2003, they'd cut around 35,000 heads. Something similar happened ahead of the financial crisis: New York City securities headcount rose by another 25,000 people between 2003 and 2008; it fell by a similar amount in the years to 2010.
How bad will this cycle be? As the chart above shows, there are reasons to hope for leniency. In NYC at least, securities headcount has increased more moderately than in previous cycles and might be expected to fall accordingly. However, the comptroller points out that NYC now accounts for less than 20% of US securities employment, down from 33% in 1990. Many of the jobs added over the last cycle, were added elsewhere. Goldman Sachs, for example, has favored Dallas.
Speaking anonymously, some London headhunters are also calling the top of the cycle. "You will see redundancies across the board next year," predicts a director at one recruiting firm. They are welcome ad needed, she adds: "Firms have overpaid, and it's not sustainable. Candidates have really high expectations. Not just salaries and bonuses, but working conditions."
Juniors are most likely to be let go. Our recent survey showed analysts are among the most worried about their jobs for next year. With good reason: in a down market, recent graduate recruits are easily replaceable with the next class. Underperforming managing directors will also feel the cold steel.
It doesn't help that many juniors were hired during COVID lockdowns. There are suggestions that their training was less thorough. "We now have people on our team who’ve been here for a year and yet are still asking what EBITDA is," wrote one investment banking VP for us here in November. Tech in banking is seemingly the same: "A lot of these people only have two or three years' experience. They've barely worked in an office, they haven't been trained in the same way and they have crazy expectations of pay and working hours," says the London recruitment director. 2023 could be a shock. Q1 will be "bloody," says Barney Mundell, at search firm Loxton Partners.
For junior investment bankers, the coming year could be doubly raw. Not just investment banking jobs, but private equity jobs are likely to disappear. PE is never easy to get into. As the private equity industry undergoes its own rationalization, in 2023 it could be harder than ever. If you're a junior banker, the exit options are narrowing.
That's the bleak prognosis. There will, however, be opportunities for those who position themselves well. There will be hiring in thriving niches. Those niches are likely to include...
Boutiques will seek to take advantage of the discomfort of big banks, predicts Mundell. "The better placed boutiques, as ever, will continue to hire opportunistically as they seek to increase market share in an environment ripe for it," he says. Moelis & Co. has already said it's "leaning in" to hiring.
Sustainable debt issuance fell in 2022 and Credit Suisse laid off its European ESG researchers. Don't discount ESG next year, though. McKinsey & Co. is bullish about ESG revenues and by implication jobs, which it predicts will grow in the US and Asia. "ESG and sustainable financing will continue to be front and center for all investment banks. In the US, watch the late comers who didn’t prioritize ESG scramble to earn business and benefit from deal making tailwinds of the Inflation Reduction Act," predicts Joseph Leung of search firm Aubreck Leung.
Quant jobs will remain robust, predicts Natalie Basiratpour at search firm Octavius Finance. The quant market is likely to be much more steady than other areas where salaries have risen dramatically, she adds. Our own survey showed that only 20% of quants fear losing their jobs next year, compared to 64% of people in cash equities.
"We’re going to continue to see the trend for adding more quantitative/strat type traders to macro desks so that teams are upgraded into better risk managers," says Leung. "Think guys who dream in Python."
Top multi-strategy hedge funds
Banks had a bad 2022; the same cannot be said for the top multi-strategy hedge funds. At Citadel, for example, the Wall Street Journal reported that the flagship fund rose 32% last year. Headhunters who work on the buy-side are correspondingly bullish. "Everything is on track for Q1," says one. "We are very, very busy. Usually it's quieter in the run-up to Christmas."
Distressed debt jobs
If you work in distressed debt, 2023 could be your year. As defaults on junk loans rise from their lows of around 1.6%, distressed investing opportunities are expected to proliferate. Carlyle has raised $8.5bn for a new illiquid credit fund to invest across distressed and performing debt. Leung says distressed debt investors are "foaming at the mouth" at the sight of a "perfect storm." - "The slowing economies, the rising cost of raising financing and the war in Ukraine have all helped create this long anticipated stage of the credit cycle. Asset managers and hedge fund managers have already and will continue to raise new funds for distressed debt. Distressed PMs and credit analysts are going to be in high demand."
Lastly, 2023 could be the year when structured credit jobs regain their strut. Apollo's interest in Credit Suisse's securitized products group is reflective of buy-side firms' appreciation of the steady revenues and comparatively low risks in the sector. Historically, Goldman Sachs and Deutsche Bank owned the structured credit market, says Leung. Now, banks, specialty insurers and private credit funds are also in the mix. "Expect these players and others to continue to selectively add to their fund finance and alternative lending/solution franchises," he concludes. It's not all bad.
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