With a little luck, 2010 will be like the final months of 2009, but better. With interest rates still low and the cost of holding cash still high, investors can be expected to continue searching for yield in ways best offered by investment banks and/or hedge funds.

Throw in the likely continued difficulty of getting a corporate loan and resulting disintermediation of traditional lending banks as clients go direct to capital markets, and you have further demand for investment banks’ abilities – and, hopefully, additional jobs.

Among recruiters, the general perception is that 2010 will be better than 2009, but not nearly as good as 2007. “Everyone’s interested in how 2010 will progress,” says a senior headhunter. “It should be good, but if anyone says it will definitely be good, they’re lying. It’s still impossible to predict.”

Here are our tentative predictions for what should be hot next year.

1) ‘Hiring’

To avoid being called liars, we’re not saying hiring will definitely be hot, but there are various reasons why it ought to be.

Regardless of whether banks opt to build out divisions in 2010, recruitment is likely to be pushed up by staff turnover. With confidence finally returning to the market, individuals can be expected to regain the confidence required to move firms.

Couple this with banks’ urge to expand in strategic areas, and hiring looks inevitable. As we reported in November, most banks have strategic gaps to fill in 2010, not all of them in the same areas. Credit Suisse plans to add in commodities, investment grade debt, equity derivatives and FX, for example. Deutsche Bank has aspirations to build in commodities, equities, DMA and electronic clearing.

The CEBR is optimistic about City of London jobs next year. It predicts 9,000 additional roles will emerge. As we noted recently however, the introduction of the UK’s 50% bonus tax (which will apply to sign-ons) may have the effect of delaying recruitment until June.

2) Efficiency

Despite all the hiring, we expect 2010 to also be a year of ‘efficiency’. As we note in our ‘going down’
article, various regulatory initiatives mean profits are likely to be squeezed next year. Expect a push for increased efficiency to compensate. Deutsche Bank, for example, expects efficiency gains to deliver some of the €11bn profits it’s positing for 2011 through efficiency gains. UBS plans to substantially grow its fixed income currencies and commodities division with only modest hiring.

As a result, expect banks to sweat the assets they’ve got, people included. If you’re in a job, expect to work harder for less (in terms of cash bonus) next year; if you’re not in a job, expect to prove precisely how you can add to the bottom line before being hired. Expect a push to automate where possible (see points 7 and 9 below), and expect increased demand for project managers as efficiency-focused projects crop up everywhere.

3) Emerging markets

Despite the disaster that is now Dubai, emerging markets should also prove fertile ground for expansion in 2010. JP Morgan is predicting a 30% rise in emerging market stock prices next year. Merrill Lynch is predicting a 20% increase, along with rising emerging market debt issuance.

Needless to say, banks are alert to the opportunities. Morgan Stanley plans to increase Asian headcount by ONE THIRD next year.

Deutsche recently reiterated the importance of emerging markets and Asia as a profit driver. HSBC is said to be planning an $8bn Shanghai listing by March, Goldman and Credit Suisse are seeking to expand in India, while Goldman is pushing into private banking in Brazil. Morgan Stanley has already doubled its investment banking headcount in Brazil and plans to keep on recruiting there. Standard Chartered recently added a capital markets head for Africa as part of its plan to expand its investment banking business across the continent.

“There will undoubtedly be a fair amount of emerging markets hiring in 2010,” says Mike Goggin at Brookleigh Services. “Emerging markets have taken on a new dynamic – they now include India, an increasing number of Sub-Sahara African countries, more CIS counties, North Africa and more of the Middle Eastern Gulf states. There’s quite a lot of activity in those areas. There’s also a lot of hiring needs in London to sell these emerging markets to European institutional and corporate clients.”

4) Analysts and Associates in corporate finance and M&A

If you were made redundant in 2008, it may have seemed like the day would never come, but in 2008 analysts, associates (and maybe even VPs) in investment banking look like make a big comeback.

The driver is expected to be a resurgence in M&A activity. Analysts at Bernstein research are predicting a 35% increase in the value of global M&A next year, and a further 23% increase in 2011.

While banks like Deutsche stocked up on senior bankers in the M&A wasteland of 2009, most banks will need to supplement senior M&A recruitment with junior and mid-ranking hires in 2010.

“There will be a lot more analyst and associate hires next year. Banks over-fired and they’ve been caught short on how aggressive the upturn’s been,” says Logan Naidu at recruitment firm The Cornell Partnership.

Some banks are likely to continue hiring senior M&A staff. SG, for example, has now hired 15 senior M&A bankers this year, and plans to hire another 15-25 next year. Piper Jaffray intends to hire 60 investment bankers globally. Credit Suisse has just appointed a new global head of M&A after its advisory fees declined faster than rivals’, and can be expected to kick-start the business in 2010.

5) ECM

There’s already excitement about the potential for equity capital markets in 2010. Although secondary offerings were robust, UK IPOs hit a 15 year low in 2009 and private equity exits were non-existent (with the exception of the unsuccessful Gartmore debut),

Next year is therefore expected to see the unleashing of pent up demand. 2010 will be the year of the IPO,” Edward Law, head of western European equity capital markets at Deutsche Bank told the Financial Times earlier in December. Thomson Reuters calculates the global ECM pipeline for 2010 at $217bn, $73bn of which is expected to come from initial public offerings

Whether this will lead to mass hiring is, however, another matter. BarCap, Citigroup and Nomura were among those building in equity capital markets in 2009. Bob Condal of search firm Redgrave Partners predicts 2010 will be a, “mixed bag.”

“We certainly don’t expect a return to 2006-2007; we do however envisage demand for associates and VPs to help drive transactions through,” Kondal suggests.

6) Government bond desks

With government bond issuance going through the roof and sovereign debt risk the issue of the moment, emphasis on government bond desks will increase in 2010.

“Given the spike in revenues related to government bond trading activities in 2009 and the emergence of new entrants, it’s clear that 2010 will witness an unusually high demand for traders,” says Piers Benbow of Eden Search.

Citadel, MF Global, Jefferies, Scotiabank, Daiwa Securities and Santander have all pushed into primary dealing in Europe in 2009. Next year hiring is expected at Deutsche, Credit Suisse, UBS, Morgan Stanley and Santander (again).

7) Electronic trading

As we noted in our review of last year, high yield trading came out of the closet in 2009. Expect continued emphasis on all aspects of electronic trading in 2010.

Deutsche Bank, for example, is targeting a top five position in electronic trading within the next two years. Morgan Stanley has been building its electronic trading arm; Citigroup appointed two top rated electronic traders in September 2009 as part of its own build.

Dominic Connor, a partner at P&D quant recruitment, says electronic trading will remain big for banks in 2010. “The drive to put credit derivatives on exchanges, dark pools, and trade optimization,” will all ensure that banks need more electronic trading expertise next year.

8) Commodities

Commodities have been hottish for sometime. 2010 should be no different.

Reuters recently highlighted various banks which have big commodity expansion plans for 2010, including:

· BofA Merrill Lynch, which plans to expand its new commodities team by 25 percent over the next 2-3 years.

· Credit Suisse, which plans to add 100 commodities staff over the next 18 months.

· UBS, which axed most of its commodities business in the aftermath of the crisis and may now feel like revving up again.

· Standard Chartered, which expects to start trading commodities on a spot basis next year

· Barclays Capital, which is expected to expand into commodity derivatives trading

If this isn’t sufficient, Deutsche Bank also highlighted commodities as an area of intended expansion during its recent investor day presentation, and is said to be in the bidding for RBS Sempra. Equally, Nomura wants to expand its commodities team further next year.

“Banks are building on a product basis rather than across the board,” says John O’Dwyer, head of European energy recruitment at search firm Kinsey Allen. “There’s demand for people to work in commodity sales, particularly to hedge funds, and in analytics as cross commodity and relative value plays become more popular.”

9) Post trade processing

The not-very-exciting world of post trading process is likely to become a lot more engrossing in 2010. Europe is continuing down the tortuous route of developing a single integrated low cost and low risk post trade processing system.

The European Commission has called for mandatory clearing of standardized derivatives through central counterparties, and the US government wants the standardisation of OTC contracts in order to facilitate electronic clearing of OTC derivatives.

Deutsche, for one, aspires to ‘develop self-clearing and client clearing infrastructure in all OTC derivative asset classes,’ in the coming months.

And ICAP, which expanded headcount in its post trade business services division by 40% in 2009, plans further growth next year and says it’s, “identified it as an area in which we will continue to invest.”

10) Morgan Stanley

Morgan Stanley didn’t have a great 2009. In December, current chief exec John Mack
relinquished his third bonus in a row in the expectation of the bank’s first ever annual loss. The expected loss is particularly shaming given arch rival Goldman Sachs is expected to make a large profit for 2009.

In 2010, hopefully, Morgan Stanley will put this ignominy behind it. John Mack is being replaced by James Gorman in January, and Gorman will hopefully preside over an organization that’s already on the turn. After failing to capitalize on fixed income revenues in 2009, Morgan Stanley is doing its best to reinvigorate its shriveled fixed income business, with up to 400 sales and trading hires. It’s also shaking up its prime brokerage business, both in the US and in Asia. And it plans to increase overall Asian headcount by a third next year.

“Looking into 2010 we expect stronger performance out of flow trading and a solid recovery of investment banking revenues as M&A and equity underwriting recovers late in the year,” predict analysts at Bernstein Research with regards to Morgan Stanley.