Back to....2005?

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Investment banks have increased headcount by 30% over the past three years. Are we about to step back in time?

Maybe. An analyst report released last week by Credit Suisse points out that after 30% headcount growth across all investment banks since 2005, "...we are now starting to see cost cut measures launched by some of the investment banks. If revenues decline

as we fear, the investment banks will have a major challenge to manage down

their cost bases rapidly, or suffer severe profit squeeze."

JPMorgan's banking analysts are also flagging biggish headcount cuts, although not in the 30% range. Last week, they predicted European investment banks will slice off a further 7-15% of staff this year.

Simon Maughan, an analyst at MF Global, says the received wisdom is now that staffing levels will decline to levels last seen three years ago: "The problems are really in the mortgage backed securities and structured finance business areas, and those areas really took off in 2006 and 2007. If you take out additional hires in those areas, you'll be back at 2005 levels," he suggests.

John Raymond, a European banking analyst at CreditSights, agrees there may be cuts, but says they'll be restricted to the likes of securitization and CDOs: "I don't think you'll see big redundancies in other areas."

Axe-wielding hierarchy

This being the case, which European banks are most likely to cut heads this year?

JPMorgan's analysis suggests Deutsche Bank and Credit Suisse are most exposed to the demise of the securitization and leveraged finance businesses and will therefore be prone to decapitations. The rationale also goes that Deutsche, UBS and SocGen have added some of the highest numbers of staff in recent years, and may need to get rid of them.

French banks are seen as particularly likely to chop staff, but JPMorgan's report doesn't say why, and its analysts declined to comment.

The 2008 axe-wielding hierarchy, courtesy of JPMorgan, is as follows:

Deutsche Bank: 2,577 jobs at risk

UBS: 2,500 jobs at risk

Credit Agricole: 1,733 jobs at risk

SocGen: 1,668 jobs at risk

BNP: 1,480 jobs at risk

Credit Suisse: 1,435 jobs at risk

Natixis: 1,034 jobs at risk