If you strip compliance, risk, finance and any other control jobs out of the equation, it's been a while since banks did any sort of monumental recruitment. This could change. In some quarters, there's a sense that 2014 might be the year when front office hiring finally makes a comeback.
"There will be headcount additions in 2014," says Oliver Rolfe, managing partner at equities-focused recruitment firm Spartan Partnership. "Cash equities revenues are growing and we're expecting most banks to start selectively adding people."
"There's been so little hiring for years in cash equities that it's inevitable that banks will need to make some key hires," says the head of another financial services headhunting firm, speaking on condition of anonymity. "IPOs and M&A are also coming back. There's a general sense of positivity about 2014."
The big reason to think that 2014 might be a big year for bank hiring - and specifically for equities and IBD hiring - is revenues. Analysts at JPMorgan are predicting that equities revenues will increase by 12% this year compared to 2012 and that IBD revenues will increase by 5%. In the first nine months of the year, European investment banking fees were 11% year-on-year from 2012 according to Dealogic and US fees were up 19%. Only Asia is floundering - fees there were down 9% over the same period. As a rule of thumb, rising banking revenues lead to increased hiring - after a lag of six months or so.
We're not the only ones to converse with optimistic recruitment firms. In an article today, the Financial Times quotes Chris Hickey, chief executive of Robert Walters UK, who agrees City hiring is making a comeback and that banks are actually looking at hiring for revenue-generating functions again.
Wild optimism may be misplaced, however. Jason Kennedy, managing director of recruitment firm Kennedy Group, tells us he's seen absolutely no sign of a revival in banking recruitment for the front office - equities included. "Equities are doing a lot better than expected, but I personally don't see any growth in hiring. It's a contrarian environment- revenues are growing, but banks are holding things static. The situation in the U.S. is also unnerving a lot of people."
The U.S. debt ceiling aside, there are two reasons to think that 2014 won't be the year when banks break their front office hiring hiatus with a rush of strategic recruiting across equities and IBD. The first is the state of the fixed income business. The second is regulation.
While equities and IBD revenues are increasing, fixed income sales and trading revenues are floundering. JPMorgan's analysts are predicting an 18% y-o-y decline in fixed income currency and commodities (FICC) revenues for 2013. This is bad news - and not just for for FICC.
As Andrew Stimpson, an analyst at Keefe Bruyette & Woods told the International Financing Review last week, the poor performance of the FICC business is squeezing banks across the board. FICC is a high margin business and banks use it to subsidize lower margin areas like equities and IBD. When FICC is sick, margins come under pressure across the board. With the high margin FICC business shrinking, banks will need to keep overall costs down - they won't be able to hire in equities and IBD, however much they'd like to.
Secondly, regulation remains a big issue. HSBC has hired 3,000 people this year to combat financial crime and JPMorgan is hiring thousands of people for control jobs. Tom Stoddart, associate director at recruitment firm Eximius Finance, says they've just had the best third quarter for financial services recruitment in London since 2010. Almost all this hiring has been for regulatory roles, however. "A lot of the growth is being driven by what the regulators want," says Stoddart. "It's all infrastructure, finance and operations. We're very hopeful that this will continue in 2014."
The rush on regulatory hiring may be good news for recruiters like Stoddart. It's worse news, however, for anyone hoping to get a front office job in banking. The more banks spend on regulation, the less they'll have to spend on new equities traders, M&A associates and or ECM bankers. At worst, 2014 will be a year in which revenues in these areas increase, but headcount stays the same and everyone simply has to work much, much harder.