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EDITOR’S TAKE: The new model – fewer staff, higher pay

According to various doom laden prognoses, we are in for a jobless recovery in the economy at large. It looks like investment banks are leading the way.

In the first half of 2009, revenues at five leading banks (Goldman Sachs, Morgan Stanley, JPMorgan, Credit Suisse, Deutsche Bank) rose 24% compared to the same period last year; net income rose 320%, and headcount fell 2.3%.

Banks like Goldman and Deutsche continued trimming headcount in the second quarter, even though revenues went through the roof.

And while there’s hiring, there’s not really very much of it. Studies suggest the number of new financial services jobs in the City of London is down anything from 60-80% year on year.

David Schwartz, founder of US headhunting firm DN Schwartz & Co and a former head of recruitment at Goldman, says hiring is currently “selective, strategic and opportunistic,” and that this is unlikely to change.

“There are fewer investment banks than there were, and the investment banking business is going to be a lot smaller at firms like Citigroup in future. I really can’t imagine a firm deciding to add 25% to its workforce over the next two years,” he says.

Naturally, there are exceptions. Nomura is looking to increase its US headcount by
40% and Barclays is hiring 750 people as it attempts to build a European and Asian equities business virtually from scratch.

However, among the established global players there’s little likelihood of a big headcount push in the style of 2003-2006, when Goldman added 7,000 people and Morgan Stanley increased recruitment of MDs and EDs by 85% in 2006 alone.

“The first two quarters have been pretty good across the board and firms are using this opportunity to upgrade,” says Michael Karp, chief executive of international search firm Options Group. “However, we’re not going to return to a situation in which banks are overleveraged on headcount,” he adds.

Instead of ramping up, Karp says banks are focusing on rewarding the staff they have more effectively. Recent compensation figures confirm this: across the five banks listed above, net revenues rose 24% in the first half; pay per head was up 38%.

Comments (4)

  1. I think we are confused here between a real trend and short term desperate revenue protection. The banks have (as usual) cut back too harshly, to the point where delivery is negatively impacted. In order to stay in business, most firms are desperate to keep staff and position themselves for the recovery. These observations are more about the poor quality of strategic management in investment banking – shoot first and from the hip, regret, then panic. Recovery will take place, although not at the levels seen in the past. To deliver to customers you need people, so people will be hired. If the comp levels of exisiting staff have been raised, so too will the demands of new joiners – bottom line; dramatically increased costs. If we are truely talking about less people, then the IB industry will need to invest in technology and attract back the change folks that have been fizzed. Bottom line: more increased costs. Shaved chimps could manage the industry better!

  2. Wizard is spot-on.

    We’ve seen this before, short-term panicked thinking with seniors dictating per decreased budgets but not enough due consideration given to the negative impact of day-to-day process’s/ service etc. In all fairness, its a fine-line but still very relevant

  3. ‘a situation in which banks are overleveraged on headcount’

    You mean they employ too many people? Speak English!!

  4. You have to admire the big banks. They rake it in during the good times. And they rake it in during the bad times. No matter how many scandals they cause, they still command prestige, huge fees and chunky profits. Their ability to spin and adapt is impressive.

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