If 2008 was bracing, 2009 will be biting. With wholesale banking revenues likely to remain depressed, further headcount cuts look inevitable, particularly at European banks which have yet to announce bonuses. Oppenheimer's Meredith Whitney isn't predicting a return to growth at big US banks for at least another two years. But 2009 won't be all bad. Hiring is likely in a handful of business areas. And they are -
1. Equity sales and research
Difficult markets, reduced liquidity, and investors' distrust of complex products are creating favourable conditions for a revival of 'high- touch' equities businesses which offer investors more than mere speed of execution.
A survey of equities professionals by headhunters Marshall Warburton confirmed this trend, concluding that: "Execution is no longer the big differentiating factor it was and the focus is beginning to swing back towards the quality of the investment idea and its distribution."
Cautious hiring may ensue, particularly at boutique firms such as the newly formed Hoare Capital. However, equity businesses will also be hampered by falling margins and the loss of hedge fund clients.
2. Restructuring hedge funds
With around one third of hedge funds expected to fail in 2009, hedge fund restructuring advice is likely to become big business. In December, financial advisor Grisons Peak and hedge fund advisor IGS Group announced the formation of Alternative Investment Merchant Banking , an organization to focus on hedge fund M&A, restructuring, and debt and equity fund raising. Hedge fund restructuring specialist Navigant Partners also hired advisors in December in anticipation of a rush of work. Further recruitment in 2009 is likely.
"We're not planning to hire anyone immediately, but we will eventually," says John Godden, chief executive of IGS Group. "They will be hedge fund guys who can assess companies and FIG bankers who can match buyers and sellers," he predicts.
3. Distressed debt funds
We've been predicting a rush of distressed debt hiring for a while. 2009 may be the year in which it finally materializes. As the credit crisis spreads beyond banks, car makers and the retail sector, Moody's is predicting that the European corporate default rate will soar to 12.5% in 2009, more than six times its level at the end of 2008.
Most recruitment is likely to take place in distressed funds such as that set up by ex-Merrill prop trader Mark Devonshire to make the most of the anticipated opportunities.
"It's early days," says Lee Thacker of headhunter Silvermine Partners. "Funds are hiring now for a market which is still six to nine months away."
4. Compliance and regulatory expertise
Soft touch regulation has been tried and failed. Now that taxpayers own banks, stricter regulation is an inevitability.
"I'm expecting more demand for operational reporting and regulatory risk people," says Mike Hartwell of recruiters Hartwell Buck. "Organisations are going to need to prepare for the raft of new legislation that's coming."
5. Integration specialists
Bank of America's merger with Merrill Lynch is expected to close in early 2009. Once this happens, integration will be the name of the game. In December 2008, Jamie Dimon told CNBC that assimilating Washington Mutual and Bear Stearns required thousands of systems experts, traders, bankers and marketing people."
Recruiters predict demand for everything from programme managers and project managers to Six Sigma efficiency specialists.
Pundits are predicting an avalanche of claims in the wake of the subprime crisis. According to Standard & Poors, $68bn in defaulting CDO assets have already been liquidated, leaving CDO sponsors and underwriters open to litigation from disappointed investors. Both banks and law firms are likely to hire as a result.
Colin Jones, a legal headhunter at recruitment firm Napier Scott, says appetite for bankruptcy and restructuring lawyers will also be strong next year. "Law firms will hire for litigation, international arbitration, banking claimant work, arbitration, and insolvency."
7. Actuaries and investment consultants
Life assurance companies have between now and 2012 to gear up for the implementation of IFRS Phase II. This is likely to drive demand for actuaries who can develop models compliant with the new legislation. The more imminent introduction of European Solvency II rules, should also feed the appetite for actuaries.
At the same time, investment consultants like Mercer and Watson Wyatt can be expect to poach people back from banks. "Investment consultants pay competitive base salaries, but they haven't been as competitive on bonuses," says Martin Lorrigan at headhunter Principal Search. "They suddenly have an opportunity to pick up people they haven't been able to get for years."
8. Bank of America and Merrill Lynch
It's not clear that a combined bank which includes Countrywide and Merrill Lynch and which plans to cut up to 35,000 jobs in three years is in line for a good 2009. With losses as high as $77bn forecast on BofA's $943bn of loans, the next few years will clearly be tough.
However, the Berrill combination should also emerge as one of three big US banks in the new world order. In a December research note, Ladenburg Thalmann analyst Dick Bove decried negative loan loss forecasts and described Berrill as a "company of opportunity," and, "financial juggernaut with a very positive outlook."
Unfortunately, it may not look that way to the 35,000 people whose services are no longer required.
9. Equity Capital Markets
With ECM revenues down around 35% in 2008 on 2007 and no imminent recovery likely, a rush of ECM hiring is not expected in 2009. However, jobs in the sector may be protected by even worse conditions in the debt markets. "It is a realistic prospect that there will be significant equity issuance for balance sheet fortification and M&A in the coming months," Timothy Harvey-Samuel, head of equity capital markets at Citigroup in London told the Financial Times in November.
Issuance in 2009 is likely to be focused on rights issues. "ECM businesses will just do rights issues instead of IPOs," predicts Guy Davies at headhunters Hogarth Davies Lloyd. "That won't spur hiring, but jobs will at least be safe."
10. Base pay
Could it be that banks will increase salaries to compensate for lower bonuses in 2009? With thousands out of the market and bankers vilified for years of excessive handouts, this may be a little too much to ask. But there's no harm in hoping.