If senior-staff exits are an indicator of market sentiment, things probably don’t look that great. Today it emerges that yet another senior banker has decided to retire.
But are things really that bad? Is not 2012 starting better than 2011 ended? Are jobs not springing back? Maybe.
Last week, recruitment firm Astbury Marsden declared 4,050 new financial services jobs had been created in London in January, up an enormous 172% on December. Financial services recruiter Morgan McKinley subsequently produced a similar, if less ebullient verdict: jobs were up 64% in January compared to December, it thought.
If you listen to what the European banks that reported in recent weeks have said about market conditions, things don’t sound so stupendous. Nor, however, do they sound disastrous.
The worst outlook came from UBS, which – as Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets, pointed out, effectively gave a profit warning for the first quarter, claiming that concerns about the European situation and the global economic outlook would probably, “weigh” on revenues. Accordingly, analysts at Morgan Stanley are predicting a 17% reduction in investment banking revenues at UBS year-on-year, as a result of de-leveraging and weaker client trading activity.
By comparison, Deutsche, Credit Suisse and BarCap sounded quite optimistic.
“January was more gratifying than last year,” said Anshu Jain. Credit Suisse declared it had got off to a good start with encouraging signs of client activity and that it was meeting its ROE target of 15%. Bob Diamond said BarCap was “ahead of where it was last year” and that he was, “sanguine about the outlook.” Although significant event risk remained an issue, the slowdown in European economic growth would probably be, “short and shallow rather than deep and prolonged,” Bob thought.
Before allowing oneself to be overcome with excitement about 2012, it’s worth casting an eye on return on equity, however. This is likely to be the big determinant of banks’ willingness to add costs, both now and in the future.
Most banks remain committed to producing double digit returns on equity. Many analysts are sceptical this can be achieved. Barclays has already admitted that it won’t hit its 13% ROE target but says it can still do it, something one analysts says is, “pie in the sky.” For 2011, CreditSights analysts estimate Barclays’ ROE was only 5.6%, “well below the cost of capital.”
Meanwhile, Credit Suisse continues to target underlying ROE of 15%, which Morgan Stanley analysts describe as “unrealistic,” even given additional plans to cut costs. And Deutsche is going for 20%.
If their ambitious ROE targets can’t be met, banks face further falls in their share prices. Further falls in their share prices are to be avoided. Any hiring and resultant cost commitments will therefore be subject to long consideration.
There’s already some evidence of this. Morgan McKinley claims the average time taken to fill a financial services job in London went from 30 days in December 2011 to 90 days in January 2012. If you do get hired this year, be prepared to wait for it to happen.
In the meantime, the graph below, derived from Morgan McKinley’s estimates for new jobs created in London, is informative. The trend during 2011 was clearly down. 2012 may start reversing that, but there’s a long way to go.
Based on figures produced by Morgan McKinley