If you're looking for a job in an investment bank, you'll need to be good. In fact, you'll need to be very, very good. These days, most banks aren't adding headcount - they're simply upgrading what they already have.
Harvey Schwartz, the new CFO at Goldman Sachs, elaborated upon the current state of affairs in the conference call that accompanied the bank's first quarter results this week. Right now, the "headwinds are hard given activity levels", said Schwartz. Goldman is already "at scale" and it's a "difficult time to build," he added.
While Goldman isn't building, there haven't been much in the way of hiring noises from JPMorgan, BofA and Citi either. All three banks are in the middle of cost cutting programmes. Granted, Citi is hiring senior M&A bankers, but it's also trimming in equities. Ronan Connolly, head of equities trading for EMEA at Citi, is the latest to leave according to Financial News.
The chart below, from CreditSights, helps explain why big banks aren't engaged in any big hiring now: overall, revenues are static. In the first quarter of 2013, investment banking revenues were remarkably similar to the first quarter of 2012. Worse: there are problems in the fixed income currencies and commodities (FICC) businesses that account for the bulk of banks' business. "FICC is producing at 2004 levels," said Nomura analyst Glenn Schorr in a note on Goldman Sachs. At Goldman, fixed income revenues were down 9% year-on-year when accountancy charges are deducted, said Schorr. At Bank of America they were down 20%. Investment banking is not a growth industry.
Unsurprisingly, therefore, banks' emphasis is on cost cutting and efficiency. New staff are being hired, but only as upgrades for former staff who've left. As the chart below shows, most big banks (with the exception of JPMorgan and Credit Suisse), have seen more departures than arrivals of staff registered with the UK Financial Services Authority (FSA) in recent weeks.
If big banks aren't hiring, who is? Hedge funds are sniffing around. So too are boutiques. M&A-focused investment Greenhill & Co also released its results yesterday. Chief executive Scott Bok said the bank is hiring and that Greenhill continues to, "see a flow of strong candidates who are seeking to leave the large universal bank model to join us." However, Greenhill isn't adding in big numbers: five to ten managing directors is the limit, said Bok. Why? The M&A market isn't growing either - although completed M&A volumes rose 22% year-on-year in the first quarter, Bok pointed out that this was skewed by two abnormally large transactions (Dell, Heinz). The number of completed M&A transactions actually fell 18% year-on-year, added Bok. "We continue to be cautious about expanding our headcount too rapidly in a market environment that's still seems challenging," he said, echoing the bigger banks.