The adage 'what goes up must come down,' doesn't always hold true (e.g. in space), but banks' headcounts can't defy gravity much longer.
In the rarefied world of investment banking, the past few years have been a time of almost unprecedented recruitment.
A quick look at a few annual reports shows that, at the last count (2Q07), Goldman Sachs had added 6,276 people since the end of 2004 - around the time the banking cycle took a turn for the better. Over the same period, Lehman bulked up with 7,400 new bodies (a massive 38% increase on its former self) and Bear Stearns' girth expanded at a similar rate, with an additional 4,159 people.
The biggest expansion in absolute terms, however, appears to have been reserved for Merrill Lynch, which has added enough people since the end of 2004 to populate a small market town - 21,700.
So where are all these extra staff? Many are in Asia, but others are in areas such as leveraged finance and structured credit - where their services may no longer be required. Merrill's headline figure includes its large US brokerage business and allows for the addition of a few hundred people via acquisitions such as Entergy Koch. However, it's also been feeding its investment banking division, which is now at its highest staffing level for seven years.
Such rampant recruitment isn't totally unprecedented, because we've been here before, of course. Banks added bodies enthusiastically at the end of the 1990s, and then removed them equally zealously between 2001 and 2003. In 1999, for example, Merrill had 67,900 staff; in 2003 it had 48,100. Similarly, headcount at Goldman Sachs in 1997 was 6,000; by 2001 it was 25,000 and by 2003 it was down to 19,500.
Will this time be any different? New markets such as China, the Middle East and Central and Eastern Europe merit additional staff on a regional basis. But new staff who were working on structured products in London and New York are twiddling their thumbs. The ground could be approaching fast.