Last year an entire middle tier of investment banks added bulk via mergers and aggressive recruitment, fuelled by ambition in a market that saw $3,495bn (€3,739bn) worth of global M&A activity, according to data from Thomson Financial Securities. The US economic slowdown is now being seen as a chance to allow the players to sit back and consider their situation.
Christopher Leslie, co-head of global financial services at Whitehead Mann GKR, says: 'Some investment banks seem to be on a hiring freeze and others are just cautious. The US has really slowed down in contrast to Europe, but volumes are down even here.'
Bulge-bracket firms are reported as saying that some associates have been there for five or six months and have not as yet even worked on a deal. It is a question of sentiment and the tide could turn very fast, say headhunters.
Commerzbank Securities is still 'hiring aggressively across the board' according to Debbie Griffin, head of HR. But at many banks, hiring, though across the board, is being done much more selectively. Hiring firms in Europe include Lehman Brothers, Bear Stearns, HSBC, Rothschild, DK Wasserstein, JPMorgan Chase, Deutsche Bank and others.
Andrew Peck at search firm Richmond & Co says: 'Deutsche Bank would still love to hire rainmakers who bring in the deals. They need to build up the M&A business, but the mid-level execution business may slow down.'
The middle tiers of investment banking are swollen because of overcapacity, and those who hired heavily will once again have to cut back. Heather Kleeman at the Rose Partnership says: 'Demand for senior quality people does not dissipate whatever the market, but it is at this point that we realise that last year was an amazing one.'
In general, the European banks are finding it increasingly difficult to keep their platforms together and compete with US banks and cost-income ratios have gone through the roof. More often than not this is without the success achieved in the league tables by an institution such as Deutsche Bank, which is nonetheless restructuring in a bid to tighten up those ratios. 'Investment banks are probably the most poorly managed businesses in the world,' says one headhunter wryly.
There has also been a clear slowdown in the equity and fixed-income derivative markets, which, in the case of the equity derivative markets is linked to the slowdown in M&A activity. Guy Patel, senior managing director at specialist headhunter Reech Capital, says: 'A lot of people are coming on to the market. It is a buyers' market, particularly in fixed-income because of the shake-out in the markets. Many banks took their opportunities last year to pick up those they wanted because of all the restructuring.'
Equities as well as fixed income groups have been more prone to team hiring, which appears to be losing the taboo it had a few years ago. Lee Thacker, a director at specialist search firm Mantaray Partners, re-branded from Devonshire Executive from today, says: 'The strategy now is very much to hire teams, with the headhunter in equity most likely to be asked to do so. But it depends on the product.' Mantaray Partners covers search in credit and equity markets as well as investment management.
There is a greater supply of teams available in a market full of mergers, says Thacker, because the team that works well looks to the boss in times of uncertainty. 'A team hire almost guarantees revenue because there is a track record you can point out,' he says. Mantaray Partners says it has worked on 15 to 20 teams in the past 18 months primarily in the fixed-income sector.
Other headhunters agree that team hiring is on the increase, as is the practice of targeting the people employers want from a rival house. Rupert Channing, managing partner of the financial services practice at Heidrick & Struggles in London, says: 'Targeting is very much on the upswing. We have also been telling people that the difference 10 people can make as opposed to one or two is enormous.
'We sit down with a list of people whom we think would be good from a revenue perspective, as well as the people we think might come along with them. Clients usually know the dozen or so people they want to look at anyway. We can identify the six we might get to talk to, ending with two being interested in the offer.'
Such opportunistic hiring takes into account a vast amount of research and knowledge of the market as well as extensive mapping of the investment banks, either for internal use or for sale as a separate consultancy service. At a time when fee capping is the norm, it also gives headhunters another way to charge for their services and be flexible about their charges.
Andrew Lowenthal, head of global financial services at Egon Zehnder, says: 'If someone wants to pay us just for the approach to the candidate then we charge a lot less. It is a one-off approach to people they know they want. The advantage of using a search firm is that the candidate is looking to manage his or her career.'
He finds clients still enthusiastic in today's markets, but says there is more than a note of caution and deliberation in the air. The urgency with which hiring needs are being acted upon is gone, but once players see where they are at the end of the first quarter it may all change, says Lowenthal.
Despite redundancies, mergers have also resulted in a need to fill particular niches rapidly. In the case of JPMorgan Chase, for example, the merged investment bank is still seen as having only pockets of strength in the equity business. 'It still hasn't bought that equity footprint. They will be growing that primary equity capital business and expanding the distribution and research platform,' says a headhunter.
There is also still wide-ranging hiring in both private banking/wealth management and asset management, two areas in which many financial services search firms are still expanding. Darryl Adachi, who has just been hired from Armstrong International to run Heidrick & Struggles' asset management business in the UK, says: 'US companies are looking to build up distribution channels in Europe and focus on getting the product out in the market. Not too many people are building up on the portfolio management side.'
Susie Cummings, who appears to be systematically building Blackwood, the boutique financial services headhunting business she runs with Amanda Smithson, says: 'It makes sense to hire new staff when the markets are cautious.' She has hired Harry Chetwood, who worked for two years in corporate finance and asset management for rival search firm Richmond & Co, along with John Goodall from Michelangelo Associates, who is to build an equity research business.
Germany's expanding equity culture is also opening up new opportunities for private bankers and asset managers, according to a study published last week by Merrill Lynch and Cap Gemini Ernst & Young. Apparently almost 30% of European millionaires now live in Germany.
Search firms operating globally are taking advantage of the expectation that the M&A ball will continue to roll in Asia even if it slows down everywhere else, say headhunters. Anthony May at niche financial services boutique Baines Gwinner says their Hong Kong office is 80%-90% up this year on the last in terms of revenue - and last year was a very good one.
At Whitehead Mann GKR, co-head of financial services Philip Marsden has also been spending a good deal of time overseas investigating the future of business in financial services search in Asia.
Both Whitehead Mann GKR and Baines Gwinner are well spread geographically in their concentration on financial services search. Both search firms believe the fundamentals in Europe to be very positive and are in the fortunate position of being able to shift resources over if need be. Both headhunters also continue to expand, and Baines Gwinner is soon expected to move into London offices that are 50% bigger.
If there appears to have been a collective pause in hiring in the financial services markets, it may still amount to nothing more than the US banks holding their breath for a moment.
Sally-Anne Rowley, head of the UK financial services practice for Korn/Ferry International, says: 'It is a bit of a watershed in time right now, and everything is very uncertain. It should be a lot clearer in a couple of months. The tide has not turned yet. But it probably will, and when it does, you must remember that investment banks always use that time to upgrade their staff.'