In the aftermath of the horror of the terrorist attacks in the US, there is a consensus in the financial services community that the hardest thing for many firms will be replacing their people.
But there is another stark reality, voiced by Howard Lutnick, chief executive and chairman of Cantor Fitzgerald, the US inter-dealer broker devastated by the attack. Talking about the calls he was getting from wives of missing staff asking about bonuses due, Lutnick told television viewers: 'They think we're doing something wrong. I can't pay their salaries - I don't have any money to pay their salaries.'
Since then, Lee Amaitis, chief executive of Cantor's international operation, has given an interview to Financial News that makes it clear Cantor intends to look after the families of the victims of the disaster. But even if it is a most extreme example of human and financial carnage, many other firms, particularly investment banks, are facing serious financial concerns.
Market uncertainties have already lowered earnings estimates for leading banks, most of which expect a squeeze on revenues because of weak markets. Exposure to badly hit sectors is likely to make the problem worse.
Standard & Poor's has recently warned that further economic slowdown would increase the pressure on groups with strong investment banking operations such as Credit Suisse First Boston (CSFB), Deutsche Bank and UBS. About two-thirds of Deutsche's earnings come from investment banking. 'Deutsche is completely frozen in hiring at the moment, and when Deutsche is frozen, you know it's bad,' says one headhunter.
Furthermore, while cost-cutting is inevitably on everyone's minds, IT is one area in which firms will have to invest in order to survive. Initial estimates from TowerGroup, a financial markets IT research firm, suggest that investment banks and institutional investors could spend up to $3.2bn (€3.5bn) in the next 12 months to replace the technology and systems destroyed or damaged in the terrorist attacks.
These estimates do not include the additional cost to securities firms that have transferred their trading functions to back-up sites, which can cost millions of dollars a day to run.
But if the need to rebuild IT is ultimately a fairly straightforward case of spending the money and starting again, the problem of handling a remaining workforce is one that promises to be infinitely harder to resolve for most financial institutions. The nature of the disaster and the human toll it has taken on all concerned has made matters of retention and remuneration acutely sensitive.
For that reason, big redundancies expected to be announced by Merrill Lynch, CSFB and Schroder Salomon Smith Barney last week, have been quietly dropped for the time being, according to headhunters. 'Some important rationalisation programmes have been put on hold because the banks just couldn't be seen to be doing it now. They will have to find a way to drip-feed those redundancies,' says a senior headhunter at a global financial services search firm.
With their hands tied against letting people go, concerned institutions are likely to concentrate on changes in remuneration policies to save costs. 'You can expect to see top bonuses off 40% to 50% this year, and a lot of people are going to get next to nothing,' he adds.
Investment banks are expected to try even harder to 'talk' people out of guaranteed bonuses by appealing to their sense of loyalty to the firm and to its future success.
'Heads of investment banking at some institutions say they will be appealing to their senior people's judgment and humanity, asking if they would forego some of the guaranteed element of the bonus, given events. However, if they say 'No' they could find themselves fired,' says a headhunter.
The head of global financial services at another search firm says: 'Deals are being renegotiated. While people are thankful to have their jobs, not to mention their lives, fervent negotiation is not on their minds.'
Sectors such as M&A and equities were already hard hit this year, but there is 'significant demand' in the debt side of the business, including mezzanine and high-yield, says Rupert Channing, managing partner of the London office of the global financial services practice at Heidrick & Struggles.
There are daily reports of hires in this market. One of the most recent is Mark Hughes, hired by BNP Paribas from JP Morgan Chase to run European high-yield research. Hughes, who was based in the New York office, will now move to London and report to Kathryn Swintek, global head of high-yield. This was BNP's second hire in the research department in a week. A large German institution is also said by headhunters to be making significant hires in building up its debt business rapidly.
At niche financial services search firm Baines Gwinner, Karin Barnick says it has in any case been a year during which the overall picture in financial services is much diminished on the previous year, but there have been 'pockets of recruitment'. She says: 'The debt and credit team have been very busy, and asset management has been buoyant, notwithstanding the consolidation in the market.'
With so many top-quality fund managers leaving to set up hedge funds, there is a gap in mainstream asset management waiting to be filled, adds Barnick. Baines Gwinner's work in search in asset management/wealth management and private banking shows the banks making significant hires in this area of individuals coming out of corporate finance with a strong track record in building relationships.
Private banking and wealth management are areas most financial services search firms had already added to their list of specialisation as many European banks have been making wealth management a core focus in recent years. But there are concerns here as well about economic slowdown.
All financial services headhunters are bound to be feeling the pinch, and further consolidation is being predicted within the search industry.
At the front office capital markets headhunter Napier Scott, Shaun Springer says the headhunters and the banks they service now face a 'Darwinian market' involving the 'survival of the fittest'. He adds: 'One of the most difficult thing for headhunters in the months to come is going to be handling candidates' expectations - many of them just don't get the fact that they cannot expect the same as last year.'
Napier Scott is clearly looking to the longer term, and has been hiring in these markets trying to snap up the best consultants. So has the larger financial services boutique Sheffield-Haworth, which is intent on further continental expansion. Tim Sheffield, group chief executive, says: 'We are sticking to our core products, but consistently looking at new ways to generate revenue. We are now recruiting some important players in the hedge fund world.'
A considerable portion of Sheffield-Haworth's revenue comes not from investment banks but boutique organisations, which are growing in number. These are of increasing importance to all headhunters in financial services, many of which have also diversified into covering legal searches as an increasingly lucrative aspect of their business.
Geographical diversification into the Asian market has been another attraction for search firms, but one not without its perils. But the recent events in the US have also made it more apparent than ever that there is a genuine shift of emphasis within recruitment firms to offering a broader-based human capital consultancy service. It is a shift that has already been successfully made by some financial services headhunters pursuing management assessment services.
At AT Kearney, the management consulting firm, Gene Shen was recently appointed as president of its global headhunting services, AT Kearney Executive Search. He was previously head of the AT Kearney Executive Search global financial services group in New York and is also to continue in that role.
'I have been in the financial world for 25 years and this is the most revolutionary period we have ever faced,' says Shen. In the first instance, he says, headhunters in New York have been assuming a more philanthropic role, contributing to the rebuilding of Wall Street by helping clients out with office space and altering fee arrangements.
But he sees the recent events as a turning point in the relationship between headhunters and their clients. Shen says: 'The last thing clients want is to cut good resources for headcount purposes. But many institutions are just not equipped for this process. At AT Kearney we are integrating our management consulting capabilities to use this as a period of assessment rather than recruitment.'