This has been a mixed year for investment banks. After a bumper start with first-quarter initial public offering volumes at their highest since 2001, and announced M&A deals at their best since 2002, recent months have been less promising. Third-quarter results have been mixed: profits at Morgan Stanley plunged by a third compared with the previous year.
For the pessimistic that means redundancies to come. The managing partner of a London headhunting firm said banking staff will see their ranks thinned in November: "Most firms are going to have another round of trimming. There is still extra capacity."
Seasonality suggests he could be right. Speculation about bonuses makes it easy to lose sight of that other autumnal phenomenon: cost cutting. Before announcing full-year results, banks have an incentive to reduce numbers of unproductive staff and maximise returns. Bonus pools also go further when divided between fewer staff. Outplacement providers say the autumn is their busiest time.
So, who is at risk? If the pessimists are right, low performers in cash equities are dispensable. Middle- and back-office staff may also be on a precarious footing.
Adverse market conditions are blamed for poor prospects in equities where revenues were down by 2% quarter on quarter at Bear Stearns, 21% at Morgan Stanley, 16% at Goldman Sachs and 39% at Lehman Brothers. Vasco Moreno, director of research at Keefe Bruyette & Woods, said low trading volumes, limited volatility and fair valuations have taken their toll: "People have tried to right-size their equities business but the market keeps shrinking."
Middle- and back-office staff could find themselves at the sharp end of the trend for shifting jobs overseas. Chris Gentle, director of European financial services research at Deloitte Touche Tohmatsu, the accountancy and consulting firm, said offshoring will continue.
Banks established a foothold in low-cost locations such as Chennai, India, last year, said Gentle; jobs ranging from clearing and settlements to equity research positions are migrating. Deloitte forecasts two million financial services jobs will shift by the end of the decade. It estimates half a million have moved so far.
Cuts at Deutsche are likely to be more immediate. The German bank plans to increase its pre-tax return on equity from 20% to 25% by 2005 and is understood to be seeking cost savings of €1.2bn ($1.5bn). A spokesman said it was too early to quantify the effect this will have on jobs.
However, many believe redundancies are inevitable, particularly in the back office, with managerial jobs to follow.
Employees in Deutsche Bank's newly combined sales and trading and corporate finance and transaction banking arms should ready themselves for a scattering of unemployment slips.
If the hatchet falls, it will not be for the first time this year. Calyon, the investment bank formed after the merger between Crédit Agricole and Crédit Lyonnais, is making 2,400 job cuts; Lazard and Dresdner Kleinwort Wasserstein made summer redundancies in their investment banking divisions.
But this year has been remarkably redundancy-free. Staff levels at most banks rose during the third quarter, largely as a result of analyst and associate hires. Figures from the US Bureau of Labor Research suggest jobs in the US securities industry rose by 20,000 between January and August. This followed a fall of more than 80,000 between early 2001 and the second quarter of 2003.
Before cancelling the skiing holiday, it may be worth remembering that optimists expect balmy conditions to continue. Frank Fernandez, chief economist at the US Securities Industry Association, said banks are at the start of a new hiring cycle, albeit a weak one: "Hiring tends to lag the markets. Firms were surprised by the strength of the recovery in 2003 and are catching up."
If the optimists are right, the problem is not imminent redundancies but inertia. Fernandez said: "We are in a market that lacks direction. It is neither bull nor bear and it reflects a great deal of economic uncertainty. If it continues, there will be no need to hire or fire."
This may be the case. Headhunters report a greater-than-expected drop in activity for the time of year. From the grapevine come reports that UBS has imposed a company-wide hiring freeze, while another report from the SIA says bonuses will be similar to last year's.