Banks have set themselves up for a rush of analyst recruitment in 2010

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Given the state of the M&A market, it may seem premature to predict strengthening demand for M&A analysts next year. However, if M&A does pick up, demand for junior analysts could soar in the style of 2005 and 2006.

Last year, graduate hiring at investment banks and fund managers fell 40%.

Anecdotally, the reduction was even greater in M&A, where recruiters say graduate hiring was slashed 50% or more.

When M&A volumes recover, banks are therefore likely to find themselves short of juniors. They faced a similar problem in 2005 after slashing graduate recruitment in 2003. The sector was subsequently subjected to a scramble for talent as top tier banks sought to hire from the second tier and the second tier sought to hire from law firms and accountants.

Recruiters say part of the problem is a lack of foresight. "Analyst hiring is very demand-led," says another analyst-focused recruiter. "If there's a need, banks will go and hire, but there's no sign of that need yet."

In the last Goldman conference call, CFO David Viniar said there wouldn't be an improvement in M&A volumes until economic confidence returns. According to a recent Mori poll UK economic confidence increased at the fastest rate for 30 years last month.

Law firms and accountants have also cut graduate hires, although less substantially. Robert Walters, chief executive of the eponymous recruitment firm, forecasts that they'll need to make catch-up hires too.

"All the law and accounting firms cut back on graduate recruitment last year so next year there will be some real shortages," he told the Financial Times.

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