The investment banking recruitment cycle is a little like the Labour Party's proclamations regarding the economy. Gordon Brown famously declared an end to boom and bust during several speeches in the early 2000s. Similarly, it's tempting to think hiring and firing in the investment banking industry is dead and gone and that banks are moderate institutions building headcount for the long term.
Evidence suggests otherwise.
The graph below shows the evolution of headcount at 7 investment banks (or the investment banking businesses within broader banks) between 2008 and the second quarter of 2012. The banks in question are: RBS Banking and Markets, Barclays Capital, Goldman Sachs, Deutsche Bank Corporate Banking and Securities, Credit Suisse Investment Bank, UBS Investment Bank and JPMorgan's Investment Bank.
The banks concerned added a lot of headcount between 2008 and 2010. This was partly due to acquisitions (ABN AMRO in the case of RBS, Bear Stearns in the case of JPMorgan, Lehman in the case of BarCap), but it was also due to organic growth. Credit Suisse and UBS both increased headcount by 10% during those two years.
Following an industry shakeout and the collapse of several rivals, the banks left standing switched to growth mode. That was a mistake.
The head of EMEA recruitment at one US investment bank summed it up at our recent breakfast meeting. 2010 was the bank's "biggest hiring year ever," he said: "Anything will seem small by comparison." By comparison, he said hiring this year is down 50%.
Investment banking headcount 2008-2010
Having added a total of 16,268 people in the two years after 2008, most of the seven banks mentioned above have been busy back-pedaling. From the end of 2010 to the second quarter of 2012, they collectively cut 12,225 people. For 2010's hiring boom to be fully undone, there are another 4,013 redundancies to come.
Which banks remain overweight compared to 2008? Most of them. Even after its recent cuts, RBS still had 2,200 more people in its investment bank at the end of the second quarter of 2012 than at the end of 2008. Barclays had 200 more. Goldman Sachs had 2,900 more. Credit Suisse had 1,800 more. And UBS had 1,108 more.
If these are hires made by banks which mistakenly thought the monetary easing and the fixed income sales and trading boom of 2010 marked a new dawn, they're unlikely to last.
Interestingly, some banks have bucked the trend. Most notably, JPMorgan didn't succumb to the 2008-2010 hiring frenzy and at the end of the Q2 it had 1,405 fewer investment bankers than in 2008. Last February, Jes Staley said the bank hadn't participated in a compensation arms race - even though it could have done. It's also kept a tight rein on headcount. JPMorgan's investment bankers could thank it for that. So far this year, JPMorgan has been adding investment bankers rather than cutting them. We'll see if it's continued that trend when it releases its third quarter results this afternoon.