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Pockets of hiring continue within financial services, but there’s a change in mood as candidates and clients start to become cautious, writes Nina Mehra.
This time of year traditionally tends to be quiet for recruiters, as banks start to assess their compensation and staffing levels; additional concerns, however, are also having an impact. Ongoing credit markets jitters and fears over the impact of a potential slowdown in US economic growth are weighing on confidence.
Disappointing third quarter results from top tier investment banks has also taken its toll, although a rosy outlook was not expected by many, given the market turmoil during the summer months.
Losses were seen across banking operations, particularly within trading, structured products and leveraged loans.
Merrill Lynch last month announced its biggest quarterly loss in its history, due to investments related to risky sub-prime mortgages. Bank of America meanwhile announced plans to eliminate 3,000 jobs after a dismal quarter led to a 32 percent drop in overall profits. The likes of UBS, Morgan Stanley and Lehman Brothers also announced plans to cut jobs.
Belts are now being tightened as firms try to keep costs down. In leaner times financial firms traditionally tend to initiate job cuts pre-bonus or slash the payouts, and in the current climate, structured credit and derivatives divisions are expected to bear the largest brunt.
Andrew Norton, Managing Director, Michael Page Financial Services, says: "Clients use these events to manage bonus pots and to manage people out of their business, and that's what we are seeing. Over the last two years, we have seen candidate shortages in infrastructure-related roles, such as compliance and risk. But there is appetite to hire as there are even more reasons to assess risk nowadays and to be closer to the numbers."
With added uncertainty over the extent of the fallout in credit markets, people are holding on to their current positions ahead of the bonus rounds.
The commodities arena, however, continues to benefit from surging oil prices. Hiring also continues within the private banking and wealth management arenas and recruiters also point to ongoing activity for credit market roles.
Michael Stubbs-Egginton, CEO of credit market executive search firm Credent Partners, says: "On the hiring side, there are more budget constraints than twelve months ago but a lot of factors are the same, i.e. the need to minimize risk and maximize returns. So they continue to make investments where it makes business sense. It is a big market, one that has developed over the last five or six years into a multi-trillion dollar business."
“From a hiring point of view, you have to factor in the hedge funds. We are in discussions with several hedge funds looking to start credit funds because the price is right at the moment. So there are deals to be done and good value to be had. They are therefore looking to hire the right talent. We are currently in talks with one bank looking to build up its structured credit platform and they are looking for sales professionals. So those with strong product knowledge, technical skills and sales experience will still find jobs,” he adds.
However, overall bonus expectations are being managed lower, as it is seen as a relatively quick and easy way to cut costs, and the bonus pool is likely to contract 16 percent according to a recent report by the Centre for Economic and Business Research (CEBR). They are forecasting the number will fall to 7.4 billion pounds, down from 8.8 billion in 2006. The report also predicts job cuts totalling around 6,500 within financial services.
Jonathan Said, senior economist at CEBR says: “The 6,500 forecast job losses represent only two percent of total jobs in the city, so it is not that big a number. But the source of the problem has not gone away - i.e. the US housing sector slump, therefore the mood is pessimistic because of the risks ahead. The growth in the City has been very strong over the past few years, so any subsequent fall is magnified.”
“We predict lower bonus payouts within areas like private equity, hedge funds and structured funds. They are the ones who have to write down book values and are struggling to fund deals, therefore they are more likely to feel the pinch,” he adds.
Robert Thesiger, CEO of Morgan McKinley's parent company Imprint, says: “Naturally market volatility will have a dampening effect on people’s confidence to move jobs and finance workers are adopting a wait and see approach. As bonus season is fast approaching, it is likely that candidate movement will remain relatively flat now for the remainder of the year.”
In contrast, Asia presents a more optimistic hiring outlook, according to headhunters based in the region.
Kevin Yeung, Partner, Head of Financial Services, Odgers Ray & Berndston, Asia, says alternative asset management divisions continue to hire. Private equity, principal finance and sales and advisory roles have also performed strongly.
“Asia will remain robust up until the second quarter of 2008, as our clients continue to hire across the board. The Asian strategy for most financial institutions is long-term rather than boom and bust, so long-term initiatives are still in play. Asian financial players used to rely on elephantine deals but now there's an increased emphasis at the medium and mid-cap levels. Therefore staff at VP levels to director levels have been better recognized and identified. They can expect to get higher bonuses,” he says.
“Asia is small but expanding, and the talent pool remains thin, particularly for people with deal experience. Moving forward to 07/08, these are the people who are going to be in demand, so I expect bonuses to be up at least 10 percent for investment banking divisions.”
The focus is now on the last quarter's results, which are seen as a good barometer of current market events.
But frontline hiring has not completely dried up and there are still opportunities to be found within the top tier firms. “Job figures continue to show a healthy uplift on the same period the previous year and job cut announcements appear to have been largely contained within areas directly related to the credit crunch,” adds Thesiger.
Simon Hearn, co-head of global financial services at Russell Reynolds, says he too is optimistic: “This is the end of the bull market but it is not a recession. We don't know what's going to happen next year, but the proof will be in the quarter four pudding.”
Market players will also continue to keep a watchful eye on the latest economic indicators, to provide further clues on the health of the worldwide economy.
One headhunter wraps up the mood as he concludes: “The bottom line is you have got to find the business and deliver on it.”
