Leverage is back on Wall Street -- and this time it’s the bankers who have it.
Firms are adding jobs for the first time in two years, rebuilding businesses cut during the financial crisis and offering guaranteed payouts to lure top bankers. In New York, 6,800 financial-industry positions were added from the end of February through May, the largest three-month increase since 2008, according to the New York State Department of Labor.
Morgan Stanley and Citigroup Inc. are among banks that are hiring to replenish their ranks, while Nomura Holdings Inc. and Jefferies Group Inc. have been recruiting talent from larger firms in a bid to increase their standing on Wall Street.
“Candidates are now getting multiple offers, and companies risk losing their desired candidates if they don’t act quickly enough -- and that’s a real change,” said Constance Melrose, managing director of eFinancialCareers North America, which has seen a 75 percent rise in investment banking jobs posted on its website from a year earlier.
The removal of uncertainty regarding Congress’s financial reform bill may reinforce the hiring rebound. A deal reached by members of a House and Senate conference last week diluted provisions from the tougher Senate bill, limiting rather than prohibiting the ability of federally insured banks to trade derivatives and invest in hedge funds or private-equity funds.
Five of the largest banks on Wall Street -- Bank of America Corp., JPMorgan Chase & Co., Citigroup, Goldman Sachs Group Inc. and Morgan Stanley -- increased their total headcount in the first quarter, the first three-month jump since the start of 2009, when Bank of America purchased Merrill Lynch & Co. The five banks posted combined net income of $16.2 billion in the first quarter, and three reported record fixed-income trading revenue. It was the highest combined profit for the banks since the second quarter of 2007.
New York City had 429,000 financial jobs as of May 31, up from 422,200 in February, according to the Department of Labor data. That’s still down from the peak of 473,800 in August 2007, the data show.
“The overall mood on Wall Street is significantly better than it was last year,” said Richard Lipstein, a managing director at Boyden Global Executive Search Ltd. in New York. “Hiring comes down to what products are increasingly active, and there has been some pent-up demand for people, and that demand follows increased optimism.”
Morgan Stanley, Citigroup
Firms are paying 30 percent to 40 percent more than what employees are expecting to earn to lure them from other banks this year, according to an April report from Options Group, a New York-based executive search and compensation consulting company. Equity derivatives and commodities trading are two of the fastest-growing areas, the report said.
Morgan Stanley, which added about 400 employees to its sales and trading business over the last year, has recruited financial institutions banker David Heaton, 43, along with Michael Johnson and Jonathan Cox in the natural resources group, from Deutsche Bank AG. The New York-based bank also hired Gary Shedlin, 46, from Citigroup in March to be a vice chairman in its investment banking division.
Citigroup hired Deutsche Bank’s co-head of Americas financial institutions, Peter Babej, 47. Last month, Zurich- based Credit Suisse AG hired Andrew Horrocks from Moelis & Co. less than a year after he had joined the boutique investment bank from Switzerland’s UBS AG.
Firms are also adding bankers who sell loans and investment advice to their wealthiest clients. Morgan Stanley Smith Barney, the world’s largest brokerage, plans to hire about 150 private bankers. Citigroup has hired about 15 private bankers since March and will add another 115 over the next several years, spokesman Mark Costiglio said in an interview.
Morgan Stanley’s headcount reached a record of 62,211 in the first quarter as a result of new hires and the addition of Smith Barney workers after it bought a controlling stake in a brokerage joint venture last year, according to company filings.
Goldman Sachs increased its employment rolls in the quarter by 600, to 33,100, still below the peak of 37,600 in the third quarter of 2008. Bank of America and JPMorgan, which added to their headcounts in the first three months of the year, remain below their highest levels. Citigroup has reduced its headcount by more than 100,000 since its peak in 2007 as the firm has sold businesses and cut costs.
Measures in the financial reform will lead to the largest U.S. banks getting even bigger, Citigroup Chairman Richard Parsons said today.
“They will make it tougher for smaller competitors, and the big are going to get bigger,” Parsons, 62, said in an interview at the Fortune Global Forum in Cape Town.
Nomura, Japan’s largest brokerage, has hired 50 bankers in the U.S. this year and plans to add as many as 35 more. The Tokyo-based firm hired Mark Epley, 44, co-head of a group that serves private-equity firms, as well as oil and gas bankers Jim Denaut and Michael Hill from Deutsche Bank.
Deutsche Bank has hired 40 senior people for its investment banking and trading businesses in the Americas this year, spokeswoman Renee Calabro said.
Jefferies has been one of the most aggressive firms, increasing its headcount by more than 25 percent since 2008, to 2,821 from 2,241, during a period Chief Executive Officer Richard Handler, 49, called “a once-in-a-lifetime hiring opportunity.” The New York-based company has added about 200 people this year as it expanded its fixed-income and health-care investment banking groups.
“We came from a period in 2008 and 2009 when it was much easier to hire because the larger players were broken and people were disillusioned,” Handler said in an interview. “Over the course of the last year, the market has returned to stability, new entrants are trying to hire people, and the hiring environment is more competitive as people have more opportunities for jobs.”
The demand for investment bankers and traders has led some firms to offer pay packages as high as $8 million, including guaranteed bonuses, which are paid regardless of an employee’s or the company’s performance, recruiters said. That recalls Wall Street compensation practices before the credit crisis forced banks to cut more than 345,000 jobs worldwide.
“When markets fell to hell in a handbasket, people were lucky to get a job with a base salary, and everything else would depend on their performance,” said Boyden’s Lipstein. “As we start to see people being recruited from one firm to another, as opposed to being recruited from unemployment, the need to make some kind of guarantee is becoming more necessary.”
Group of 20
While most new hires aren’t receiving guarantees, banks including Nomura and UBS have offered top prospects one-year guarantees paying between $2 million and $4 million, people briefed on the offers said. Some managing directors have been offered two-year guarantees, recruiters said.
In September, Group of 20 leaders discouraged bonus guarantees longer than one year as part of guidelines on pay practices at banks and other financial companies. They aim to curb risks by aligning rewards with long-term success, after executives at firms including Bear Stearns Cos. and Lehman Brothers Holdings Inc. were paid millions of dollars in bonuses based on trades that led to their companies’ downfall.
Employees are demanding higher salaries and more cash upfront in expectation that firms will adjust their compensation practices to satisfy regulators, said Melrose of eFinancialCareers.
‘Good Old Days’
The Federal Reserve said last week that a review of pay practices found many big banks to be “deficient” in curbing behavior that helped fuel the financial crisis. Companies are submitting plans to the central bank to address “outstanding issues to ensure that incentive compensation plans do not encourage excessive risk-taking,” the Fed said.
The financial overhaul bill should limit excessive bonuses and lavish perks for Wall Street executives even if bankers still don’t “get it,” Obama administration paymaster Kenneth Feinberg said.
“It will be very tough for Wall Street to go back to the good old days,” Feinberg said in an interview on Bloomberg Television’s “Political Capital with Al Hunt.”
Still, even banks that aren’t providing guaranteed bonuses are telling candidates to expect high payouts, said recruiters including Ross Baltic, a managing partner at New York-based Mercury Partners.
“There are firms that don’t have the ability to make a guarantee or are adamantly against guaranteeing compensation,” Baltic said. “Instead, they’re giving verbal guidance on what compensation may be. They’re just not tying themselves down by putting something in writing.”
The leverage held by bankers is affecting even those who don’t change jobs. Travel bills are rising, Lee Whiteing, HSBC Holdings Plc’s U.K. travel chief said earlier this month.
“Employee power is back,” Whiteing said. “Certainly in investment banking we’re in a situation where it’s an employees’ market. Making them stay at cheaper properties, fly economy when they could go business, is not going to wash. They’re just going to leave us and go to another institution.”
While Mercury’s Baltic said hiring typically slows in the second half of the year, several recruiters said clarity on financial regulation could prompt hiring in derivatives sales and trading.
“The banks know what they need, and they’re going to pay to get it,” said Daniel Arbeeny, a managing principal at recruitment firm CMF Partners LLC in New York. “On the employee side, there’s a high level of unrest right now.”
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