Finance

Duncan Mavin is a former Bloomberg Gadfly columnist.

The time is ripe for Europe's investment banks to start hiring.

Sliding Scale
Shares in investment banks have fallen sharply in the past year
Source: Bloomberg

Yes, they face a dismal set of quarterly results to be announced over the next couple of weeks. Yes, revenue is going to be well down from last year and that's going to heap pressure on executives to slash costs, including staffing costs.

But significant twin forces from across the Atlantic mean there may rarely be a better moment for the Europeans to invest in talent.

Miserable Quarter
Expected adjusted earnings per share growth for top European banks in Q1
Source: Bloomberg data

First, big U.S. competitors that are also feeling the pain of the miserable past few months are getting serious about more cutbacks too.

Goldman Sachs said this week compensation and benefits expenses -- which include salaries and bonuses -- fell 40 percent in the first quarter from a year earlier. Here's what Goldman CFO Harvey Schwartz told investors about the prospect of more cuts ahead:

"I would just say we're shareholders and we're doing things that you would expect shareholders to do."

Goldman Sachs isn't alone. Morgan Stanley reduced compensation by 19 percent in the first quarter and its cost-cutting program even has a name: "project streamline". As my Gadfly colleague Mike Regan has already shown, more pink slips could be on the way

Shrinking Staff
Morgan Stanley's headcount has fallen in recent years
Source: Bloomberg data, based on company filings

While bankers losing their jobs is hardly new, what's different right now is that even banks that have performed relatively well in recent years are cutting to the bone. And that means talent is available for firms that are willing to pay up.

The second shift in favor of a bold European recruitment drive: tougher rules on Wall Street pay. U.S. authorities proposed rules on Tuesday that will force bankers to wait four years to collect most of their bonuses as well as return them if their firms lose money.

The rules are almost certain to face stiff lobbying and may be watered down. They’re not as restrictive as similar regulations already in place in the U.K. and Europe. But they tip the balance a little bit, and help send a message that New York isn't a totally safe haven for bankers hounded out of London or Frankfurt or Paris.

Of course, a hiring spree won't be easy. Banks are under pressure to get out of whole business areas. Shareholders want to see costs come down with revenue -- which is projected to fall by between a fifth and a quarter in the first three months, if analyst forecasts and U.S. results already reported are anything to go by.

And top talent won't easily be lured to European investment banks, especially those like Deutsche Bank, Credit Suisse and Barclays that are in the middle of major restructurings, where the future shape of the bank might look uncertain.

The key could be communication. Bank chiefs have to explain that they're striking a balance between cutting back in areas that aren't producing returns, while investing in talent that could pay off later. They need to stress quality over quantity.

They'll also have to articulate effectively to potential new hires why they should join firms that are so visibly scaling back -- that means offering more than share options at super-low valuations and expressing a vision beyond cost-cutting.

Hiring now is counter-intuitive bet that could take a while to pay off -- new employees have to be bedded in and markets have to start playing ball. But if there are good staff available that weren't before, it would be a mistake not to invest in the future.

For European investment bank chiefs with an eye on the longer-term, this may be the moment to strike.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Duncan Mavin in London at dmavin@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net