Recently, the argument over bankers' bonuses has been raised in the news, suggesting government efforts are no longer concentrating on the financial crisis, rather focusing again on apprehension about the return of the bonus culture that was so heavily criticised prior and, to an extent, during the credit crunch.
Banks are under a great deal of pressure to retain talent and the bonus culture is a key way to keep highly mobile and very specialist staff. Arguably, the Treasury benefits from these bonuses, as the 50% tax rate captures a significant slice of the investment banking front office population. Another underlying argument is that any economic market system requires a liquidity-banking sector to augment the free flow of money between the agents of the market, and the problem we are facing is that this system requires talent.
The latest Financial Services Survey from the CBI and PwC has suggested that the employment headcount has declined at a quarterly rate, becoming the greatest decline since the inception of the survey in 2006. Investment banks need an engine room to analyse the detail of the deals they work on. This engine room requires the work of the analyst and associate population. Recruitment is an expensive and time consuming process and if deal flows pick up, as it has done recently, the staffing needs to be in place before the change in pace. As such, we tend to see training as a rough barometer for anticipated deal flow and activity.
Here at 7city Learning our investment banking division trains many of these investment bankers. Although we offer training consultancy services throughout the hierarchy, the bulk of our market lies within the fresh blood entering the firms at analyst and associate levels.
From our experience, in preparation for the analyst and associate summer intakes for 2011, we are seeing a rise in employment with most of our clients. In some cases, we are even seeing numbers up 50% from the previous year. Part of this headcount increase at the engine room level reflects anticipated deal flow; while part of it is due to recruitment filling the human resource gaps created as investment banks drastically cut back on numbers during the credit crisis.
Many have argued that the economy remains on a knife-edge, as the Government’s austerity measures have not flowed through the system and inflation and unemployment numbers are still creeping up. However, the analyst and associate headcount remains healthy. This population is relatively cost effective when pitched against more senior and expensive staff and there is also a huge global talent pool to choose from. The only question that lies ahead is whether this headcount increase at the junior investment banker levels can remain sustainable.
Geoff Robinson is head of investment banking at 7city Learning
