Morale among all major institutions remains low with even the best performers likely to be paid significantly less this year. Replacement hires have been subject of scrutiny with many firms delaying replacement hires until 2012 irrespective of any upturn in the market in the final quarter of 2011.

Junior employees, or those from other areas within the organisation, have been used to infill or maintain continuity across cash distribution. In general, global firms have been more willing to allow international redeployment as a way of retaining top performers and satisfying demand for employees to go back home.

We believe that cash equities will see relatively fewer cuts than the rest of global banking and markets given its relative outperformance, greater flow orientation and simple product base. Equity Research remains a core product offering within equities but we expect a refocus back on ‘rankings’ (II and Extel).

• Equity salesmen are forced to cover more accounts and analysts to research more stocks as pressure on businesses to ‘sweat the assets’ starts to bite.

A growing focus is on providing higher levels of client service and product through multi-asset and global solutions. Co-ordinating the silos within investment banks has been accelerated as the drive to increase the ‘share of wallet’ ntensifies.  This is a direct reaction to lower volumes, tighter margins and less willingness for firms to use voice broking versus cheaper and more flexible DMA trading routes.

The market in 2012 will provide new and more cash rich entrants an opportunity to build scale in the low margin area of cash equities. Those firms brave enough to ‘gear up’ or upgrade in a stagnant market will also benefit but the option to offer guarantees will be less prevalent. However, employees have become risk averse in an unstable market and
ultimately more reluctant to move. This can be overcome but the work involved is greater in building confidence in a company’s story and the long term plans for growth.

Over the course of Q411 we expect to see further redundancies at the European banks. New senior management will inevitably want to make their mark.

We are now seeing greater cuts than were expected at the beginning of 2011 (est 5%) as ‘bottom slicing’ becomes structural headcount reduction to the tune of 10-15% that many feel is going to the bone and may be detrimental to the client offering.

Opportunities to reduce fixed costs go beyond headcount management. We understand one major US investment bank has halved a number of MD salaries (to c.£200k); we potentially see this as the start of a trend among the larger banks but regulatory constraints need to be kept in mind. Among the smaller banks/brokers salaries rarely cap £120k for senior staff. Those firms with profit share/partnership structures that have greater flexibility in their cost base are able to weather the storm more easily despite revenue contraction.