Peter's Q4 Report

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Q4 Summary

2015 was a very interesting year, indeed.  The first half of the year looked like a return to better times with robust Q1 and Q2 earnings leading to strong hiring and a general sentiment that the industry was returning to a more normal rhythm not seen since the Credit Crisis.  And then came Q3. Very weak Q3 earnings led to a rapid reassessment of the industry, and a quick capitulation for some banks that recognized that the fixed income market has shrunk significantly and won’t return to previous trading levels any time soon. Anemic ROE numbers were the result of fixed income businesses that were too large to support reduced revenue.  Morgan Stanley had the worst Q3 of the major banks and was quick to act, reducing headcount by 1200 heads in fixed income, a 25% reduction.  We’ve also seen recent layoffs at Credit Suisse, Bank of America, and Citigroup, and you just need to google bank layoffs to find discussions of serious layoffs planned at many other leading institutions, especially the European banks.

The Buy Side had a challenging year as well, though given the nature of the business, the results were much more varied.  This NY Times article provides a good summary of the challenges faced this year for hedge funds.  There’s some optimism that the recent Fed rate increase will bring a better environment for many funds as it spurs an increase in volatility.

New Golden Era?

Goldman on the other hand insists it won’t cut staff as outlined here in reaction to their 3rd Quarter results.  And while the Fixed Income market has shrunk, the European banks have been steadily pulling out of investment banking, leaving the smaller market to fewer NY based investment banks.  This pullback sets the stage for a new Golden Era of Wall Street for US banks according to William Cohan of Bloomberg. 

Lack of Senior Hires

The compression in management ranks continued earlier this month at Bank of America.  I heard but have not confirmed that the layoffs were all Managing Directors and Executive Directors.  Even more telling is this recent factoid from Mike Whittaker at Citigroup.  Within Citi’s IT division numbering 45,000 people, Citi hired only one Director and no Managing Directors over the past 2 years. A senior Director at Citi recently described Citi’s approach to executing big technology initiatives as, “Figure out the solution and PM it to completion.”

Fintech!

Disruptive technology is potentially around the corner for many areas of financial services.  There are many players and the banks themselves are investing heavily in technology to avoid being displaced by upstart technology firms.  While jobs have been reduced in some areas of trading systems, financial technology is a burgeoning field.

• Regarding the investment in technology, ex-Barclays CEO Anthony Jenkins:
  • “banks are facing an ‘Uber moment’ that could reduce headcount by up to 50%.”
  • “The incumbents risk becoming merely capital-providing utilities that operate in a highly regulated, less profitable environment"
• Banks aren’t standing still:
  • “Fifty-eight percent of senior bankers polled by Temenos (a banking software company) said they plan to spend more on IT this year, the highest percentage since the survey began in 2008.
  • Just under one-third of Goldman Sachs' employees are now engineers — 11,000
• If you don’t know what Blockchain is (the technology underlying Bitcoin), it’s worth looking into. See: Blythe Masters Tells Banks the Blockchain Changes Everything.  Fascinating article, and a good look into how technology will change banking.

Peter's Q3 Report

2015 Q3 Recap

The third quarter of 2015 differed from 2014 in that both fulltime and contract hiring continued strongly at most firms through most of the quarter.  In fact, at least two major investment banks conducted special hiring events to focus attention on their hiring needs and to fill as many open positions as possible before the end of the year.  IT departments have run lean for the past few years with most hires focused on RTB (Run the Bank) and MCB (Mandatory Change the Bank = regulatory/compliance) initiatives.  Firms are seeing more optimistic budgets and are hiring to address a large backlog of strategic work. That being said, as we enter the 4th Quarter, most of the big banks have frozen hiring, but there’s nothing unusual about hiring freezes at this time of year.

Treasury and Margin

Companies are investing in technology to manage their balance sheet and margin requirements more efficiently.  The dollars involved are huge, so building systems that risk manage more effectively and compute margin more accurately can add significant $ to the bottom line.

Direct Submission

Ever wonder why your resume rarely gets a response when you submit it directly through a company’s job portal?  We had an interesting insight into being on the other side of the submission process.  Due to misconfiguration of our job portal at a major investment bank, we saw a subset of the direct submission activity.  We observed that one individual had submitted his resume to over 500 posted positions.  Clearly separating the wheat from the chaff is a non-trivial challenge.

Trends

The vast majority of the development positions we are asked to work on focus on five main languages: Java, C++, C#, Javascript, and Scala.  Scala is clearly on the upswing as functional languages are becoming more popular driven by the explosion in parallel processing.  Javascript continues to grow in popularity as it is the language of choice for modern front-ends. 

Be sure to look at the scale of the Y axis when reading the charts below.

Apache Spark

One technology that is seeing rapid adoption is Apache Spark.  If you want to be on trend, gaining experience with Scala and Apache Spark is a excellent way to go.

Peter's Mid-Year Report

Here's Affinity Resource Group Partner Peter Wagner's 2015 Q2 report on current trends in the front-office financial services IT job market:

The market had tailed off in the first quarter as firms were absorbing a poor 4th quarter of 2014.  Now we know that the first quarter of 2015 was quite strong.  Profits from trading were up considerably in the 1st quarter.  While the 1st quarter is generally strong, the results were especially impressive in light of the fact that most banks have reduced their risk-taking activity.  A senior executive at Barclays told me that the Rates desk is up 250% year over year and these results alone are bolstering the firm’s outlook.

Increased contract rates!

Finally the market seems to have responded to the supply/demand imbalance for talent.  For the past couple of years, rates didn’t really change despite a strong demand for talented developers and SME’s in critical areas.  Steady pressure on costs kept rates steady.  However, in the past couple of months, I have seen a regular supply of contract positions at posted rates that are significantly higher than anything we saw last year.  The uptick appears to be a combination of the desire of aggressive managers to onboard talent while the hiring window is open, coupled with a strong first quarter that has budget managers comfortable signing off on higher rates.  If you feel you took a contract below the current market, now might be a good time to evaluate your options.

Where’s the money?

From this seat, we continue to see banks investing in Risk, Compliance, and strategic technology aimed at reducing overall costs.  Studies like the McKinsey report quoted below have senior management very focused on management of IT initiatives and standardization:

McKinsey: “We found that certain categories of IT management capabilities show a strong correlation with lowering spending on day-to-day IT operations. The correlation was particularly strong for cost control, rigorous project prioritization, advanced sourcing practices, and relentless standardization of IT infra­structure and application architecture. Banks that manage these areas well spend, on average, 41 percent less on day-to-day IT operations than banks that have self-reported deficiencies in these fields (Exhibit 2).

GECC

GECC made big news in April announcing the divestiture of the majority of its GE Capital operations.  While Jack Welch recognized the money that could be made by leveraging GE’s enormous balance sheet, Jeffrey Immelt has in turn realized that the cost of doing this business is too high in the current regulatory environment.  

“The move announced Friday reflects the shifting landscape of the financial world, especially for the largest players. They face greater regulatory scrutiny and calls from analysts and investors to slim their operations or break up. Some are shifting their focus to areas like wealth management as traditional activities like trading prove less profitable. It is no surprise that G.E. decided to re-evaluate its role in this ecosystem.” NYTIMES

During my time working at investment banks, I was always amazed by the infrastructure that was required to support the trading operations.  No matter how many associated groups/functions I was aware of, I never stopped learning about new downstream groups performing additional critical functions.  It gave me a tangible impression of how much money a successful trading desk can generate.  However, the news from GECC seems to underline the (obvious) fact that there’s a limit to what these businesses can support.

Deutsche Bank co-CEO’s step down

The news out of DB of their co-CEO’s stepping down is another manifestation of the pressures on investment bank profitability in the current market.  Anshu Jain was the biggest proponent of continuing to invest in DB as an investment bank that could compete with the likes of Goldman Sachs and JP Morgan Chase, while all other European banks retreated.  While DB is reducing its investment banking operations, it remains to be seen whether they join their European counterparts in a full-fledged retreat.

Current Opportunities

The list has gotten so long it’s hard to distill.  If you are interesting in discussing the current market, please give me a call. 

Buy Side

-    Senior java developer, ED Level – Fixed Income Derivatives Trade Processing

-    Senior C# developer, ED Level to build a brand new margin system for a major hedge fund

-    Broadly skilled C# developer to lead the IT effort of a relative value prop trading desk at a mid-sized hedge fund.  You will sit on the trading desk with the traders and quants and build whatever technology they need to conduct their business.

-    Very skilled C++ developers – low-latency systems, real-time market data, etc.

-    Many opportunities for strong C# developers with good experience in Microsoft stack for a variety of hedge fund roles

Sell Side

-          Very strong demand for BA’s and PM’s in Risk and Compliance

o   A rare ED Level role for IHC CCAR Program Manager

o   Broad opportunities in Market Risk/Credit Risk/Operational Risk

o   Multiple opportunities in IHC/FBO

-          Broad demand for all kinds of developers – Java, Scala, C#, C++, Javascript

o   Both full-time and Contract hires – more full-time positions currently than we’ve seen in recent years

o   More and more demand for Javascript

Don't hesitate to call if you are interested in discussing the current market.

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2014 Year-End Job Market Report

Here's Affinity Resource Group Partner Peter Wagner's latest summary of current trends in the front-office financial services IT job market:

Wall Street Warming

I think it’s significant that this is the first year since the Credit Crisis that major banks have not instituted a hard freeze on hiring as the end of year approaches. We continue to see offers this late in the year.  Buyouts are unlikely to happen at this time of year, so deals are likely to culminate after bonuses are paid, but that scenario is not unusual even when the market is strong.

Priorities have Shifted

As I mentioned previously, risk taking is down, and there’s less focus on trading.  Consequently hiring for IT/quant needs directly related to trading is down significantly.  Hiring in areas affected by regulatory changes continues to be strong.

Basel III and CCAR are driving a lot of activity.  In addition, the migration of OTC derivatives trading to exchanges mandated by Dodd Frank is requiring  a lot of systems development in electronic trading.  Most of this work is pipes and plumbing, but firms are also figuring out how to automate market-making on these exchanges.  It’s worth noting that these significant new requirements have not come with an open pocketbook for hiring.  As one senior IT manager reported to me, they have huge new build requirements to support regulatory initiatives, yet budgets are down 25%.

Banks are emphasizing businesses where they can make money w/o incurring high capital costs.  Processing client trades doesn’t require (expensive) capital, so winning market share in the routing of client orders is a very active area.  We’re seeing strong demand for developers for teams working on order routing and listed derivatives systems.

Finally, we’re seeing Wealth Management IT groups very aggressively hiring, as the management of client assets  generates recurring, non-risky revenue.

Too many Quant-Devs/Dev-Quants

Many universities now offer the MFE degree, and the market is saturated with individuals looking for quant-dev roles.  This is a valuable combination of skills, but I see a saturated market for these individuals.  I continue to have very strong demand for top developers, but only a handful of positions require quant skills. 

Below is my mid-year update providing more context on the current market.

2014 Mid-Year Market Update

Current Market

The market for developers and quants remains robust, but heavily skewed towards the best talent.  By that I mean that there remains strong demand for superior talent, but the market for B+ and even A- players is relatively weak.  Most big banks have had layoffs in recent months with Barclays leading the way in numbers and breadth.  These layoffs have hit a wide cross section of employees including groups whose function has moved offshore, groups whose business has been divested, and a good number of highly paid employees that budgets no longer support.

The overall industry is faring better, with bank stock prices well off their lows after the Credit Crisis and the European Sovereign Debt Crisis.

However, the appetite for risk is low and capital costs are relatively high, so there’s less demand in the front office as banks place less emphasis on trading.   At the large banks, hiring is focused on Risk and Regulatory work streams as well as strategic technology initiatives that promise cost savings in the long run.    

Strong talent is still seeing 15-20% increases for lateral moves.  Raises for the next tier are significantly lower, and many individuals find the best option is contract work instead of fulltime.  Contract remains a good option for folks who are well into their careers, as salaries for experienced technologists and middle management have stagnated.   While the industry is healthier, I don’t yet see any sign of a rising tide that will raise all boats.  As one hiring manager said to me recently before making an offer to a candidate, “I don’t want to be bidding against myself.”

Consulting firms like E&Y and Deloitte are growing rapidly, as they offer to take regulatory headaches off the hands of upper management at the big banks.  These firms can provide a soft landing for experienced professionals who have been laid off or are squeezed in the current compensation environment at the banks.

Top talent is rotating to the Buy side in significant numbers.  While the demand is strong at hedge funds, the competition is fierce for these roles.  The motivations are

-          Perceived better pay and more upside

-          Flatter orgs with higher visibility

-          Less bureaucracy/red tape (regulatory)

-          Little risk

My sense is the above are mostly true, but bear in mind that compensation is comparable unless you distinguish yourself.  Regarding risk, the reality is that hedge funds go out of business at a significant rate.  However, if you are talented enough to get hired by a top fund, you’ll likely have no problem finding a job should your employer blow up.

Bear in mind that if you are a developer, you’re better off starting your career at a large company to learn best practices.  Hedge funds are often too small to have well established systems for standard practices, and hiring managers expect these skills to be second nature.

Summary

Hands on skills continue to be critical.  Layers of middle and senior management have been eliminated in many companies, so everyone needs to be “productive.”  The demand remains for technical skills, financial expertise particularly in the areas of risk and regulation, and quantitative skills that help firms make money.  Regarding the latter, data and data analysis skills have become paramount.  All trading desks, HFT/flow/structured, are now looking to understand the data better than their competitors and leverage that information to make money.

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What We're Reading

Jay Woodruff, Partner

Peter Wagner, Partner

Sarah Woodruff, Director of Recruiting

Jack Davis, Internet Researcher

Bad Recruiting 101

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