As Wall Street lays off investment bankers, regional securities firms- including those owned by banks-are planning hiring sprees.
Investment bankers who commanded huge salaries during the unprecedented bull run are now worried about their bonuses, if not their jobs. That has put them in the reach of smaller firms that for years felt they could not afford to compete against big New York shops for top talent.
Among those now looking to add staff are banking companies that have acquired brokerages within the past year, including BankBoston Corp., First Union Corp., and U.S. Bancorp.
Also on the prowl are regional firms, such as Dain Rauscher of Minneapolis, Legg Mason of Baltimore, J.C. Bradford of Nashville, and A.G. Edwards and Edward Jones, both of St. Louis.
"Many people are interested in upgrading their talent," said Lee Pomeroy, an executive recruiter with Egon Zehnder International in New York. "And they recognize that now the market might be a little more favorable for that."
U.S. Bancorp of Minneapolis spent $730 million for Piper Jaffray, also of Minneapolis, in May. Since then, Piper Jaffray has enlarged its staff and plans to keep growing.
"We will continue to add, and we are looking to hire a couple of key positions," said Paul Grangaard, Piper Jaffray's head of investment banking.
At First Union in Charlotte, N.C., the capital markets division has been on a hiring binge all year. The unit added 560 people-not including its February acquisition of Wheat First Butcher Singer-through July.
Though the firm may pare back plans to hire another 400 by yearend, Ken Thompson, co-head of capital markets, said he will continue to add employees.
Meanwhile, on Wall Street, investment bankers and brokers are bracing for disappointing bonuses, at best, or pink slips, at worst. Merrill Lynch & Co. set the tone this week by announcing plans to shrink its work force by 3,400 people, about 5% of the total.
To be sure, the regionals are also suffering from the sharp drop in stock and bond underwriting. But unlike the giant firms, most have not taken big hits from exposure to emerging markets or shaky hedge funds.
Many regional firms are collecting more brokerage fees as market volatility spurs clients to take action. This makes them unusually well positioned going into the end-of-year bonus season, the industry's traditional recruitment period, sources said.
Still, some market observers are urging caution on those looking to recruit.
"To upgrade a franchise in this environment is going to be difficult because people who are trimmed from other firms are more likely to be lower producers," said Harold Schroeder, a bank equity analyst at Keefe, Bruyette & Woods Inc.
But others said the huge layoffs anticipated at giant securities firms will affect the strong as well as the weak.
"In periods of disruption in the marketplace, sometimes people who are highly qualified are fired by mistake," said Herman Sandler, the founder of Sandler O'Neill, a New York investment bank that specializes in the financial services sector.
Even among those employees not laid off, some may decide to shift to a smaller shop if they are unhappy with their yearend bonus, said Mr. Sandler, who counts himself among the employers looking to hire spurned investment bankers.
"When Wall Street has the least amount of profits to divvy up, everybody argues the most," Mr. Sandler said.
"It's during these periods when some people realize that being with a big firm may not be the best, particularly if they can have a bigger impact on the bottom line at a smaller firm," he said.
Some banks that hoped to buy a securities firm but did not, such as Dresdner Bank, may seize this opportunity to increase their staff.
"We didn't go all out hiring in previous years," said Jon Hartzell, a spokesman for the German bank's U.S. securities subsidiary, Dresdner Kleinwort Benson North America.
"But we are going to continue to build our domestic equities group slowly but surely this year. We have some positions open now," he said.
As revenues from underwriting stocks and bonds cave in, many firms are looking at building up other activities, such as mergers and acquisitions advisory.
Paul Hogan, a BankBoston vice chairman in charge of investment banking, said he will forge ahead with plans made before the market downturn to expand the bank's M&A group.
"We have a strong M&A pipeline," Mr. Hogan said. Deal activity has exceeded expectations since BankBoston acquired the San Francisco-based securities firm Robertson Stephens from BankAmerica Corp. last month and merged the two M&A groups.