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Talent-Hungry Small Firms Cheer Wall Street Job Cuts

Smaller financial firms have found a way to capitalize on their larger rivals' woes, moving to snap up some of the top talent cast adrift by sweeping layoffs at leading investment banks.

New York Stock Exchange (NYSE)
Oliver P. Quilla for CNBC.com
New York Stock Exchange (NYSE)

Such firms, many of which have ducked the troubles gripping Wall Street, are plucking what they see as gems in the fallout from the credit crunch, which has led to more than 100,000 financial-sector job losses so far in 2008.

As accountants at the biggest banks prepare for next year's budgets, their smaller cohorts are betting the cuts will continue well into next year, making the pool of unemployed talent both deeper and cheaper.

"You buy your straw hats in the winter," Ed Wedbush, president of Wedbush Morgan Securities, said of the windfall of affordable talent.

The Los Angeles-based investment bank, with annual revenue of $250 million, has grown from 600 employees to 820 in the last two years, Wedbush said. "We've been able to take advantage of the situation, clearly."

One year after problems in the U.S. mortgage market bloomed into a full-blown financial crisis, big banks are under immense pressure to contain losses caused by write-downs.

Many have responded by trimming payrolls: New York-based Citigroup has wielded perhaps the biggest ax, chopping 14,000 jobs this year alone. Over the same period, Merrill Lynch trimmed some 4,200 staffers.

But unlike in past financial crises, not everyone is caught in this firestorm. While mortgage-related securities rot on the balance sheets of larger players, firms that avoided the worst of those products finally have the leverage needed to hire the talent that was previously out of reach.

"This has been a great environment for boutiques and regional firms," said Gary Goldstein, president and chief executive of Whitney Group, an executive search firm specializing in financial services.

The job cuts are "music to their ears," he said. "There's just that much more to choose from."

Cutting Into the Bone

Top managers at financial firms earned about 35 percent less in total compensation last year, according to recruiters and consultants.

With year-end bonus season on the horizon, they expect a further decline this year as even talented, well-performing employees are sacked in an effort to lower overall costs.

Paul Sorbera, president of financial-executive recruiting firm Alliance Consulting, said banks and other financial shops are increasingly trimming staff among groups that are performing well and ahead of budget.

"They're kind of cutting into the bone," he said, repeating the adage that Wall Street firms tend to over-hire and then over-fire. "But people are very opportunistic when attracting good people, and there's a lot of hiring going on right now."

Among the winners has been Evercore Partners, a New York-based merger advisory boutique that in June hired Daniel Celentano as senior managing director for restructuring advisory. He had left Bear Stearns after it collapsed and was sold to JPMorgan Chase this year.

Evercore CEO Roger Altman told investors on a call last month: "This particular market condition affords rare recruiting opportunities, and we are able to find people and make the types of economic agreements with them that one doesn't normally see."

In San Francisco, investment bank Thomas Weisel Partners has hired former employees of UBS , Bank of America, Merrill and Bear in recent months.

"We've really started to see some high-quality talent come out and looking for jobs," Lionel Conacher, Thomas Weisel's president, told Reuters. "We have been a direct beneficiary of the dislocations ... in the larger firms."

Turning the Corner?

But there are signs the bonanza will not last. Some Wall Street heavyweights say they are turning the corner: Goldman Sachs Group and, more recently, Morgan Stanley , have stated they actually plan to hire this year.

Morgan Stanley said it would spend some of the $1 billion it saved slashing 4,800 jobs in the past year to recruit bankers and traders.

That could help spur a depressed U.S. financial sector, which suffered 100,775 announced job cuts between January and the end of July, up 50 percent from the same period last year, according to data from global outplacement firm Challenger, Gray & Christmas.

There were 15,517 announced job cuts in July, down 19 percent from June.

John Challenger, the firm's CEO, said the job-cut cycle has not yet bottomed out. He added that over the last year, his clients in financial services have taken four to five months to find new jobs, up from an average of three months.

But despite the longer, often nerve-wracking wait, "we're seeing a lot of smaller firms trade up for talent," he said.