Financial meltdown to hit headhunters

By A.Ananthalakshmi - Analysis

BANGALORE (Reuters) - U.S.-based executive recruiters, already facing the heat of a global economic slowdown, could be a big casualty of the shakeup in the financial industry as battered Wall Street firms slow down on top-level hiring.

Korn/Ferry International Inc (KFY.N) and Heidrick & Struggles International Inc (HSII.O) -- the only publicly traded executive search firms in the United States -- could see profits erode further over the next few quarters as corporate America goes slow on white collar jobs.

The financial services sector accounted for about 19 percent of Korn/Ferry's and 27 percent of Heidrick's overall revenue in the latest reported quarter.

"We believe the slowdown in financial services will continue to affect the profit and loss statement of executive search companies in the third quarter," Suntrust Robinson Humphrey analyst Tobey Sommer wrote in a note.

The financial sector has already shed 103,000 workers so far this year, according to Challenger, Gray & Christmas, a global outplacement consultancy that tracks daily job-cut announcements.

Recent financial industry events such as the bankruptcy of Lehman Brothers (LEHMQ.PK) and Bank of America's (BAC.N) purchase of Merrill Lynch MER.N could send job cuts in the sector this year past the 2007 record total of 153,105, John Challenger, chief executive of the consultancy, said in a statement this month.

The uncertainty in the sector suggests that even executive appointments will be jeopardized in the near future.

Some of Heidrick's high-profile financial clients include Citigroup (C.N), Washington Mutual WM.N and Friends Provident (FP.L). Korn/Ferry's clients include Freddie Mac (FRE.N) and Barclays (BARC.L).

Korn/Ferry's Chief Executive Gary Burnison said the financial industry is the most challenging sector for the company now.

"After the recent fallout on Wall Street, there has been a shift toward risk management, operations and infrastructure," Burnison told Reuters.

He said the company had just placed a high-profile chief risk officer for one of the major banks in the news.

BIG HIT AS DEMAND SLOWS

The twin impact of the financial meltdown and a slowing U.S. economy will continue to hurt the two headhunters as firms cut back on expansion plans, leading to reduced opportunities for new jobs.

Suntrust's Sommer attributes the slowdown in demand to lack of growth positions and lower compensation.

"As expansion slows, there is a negative multiplier," he said, adding that this will trigger a slowdown in turnover of executives such as CEOs, CFOs and directors.