First the bankers, now the headhunters. Wall Street's layoff pandemic is spreading into the world of executive recruiting. Headhunters are sitting on the sidelines. With no openings to fill, some financial services recruiters are not even showing up for work. "For investment banks, there is very little M&A revenue, no leveraged finance revenue, no IPO revenue, and the worst is in front of us," says Rolfe "Rik" Kopelan, managing partner of CapstonePartnership, a New York executive search firm. "The executive recruitment business is going to be a survival game in 2009."

New York-based Whitney Group LLC closed in October, blaming, in part, former CFO Jeffrey Sussman, whom it's suing for fraud. "However, the market didn't help," says Gary Goldstein, Whitney's CEO. "It added fuel to the fire." About 65% of the firm's revenue came from Merrill Lynch & Co., Credit Suisse Group and Lehman Brothers Holdings Inc., says Jeff Bell, who left in September after 32 years at search firms including Spencer Stuart and Russell Reynolds Associates Inc. "I could see the writing on the wall," Bell says.

Meanwhile, recruiting giants like Heidrick & Struggles International Inc., Spencer Stuart, Russell Reynolds and Korn/Ferry International are shifting banking practices to areas like real estate, bankruptcy, restructuring, insurance or asset management. Jeff Warren, co-lead of Russell Reynolds' financial services sector in the Americas, says he's seeing work in fixed income and distressed debt and from insurance and global clients hoping to set up shop in the U.S. Boutique and regional banks looking to pick up displaced bulge-bracket talent are another source of business, he says.

Recruiting boutiques, like Choi & Burns LLC and Sterling Resources International Inc., are hoping to ride out the storm via low overhead and rich retainers. "I've had clients who are quite loyal," says Laura Lofaro, who opened Sterling in 1988. "There's always a market for outstanding individuals." Then there's Goldstein and ex-wife Alicia Lazaro, who are busy launching financial services recruiting boutique Whitney Partners. "I love the business. I am a die-hard in the business, and I will continue to be in the business," says Goldstein. "We look at this as a rebirth. We are two very senior people, we are unencumbered and we have lots of interesting inquiries."

Other search firms, like Capstone, also see the downturn as a chance to expand. "This is the time to add good search consultants to your organization or start new practices," says Kopelan. "It's a risky strategy, but if you don't skate on thin ice, what fun is it?"