Those still in jobs are enquiring more than ever before about vacancies, headhunters say, and are far more open now to leaving for lesser known or smaller firms.

"People are judging opportunities on their merits. They are more positive about smaller and independent firms nowadays - that conversation used to last 30 seconds before," said John Axworthy, a recruiter at Wheat Search.

In Europe, major investment banks announced plans for over 86,000 job cuts in the last year, while a similar number of positions have been shed in Britain's finance sector alone since the end of 2008.

They are still clamping down on costs as business fails to pick up and regulations bite. From Germany's Deutsche Bank (DBKGn.DE) to Switzerland's UBS (UBSN.VX), most are overhauling their business as they try to adapt to stricter capital rules.

Many of the firms hiring are non-European banks trying to gain a foothold in London, buoyed by recent successes in their home markets or backed by capital from their owners based in emerging markets, like Russia or India.

Similar hiring spurts since the 2008 financial crisis have not all paid off. Some companies have shut up shop or cut, making less well-established firms riskier for those not already out of work.

But with bigger banks now cutting for the long term, there may be more room for specialist firms to succeed.

Hirers include specialist merger and acquisition (M&A) and corporate finance advice firms, with a focus on mid-market companies, like Canada's Cannaccord Genuity Hawkpoint, or DC Advisory Partners, backed by Japan's Daiwa Capital Markets.

Baird, which in the United States operates in equities and fixed income trading, is also filling advisory gaps in Europe.

"There are a lot of people looking (for jobs). It's clear that the uncertainty within much of the banking market is destabilising," said David Silver, head of European investment banking at Baird. "We're sticking to our knitting in terms of strategy and focus while others are distracted."

On the trading front BTIG, a U.S. firm offering trading in equities, fixed income, commodities as well as capital markets financing, and Russian bank Otkritie Capital recently poached top Goldman Sachs traders.

For top banks like Goldman, profits in the lucrative business of bond trading are being hit by a crackdown on banks trading with their own money, made official in the United States under the Volcker Rule.

Global Basel III regulations also mean the business will guzzle capital, forcing some firms like UBS or Credit Suisse (CSGN.VX) to shrink in this area.

Stocks trading, meanwhile, is an expensive business that has become harder to sustain as margins are squeezed.

Still, even home grown contenders are filling gaps in this area, hoping a retreat by others will give them their chance to shine. Germany's Berenberg Bank is growing its equities team in London, bringing research staff up to 100 from 70 in the next two years.

LURED BY BONUSES

Most of these firms do not employ more than several hundred staff in London, while top investment banks have many thousands.

Firms backed by large and well-established parents overseas have also been among the big European recruiters in the past two years. Canada's RBC Capital Markets has roughly doubled staff to about 6,000 since 2007, with about 1,300 of those now working in Europe.

It expanded its deal advisory team in particular, crafting its natural resources connections in its home market as its particular selling point.

Now its Canadian rival CIBC has been doing the same, adding people in equities and investment banking. Its operation is smaller than RBC's, headhunters said, but CIBC declined to comment on staffing levels.

The more "niche" aspects of some of these firms, with clear specialisms in certain sectors or products, is in itself a lure. Top investment banks are also trying to forge firmer identities, shying away from trying to offer thousands of clients every possible service.

"There are a number of firms out there trying to go back to a more sophisticated version of 1990s UK merchant banks, purely focused on advising on M&A and equity and debt financing. That's attracting people," said Axworthy.

Another big attraction is pay. While the bonuses may not always have been as vast as those on offer at bigger banks generating revenue in the billions, many smaller firms are not captured by post-crisis rules on pay, because of their size.

That means they can hand out bonuses in cash, on the spot, rather than deferring big chunks of awards for several years and paying most of it in shares or other securities.

One danger today's recruiters are trying to avoid, however, is becoming a safety net for bankers being axed by top firms now, only to face a stream of departures when markets pick up and big rivals start hiring again.

Some can offer bonus guarantees, or lure staff in by making them take equity stakes in the business. But most said that they were simply very carefully assessing candidates' motivations.

Most of those keen to expand still see it is a perfect time to hire, with headhunters saying they could be more flexible on the size of starting salaries and bonuses. Smaller firms might be able to offer senior bankers 150,000 pound ($237,000)salaries, when these have soared at bigger banks to somewhere closer to the 350,000 pound mark, but still offer yearly cash bonuses on top of that.

"We are looking to replicate the success we've had in the United States... and take advantage of the current dislocation in Europe at a time when there is a huge talent pool available," said Steve Starker, co-founder of BTIG. ($1 = 0.6330 British pounds)

(Additional reporting by Luke Jeffs; Editing by Alexander Smith and Anna Willard)

• A Permanent Economic Emergency