A drought in share sale activity could leave around a quarter of bankers working in the sector looking for new jobs by 2013 as investment banks are forced to cut costs, with some expecting smaller players could even exit the market completely.

A handful of bumper deals in the first half of 2011, such as the $10 billion (6.4 billion pound) flotation of commodities firm Glencore and a $13.9 billion fundraising by Commerzbank , has helped cushion the impact of a slow second half for many but with just $17.6 billion raised in Europe since the end of July, banks are having to make a call on when things might pick up.

Annualised, the volumes seen between August and November would make for the lowest European equity fundraising levels for more than 10 years, according to Thomson Reuters data.

I expect to see a substantial culling of the herd. Banks will leave and even for the banks that remain there will be some level of head count shrinkage, said one senior banker working in equity capital markets (ECM), which includes activity such as stock market listings, rights issues and secondary share sales.

All banks are having to reevaluate their business models and figure out what they can and can't be committed to ... We are at a point in the bank profitability cycle where you have to ask yourself if there is not a demonstrable value proposition, how can all this headcount and cost continue to be justified?

Investment banks such as Barclays , Credit Suisse and the European arms of their U.S. peers have invested heavily in equity business as a whole, banking on a pick-up in the market that was then scuppered by economic woes.

Some banks are already scaling back in equities -- Italy's UniCredit ditched its equities sales and trading team in Western Europe in favour of a tie-up with French brokerage Kepler Capital Markets, effectively outsourcing the business -- while others are reassessing the importance of Europe.

A lot of banks are asking themselves whether Europe is really going to be a region in which they want to engage, said one London-based banker.

Last month the chief financial officer of Japan's Nomura <8604.T> said 60 percent of a planned $1.2 billion cost savings would come from Europe, where it is losing money and has 4,500 workers, or about 13 percent of its total staff.

LITTLE BY LITTLE

Europe is seen as the most fiercely competitive region for ECM business, with the largest number of players chasing the smallest number of deals.

At least ten banks want to be among the top five, bankers say, and aggressive pitching for deals is pushing fees down to what some consider to be unsustainable levels.

Goldman Sachs is at the top of the European ECM league tables for 2011, followed by Deutsche Bank in second and Morgan Stanley in third place.

Those committed to maintaining their position in both Europe and ECM will have to strike the right balance between short-term cuts and the ability to jump on any uptick in activity.

You need to keep a certain infrastructure in place because the market can bounce back and if you cut back too far then you'll miss out on all the opportunities because hiring takes a long time in this industry, said a second senior ECM banker.

Unlike their equities trading colleagues, ECM teams have not yet been heavily affected by job cuts, but they have little doubt the overall number of people working in the sector will shrink, with a wave of cuts likely mid-year if continued market uncertainty keeps the first half quiet.

If you could get a real read on numbers of ECM people in Europe, my guess is that by January 2013 you are going to be 25-30 percent down on January this year, said one ECM banker. Several others agreed 25 percent was a realistic number.

It is going to be very different on a bank by bank basis. Some banks will be 5-10 percent down, and some will be 50-60 percent down, he added.

While most think banks will do their best to scale back rather than mothball whole departments, for some the exit of smaller players is inevitable.

We are going to see a winnowing out of competition, starting with the non-bulge bracket banks, said the second senior ECM banker, referring to banks lower down the league tables.

The second and third tier players are probably going to be withdrawing little by little. Even parts of the bulge bracket will be struggling to stay in there.

(Editing by Helen Massy-Beresford)