US banks lock down rate traders on pay

The Pak Banker - - COMPANIES/BOSS -

Wall Street banks are rush­ing to lock down their top in­ter­est-rates traders, in an­tic­i­pa­tion of bumper op­por­tu­ni­ties aris­ing from a long-promised "lift-off" from the Fed­eral Re­serve.

Ex­pec­ta­tions have been mount­ing that the US cen­tral bank is on the cusp of in­creas­ing bor­row­ing costs for the first time in al­most a decade. This has spurred ac­tiv­ity in in­ter­est rate swaps and op­tions in the first half, push­ing up rates rev­enues at all the big­gest banks bar HSBC and BNP Paribas.

As a re­sult, se­nior rates staff at US and Euro­pean banks are on course to re­ceive av­er­age rises in to­tal pay this year of about 10 per cent, ac­cord­ing to Op­tions Group, a New York­based re­cruiter.

The higher awards come as peers in other di­vi­sions such as com­modi­ties and se­cu­ri­tised prod­ucts are fac­ing flat or fall­ing pay­outs.

They also sig­nal "a war for tal­ent," ac­cord­ing to Jes­sica Lee, a di­rec­tor at Op­tions Group. She noted that head­count in rates de­part­ments has shrunk by about a third since 2008, amid tougher reg­u­la­tory stan­dards on risk-tak­ing and an in­dus­try-wide push to con­serve cap­i­tal.

"Be­fore the cri­sis, it was like a gi­ant race where it cost $10 per en­trant and the purse was $10m di­vided among the top ten fin­ish­ers," Ms Lee said. "Post-cri­sis, it costs $1,000 per en­trant and $6m is di­vided among the top five fin­ish­ers. Banks can only af­ford to back the very best run­ners."

The pay rise for rates staff looks set to buck a gen­eral trend for banks' core fixed-in­come, com­modi­ties and cur­ren­cies (FICC) units, which ac­counted for about a third (Mor­gan Stan­ley) to two-thirds (Cit­i­group) of to­tal cap­i­tal mar­kets rev­enues dur­ing the first half of this year.

Base pay in FICC sales and trad­ing held fairly steady across the in­dus­try last year, at around $400,000-$500,000 for man­ag­ing di­rec­tors at US banks and $800,000 to $1m for their Euro­pean coun­ter­parts. Bonuses dropped by about 5 per cent.

Although Fed chair Janet Yellen has stressed that she will act only if she con­sid­ers the econ­omy strong enough, re­cent data - in­clud­ing a solid jobs re­port on Fri­day - have en­cour­aged many Fed-watch­ers to think that a move in Septem­ber is more likely than not.

The fig­ures from Op­tions Group, which are based on con­ver­sa­tions with hun­dreds of bank em­ploy­ees, are pro­jec­tions of an­nual changes in to­tal pay if bonuses - both cash and non-cash - were de­ter­mined in the sec­ond quar­ter. As such, the ac­tual num­bers could change over the re­main­der of the year.

The closer the Fed ap­pears to get to what it calls a "nor­mal­i­sa­tion" of pol­icy, the more traders and sales­peo­ple will "brush dust off their CVs" to test the mar­ket, said Dy­lan Pany, a prin­ci­pal con­sul­tant at fi­nance-fo­cused re­cruiter Selby Jen­nings.

Jim Borger, man­ag­ing di­rec­tor at Green­wich As­so­ci­ates in Stam­ford, Con­necti­cut, noted half a dozen bank-to-bank moves of top traders within the past year. "You want to so­lid­ify your rates teams be­fore the Fed," he said.

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