US
Waiting for a big bonus? Proprietary traders at your firm could have a different idea.
Last week it emerged that Credit Suisse lost an estimated $120m on South Korean derivatives. Merrill Lynch has reportedly upped the amount it could lose on a single day’s trading to $53m, double the figure of a year ago.
And both Barclays Capital and Citigroup are among the banks strengthening their prop trading desks.
So is your bonus at risk from dubious prop trades? Apparently, yes.
“The big thing with proprietary trading is that you really can lose it all on the last day if things go badly,” says Alan Johnson of US compensation specialist Johnson Associates.
“Clearly firms are putting their capital at risk, so absolutely it will have an effect on bonus pools,” he adds.
Banks facing losses could take a lead from Dresdner Kleinwort. The German bank reportedly shielded employees from its loss-making equity prop desk by depriving its proprietary traders of full bonuses last year. It went on to scrap the desk altogether.
In the best scenario, however, the prop desk could actually prove a bonus boon. “The day-to-day profits do not tend to get the publicity, and nor do the big wins,” says Shaun Springer, chief executive of search firm Napier Scott.
“So far they have managed it well, they are making a lot of money,” adds Johnson.
Credit Suisse lost an estimated $120m (maybe even more) but it was their customer business in Korea not the prop desk. They effectively lost money on complex structured equity derivatives (Autocallables on Worst-Off’s is the rumour) because they did not hedge themselves properly against Volatility. This might have resulted in the sacking of Jim Kreitman and Chris Carter recently. The traders who lost the money on the Korean book were based out of HK . In any case this was customer business and not prop.