A handful of people have been let go from the likes of JPMorgan and Deutsche, but surprisingly little CDO blood has been spilt so far. That doesn’t mean it’s worth hanging on for the sector to revive.
Most of the job cuts so far have been in securitization,” says Alex Tracey, at search firm Clifden Partners. “In CDOs, we’ve seen a few people in each team lose their jobs, but the percentages involved are small – unlike ABS where banks are now targeting CMBS professionals and 75% of people have gone from some houses.”
Such restraint is surprising, given the collapse in the market. According to Alea, global CDO issuance went from $186bn in Q107 to $12bn in Q108.
Recruiters say it might have something to do with the fact that cash CDO teams are typically small, at no more than 25 people (compared to 120+ in some securitization teams) – so there’s not much to get rid of. But one headhunter says CDO businesses still look at least 50% overstaffed given the size of the current market.
Despite the gloom, prospects for CDO professionals aren’t as dire as they might be. Tracey says the best course of action for displaced CDO talent is to contact clients. Both Hiram Hamilton, former co-head of European CDOs at Morgan Stanley, and Andy Godson, former head of CDO syndication at Citi, are thought to have moved to clients recently.
Failing that, there is always the chance the market might recover. John Mooren, of credit derivatives consultancy Reoch Credit, says CDOs will “definitely come back on easily understood credit risks like corporate and sovereign debt, and if the markets can settle and volatility goes down significantly, the tranching of CDOs will have a role to play again.”
In the meantime, it might be an idea for CDO bankers to get some rest. “I don’t think the problems in the CDO market will last for another 12 months,” Mooren predicts.