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Redundancy for CDO specialists?

With the market for CDOs deader than a Sunday in Surbiton, the future looks hazy for professionals in the area.

Investment banks aren’t known for keeping unproductive staff on their books, particularly when retaining them means spending money on bonuses. And with bonuses announced in December (at US banks), some headhunters and recruiters are forecasting a rout in the intervening months.

“The structured credit market has pretty much shut down,” says Alex Tracey, managing consultant at search firm Clifden Partners. “People are nervous, but we won’t know the real investor reaction until people are back from their holidays. If this continues, we might then see structurers and traders having their roles reviewed around November.”

Jodie Surendan, a consultant at recruitment firm Selby Jennings, says redundancies are already being made in some US structured credit teams and banks are pulling back on new hires – even after all interviews have been successfully completed.

Who’s going first?

Headhunters predict CDO salespeople focusing on pension funds and traditional asset managers will be at the forefront of any redundancies – this is where the market has slipped away the most.

Equally, long-established CDO professionals at Barclays Capital and Royal Bank of Scotland may be on shaky ground – headhunters say both banks have hired aggressively in the area this year, and with some of the new hires brought in on guarantees, existing staff may prove easier to let go.

Comments (21)

  1. Since when is “deader” a word? Couldn’t find it in the Cambridge dictionary…..

  2. Florence: We’re reliably informed by the American Heritage Dictionary (that famous source of literary standards) that deader does in fact exist.
    Does seem significant that it’s left out of the Cambridge Dictionary, but we’ll conveniently overlook that for the moment!

    Sarah, Editor, eFinancialCareers Reply
  3. This article seems to be a little bit sensationalist; yes there are problems in the structured credit market but to say it has shut down (from a European point of view at least) is in my opinion an overstatement. Having said that perhaps the worst of it is to come, seeing as a large volume of US adjustable rate mortgages are due to switch to a floating rate between Oct 07 and Mar 08, potentially causing more subprime woes. Also it’s a bit speculative to suggest BarCap & RBS might make redundancies just because they have hired aggressively this year. I would be quite surprised to see redundancies from one of those two.

  4. I love how Sarah (the Editor) has to constantly defend grammar or spelling “errors” which people point out.

    To everyone out there who thinks they are doing other readers a great favour by pointing this out please stop.

    No one cares.

  5. People seem to equate CDOs with the subprime mortgage. For sure, the subprime has revealed notable problems of CDOs’ structures, but many CDOs are written on corporate debts. Will the product become redundant to the market because of the recent turmoil, given that the product intends to hedge correlation risk? Any comments?

  6. It’s mainly investors who are equating CDOs with subprime – no one can deny there is evidence of a contagion effect. essentiallty, investors have put money into something they fundamentally don’t understan (CDOs, CPDOs etc) and now the gravy train is not so great, they are pulling money out because everyone else is. Subprime is not CDOs but it is undoubtedly having an effect on the wider market.

  7. It’s amazing to find out the low level of understanding of this market by the great majority of recruiters. The CDO mechanism helps risk transfer and allocation and as in many other markets it happens from time to time that risk has been underpriced. To say that the structured credit maket has shut down is more than an understatement. Did the equities market shut down in 1987 or the high yield market shut down in 2002.

  8. Pryesh is correct in that the structured credit market in Europe is closed but so is everything else in Europe except for the rumour mill.

    Anon says the CDO product is intended to hedge correlation risk … more like go long correlation. Recent vintage CLO equity deals are being priced at 70-75% by the investment banks that ARRANGED the deals. That’s like your house surveyor telling your mortgage bank that the house you bought a month ago is built in a swamp and is on fire.

    Xover has ranged 190-505 in the past month … why would you buy/sell ANYTHING credit related in Europe when you could make/lose 10 points in 3 days?

    The more interesting question about redundancies is that when the credit markets shake off the current problems, will anyone need to buy structured credit to get additional yield?

    When Xover was at 190, a structured deal that paid you 220 for the same level of risk was regarded as genius.

    With Xover at say 350 as of Friday, you’re getting extra yield by selling the market & not worrying about:
    – correlation
    – vol
    – quant models not working
    – bid/offers
    – having a position you can’t price or sell

    Structured credit will come back but it will be a while …

  9. To florence in HR.

    People in HR are so incompetent in hiring… In valuing a candidate you use irrelevant techniques such as looking at the candidates physical properties, hair and skin color, origin and religion. You are so racist!

    Because of your incompetency in the field of your hiring, you HR people have become racist… For me you are “deader” then “deadest”.

    Lower then lowest…

    Bold Bolder Boldest Reply
  10. There’s always a dumb end buyer for structured products with attractive if illusory payoffs. But please stop endlessly quoting recruiters for market views, 9 out of 10 are worse than clueless – they’re wrong and misinformed.

  11. So Trader, Derivatives are you buying much CDO product at the moment? Our clients aren’t but if you are interested I have some CDO equity referenced to US sub prime for you?

    CDO Structurer Reply
  12. Good Headhunters get there information from valued relationships on the desk, rather than reading a journo’s opinion who take their information from junior analyst and other headhunters. All I know is that although not many big deals will be printed this year (in credit) some firms are still being bullish and recruiting for the long term. I have CPPI structuring roles for VP’s coming out of my ears.

    The 1 out of 10 Reply
  13. What a sensationalist piece of writing. The toxic waste tranche of the CDO is tiny amount in comparison to the rest of the structure. The idea that the CDO market will collapse and there will be hordes of redundancy is simply a foolish hypothesis. The market might be slowing down but we will not know whether there will be a complete drying up of liquidity till perhaps November! In addition, some of my clients are actively hiring both on the Trading and Structuring.

    Adam Jama– Head Hunter Reply
  14. Perhaps.. but in any case, it sounds well

  15. Dear 1 out of 10, are you sure this name doesn’t signify the number of successful placements you make a year? Haven’t heard of many CPPI structurers moving recently

    Credit Headhunter Reply
  16. It is a fact that quite recently CDOs structurers have recruited any kind of people with no relevant background just to cope with the huge workload. The decrease on demand for products related to CDOs will inevitably make a few of these guys redundant.

    It does not make sense to a team to have 12-15 Associates costing more than 1.8m pa since most of these guys do not have transferable skills or corporate banking experience so that they can be used in a different role.

  17. And all traders are informed? Me thinks not – you work from 7tillwhenever and get stuffed at year end…

  18. Is it not amusing that so many atacks come out of adverse conditions…get on with your jobs and maybe you can earn a few quid for your clients and yourselves! Even Headhunters are still getting deals done (and according to many of you they are clueless!)

  19. we have seen the CDO market grind to a hault and senior management hovering above new hires getting ready to make cuts, if they haven’t already started, which I knwo first hand happened at Bar Cap and RBS both in London and NYC. I presumke you only work on middle office roles supporting these teams as they will be the only ones hires in structred credit!!!

  20. Reading this comments now on the eve my banks earnings and day Fed cuts rates again is laughable. All your comments about how sensationalist the article was now seems ridiculous. Structured products as a funding tool may still exists for companies diversifying heir funding may still exist in the future for super prime originators albeit at unprecedented costs. As for IBanks trying to arb the market with principal positions in these assets and selling equity – PACK UP AND GO HOME. It is officially the DEADEST market. I sit and wait, but deep down I know….

    Fro – deader market participant Reply
  21. CDO seems to be referred to in the same vain as ABS/MMS by those who do not fully understand their structures…

    CDO’s of Loans and Corp Bonds are not suffering as their third cousin called CDO of ABS
    Basically, CDO consisting of ABS/MBS tranches backed by subprime mortgages

    The fact that most CDO’s are “managed” means that poor performing assets can be traded in order to improve or maintain returns.

    P.S where is my spell checker?

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