Credit professionals succumb to irrational optimism

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A recent survey suggests credit professionals are expecting bonuses to rise by an average of 10% this year. Pigs, as they say, will fly.

The survey, of 236 credit types engaged in everything from prop trading to quantitative analysis, strategy, sales and research, found that around 10% expect 2007 bonuses to be double last year's and around 17% expect bonuses to rise by between 75% and 100%.

On balance, 40% expect bonuses to rise, around 35% expect bonuses to be flat, and a mere 25% expect bonuses to fall.

The survey was conducted on 12 October, giving respondents ample time to digest the fact that the credit markets have been dysfunctional since August.

Michael Stubbs-Egginton, chief executive of Credent, the search firm which conducted the study, admits the results are surprising, but says credit pros may know something we don't: "It's never a perfect market. Some firms have done badly, but others haven't done as badly as the press might portray."

He also says the results might be skewed by the fortunate few who moved mid-year on guaranteed bonuses: "A lot of people resigned mid-year and came on stream in August and September with big guarantees to look forward to."

The most optimistic respondents were analysts and associates and credit strategists (who expected an average increase of 36%). The least optimistic were directors and structurers, who expected bonuses to fall by 8% and 2% respectively.

The head of the markets division at another search firm confirms our sensation that credit businesses have lost touch with reality somewhere over the past few months: "This needs to be taken with a pinch of salt. Expectations are out of kilter with reality. Nowhere is likely to pay people up this year."