Happy in your trading job in an investment bank? Feeling settled and confident about the future? It may not last. Following a disappointing bonus round, some headhunters are predicting that traders will flood onto the market in search of new jobs in early 2018.
"After all this year's hiring, the bonus pool has a much higher fixed component devoted to new recruits than in previous years," says the head of one leading fixed income search boutique, speaking on condition of anonymity. "At the same time, revenues haven't really come through and there's not the money available to match the expectations of existing employees."
Macro (FX and rates) trading desks are expected to take the biggest hit in bonuses. U.S. compensation specialist Johnson Associates is predicting a 5% to 10% drop in fixed income trading bonuses this year compared to last, but the reduction is likely to be more extreme on macro desks, which have latterly performed poorly. At Barclays, for example, macro sales and trading revenues were down 27% year-on-year in the first nine months and 40% year-on-year in the third quarter. Rates desks started the year well, but banks like Citi reported weak third quarters as revenues floundered compared to more eventful markets in 2016. The exception was Goldman Sachs, which said a strong performance from its U.S. rates desk towards the end of Q3 helped mitigate its problems in commodities trading.
"After the third quarter, we expect banks to reallocate fixed income bonus pools to credit desks," says the headhunter. "It won't take a huge shift in the bonus pools for people on rates desks to be down $100k or so. This will cause a lot of disappointment, particularly in the mid-ranks, and we're expecting all those people to come onto the market in January."
The potential bonus upset on rates desks comes after a splurge of senior rates hiring this year. Barclays, BNP Paribas, Deutsche Bank and Standard Chartered have all been stocking up on rates talent in 2017. Although European banks are banned from paying old-fashioned guaranteed bonuses by regulators, they can still pay "indicative guarantees" based on the achievement of fairly easy targets. Sizable chunks of this year's macro bonus pools are thought to have been pre-allocated to new hires as a result.
Not all headhunters are convinced that a tsunami of traders is coming their way, however. Kumaran Surenthirathas of Rosehill Search says there's definitely a lot of pent up frustration with compensation at director level, but that this is no worse than usual. "There are a lot of traders who want to move and who will be very open to moving in the new year, but this is no more than usual," he says.
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