Commodities traders are hot commodity in Wall Street hiring
Commodities traders are hot commodity in Wall Street hiring
With the credit crunch pinching operations, banks and securities firms hired a record 450 commodities traders this year. The upswing in hiring represents a 33% increase from 2006, according to Options Group. Demand is so great that headhunters have turned to fired mortgage-bond salesmen to fill the void.
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Commodity Traders Drive Hiring Amid Credit Shakeout (Update2)
Oct. 17 (Bloomberg) -- JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and BNP Paribas SA say oil, wheat and metals traders are Wall Street's hottest commodities.
Banks and securities firms hired a record 450 people for commodities this year, up 33 percent from 2006, according to Options Group, the New York-based recruitment and consulting firm that has tracked the industry since 2002. While the increase is equal to only 3.4 percent of the 13,100 new hires in the securities industry last year, commodities traders are so coveted that headhunters are turning to fired mortgage bond salesmen to fill the help wanted.
Lehman doubled its commodity unit to 200, and JPMorgan added 45 to bring its total to 170, including Foster Smith from Deutsche Bank AG as head of U.S. power and gas and Andrew Harrison from Goldman Sachs Group Inc., where he traded oil.
The subprime mortgage defaults that led to $21 billion in losses at securities firms, according to data compiled by Bloomberg, are having no impact in commodities, where hiring is increasing faster than ever, Blythe Masters, the global head of commodities at JPMorgan, said in an interview. Barclays Capital has ``ring-fenced'' the natural-resources desk from cutbacks, Roger Jones, head of energy, metals and European power and gas, said in an interview.
Competition for Talent
Revenue from commodities may rise 20 percent this year to a total of $15 billion at the world's 10 largest securities firms, said Ethan Ravage, a financial-services industry consultant in San Francisco. Rising prices for oil, grains and metals are stoking demand for traders even as Wall Street firms eliminate more than 2,300 jobs because of slowing U.S. growth and the worst housing slump in 16 years.
``There's no question that competition for talent over the last few years has increased and is peaking right now,'' said Charles Watson, 57, the co-head of global commodities at New York-based Lehman and former Dynegy Inc. chairman.
Lehman, the largest U.S. arranger of mortgage-backed bond sales, this year hired Jeff Frase and Roy Salameh, two energy traders from Goldman Sachs. Lehman said this month it's firing 850 people at its Aurora Loan mortgage business.
Trading in oil and gas is growing twice as fast as in the 1990s, when Enron Corp., then the world's largest energy-trading company, led a boom in demand for energy contracts, data on the New York Mercantile Exchange Web site show. Oil has advanced 44 percent this year on the Nymex, topping $88 a barrel. Prices traded at $88.05 a barrel at 2:44 a.m. in London.
Lagging Behind Commodities
Agricultural commodities trading at the 159-year-old Chicago Board of Trade has increased 26 percent this year, as wheat rose 65 percent to $8.285 a bushel and soybeans advanced 46 percent to $9.9675 a bushel.
Financial assets are lagging behind commodities. The Standard & Poor's 500 Index, the benchmark for U.S. stocks, rallied 8.5 percent, held back by shares of banks, securities firms, mortgage lenders and homebuilders. Citigroup Inc., the biggest U.S. bank, is down 20 percent this year.
Trading in futures and options on interest rates, currencies and stock indexes was little changed in the second quarter, according to the Bank for International Settlements in Basel, Switzerland.
Headhunters say they expect people who lose jobs in fixed- income departments to seek employment in commodities. Paul Chrispin, a recruiter at Principal Search Ltd., who has been placing traders in the industry for eight years, said in an interview from London he's never been busier.
Fixed-Income Losses
To be sure, commodities profits are unlikely to make up for all the losses in fixed income. The $15 billion revenue from natural resources forecast for the biggest firms this year barely surpasses Goldman Sachs's $14.3 billion of revenue last year from fixed income, currencies and commodities, according to data compiled by Bloomberg.
Net income at Goldman Sachs will rise 16 percent in 2007 to $11.1 billion, the slowest rate of growth since 2002, according to analysts' estimates. Morgan Stanley's profit will increase 13 percent to $8.4 billion, beating the 10 percent gain in 2005, according to estimates compiled by Bloomberg. Both firms are based in New York.
Morgan Stanley said Oct. 2 that it's eliminating 600 jobs, or 25 percent, of the positions in its residential mortgage origination and servicing unit in the wake of the subprime collapse. The company hired 40 to 50 people through July this year in commodities, bringing the total to about 320, according to Marc Mourre, global head of commodities marketing in London.
Expanding Commodities
UBS, Europe's largest bank, announced 1,500 job cuts on Oct. 1 because of hedge fund losses and writedowns related to subprime securities. The Zurich-based firm has expanded its commodities group 60 percent during the past two years, mainly by transferring people from other teams, Peter Ghavami, 39, global head of the unit, said in an e-mailed response to questions. He declined to say how many people UBS employs for commodities.
Deutsche Bank, Germany's biggest bank, doubled its commodities team this year, according to David Silbert, the global head of commodities who joined the bank this year from Merrill Lynch & Co. The Frankfurt-based bank this year hired John Redpath from Citigroup as global head of oil products and agriculture, Ray Key from Morgan Stanley as worldwide head of metals, and Simon Grenfell from Macquarie Bank Ltd. to oversee commodities in Asia.
BNP Paribas of Paris plans to add 60 people to its commodities staff of 160 by 2010, after adding 40 this year, Amine Bel Hadj Soulami, 44, global head of commodity derivatives, said in an interview.
Corner Office
Commodities traders are taking more control at the firms, where the top positions are typically held by the people who bring in the most profit.
David Sobotka, 51, the global head of commodities at New York-based Merrill, was put in charge of fixed income, currencies and commodities this month. Neal Shear, 53, a former energy trader, was given the same role two years ago at Morgan Stanley, the second-largest securities firm by market value.
The chief executive officer at Goldman Sachs, the biggest investment bank, is Lloyd Blankfein, 53, who started his career as a gold salesman at J. Aron & Co., the commodities unit.
``I'm getting calls from credit derivative traders who want to move to commodities,'' said Adam Jama, head of credit and commodities at Napier Scott Executive Search Ltd. in London, which has been placing candidates for 15 years. ``Some banks are so eager to find good commodity professionals that they're willing to look for talent elsewhere.''
`War for Talent'
Compensation has swelled along with commodities prices. Shear earned $35 million at Morgan Stanley in 2006, more than the $30 million paid to his boss, Co-President Zoe Cruz, 52, according to the company's proxy statement filed with the U.S. Securities and Exchange Commission. Only Chairman and CEO John Mack's $41.4 million compensation was higher.
The best-paid commodity traders at a bank will earn $10 million a year, five times more than in 2002, Principal Search's Chrispin said. The top traders at energy companies such as BP Plc and Electricite de France SA would earn at least 80 percent more if they left to join Wall Street, estimated Jama at Napier Scott.
BP Chief Executive Officer Tony Hayward said in July the company won't pay ``silly sums of money'' to retain traders as Europe's second-largest oil company loses people to banks.
``While some banks may have implemented hiring freezes across the board, this hasn't been the case for Barclays,'' said Barclays's Jones. ``The war for talent is alive and well in commodities.''
More at Risk
The London-based bank is eliminating positions at its Equifirst U.S. subprime unit and at its U.K. credit-card business. Barclays, the U.K.'s third-largest bank, expects to increase its commodity headcount by 20 percent to 300 next year. Barclays Capital is the investment banking unit of Barclays Plc.
Morgan Stanley is giving its commodities traders more opportunities to profit by risking the company's money. On any given day during the quarter ended Aug. 31, the firm's so-called value at risk, or the amount it could lose in one day's trading, totaled $36 million, up $3 million from the prior period and double the amount the company reported for foreign exchange, the company said in a Securities and Exchange Commission filing.
Lehman increased its risk to $8 million a day from $7 million in the previous quarter, also more than the company had in currencies, its SEC filings show.
JPMorgan has added 30 people to its commodities group since June, taking the total to 170, Masters said.
`Strengthen Case'
The decline of the subprime mortgage market ``hasn't and isn't likely to impact our growth plans for commodities,'' Masters, 38, said. ``In fact, it's strengthened the case for commodities as an asset class.''
JPMorgan plans to eliminate 10 percent of the group that finances leveraged buyouts and packages debt into securities. Masters said she plans to expand its commodity group 30 percent in the next year.
Futures markets for oil, copper and shipping show traders and analysts anticipate prices will decline in the next year, raising concern that the bull market will end.
``When interest in the markets starts to peter away, you will see who is committed,'' said Frank Feenstra, a managing director at Greenwich Associates, a Greenwich, Connecticut-based consultant to the financial services industry. ``It may be harder for those who are just starting in the business and who have not made any money yet to justify their existence when the commodity markets turn.''
Chasing Goldman
U.S. securities firms employed about 803,700 workers in December 2006, up from 790,600 a year earlier, according to Bureau of Labor Statistics data compiled by the Securities Industry and Financial Markets Association.
Credit Suisse Group, UBS and Lehman are among the banks that expanded into commodities during the past three years to help protect clients from airlines to manufacturers against swings in costs for raw materials. They are also out to grab market share from Goldman Sachs and Morgan Stanley, the biggest commodities traders on Wall Street.
``Our business plans over the next 12 to 18 months are ambitious and our hiring plans reflect that,'' said Adam Knight, 33, who heads Credit Suisse's metals-trading alliance with Glencore International AG. He declined to say how many people are in the bank's commodities unit.
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