Source: Reuters
When it comes to hiring top commodity traders, what goes around comes around. Wall Street, after years of poaching the best and brightest from specialised commodity firms, is losing the war to keep the essential traders who know how to arbitrage copper or store crude.
After financial reforms sounded the death knell for the excessive use of bank money to trade markets two years ago, banks such as Goldman Sachs and Morgan Stanley had resigned themselves to watching their proprietary trading rainmakers flee to hedge funds with few limits on risk or compensation.
Now as banks make deep compensation cuts and stricter oversight forces them to take less risk and bolster balance sheets, the latest wave of talent migration risks cutting deeper – luring away the physical traders who excel at arbitraging copper markets, importing heating fuel or storing wheat.
The dozen or so merchants that buy and sell a trillion dollars worth of commodities every year are finding it easier to skim the cream of the trading crop, promising unfettered bonuses and a future share in their typically private firms.
“The Mercurias, Trafiguras and Glencores are back to ruling the commodities world,” says Wall Street headhunter Vikram Tandon. Those hiring most aggressively are the biggest energy, metals and agricultural trading firms in Europe and Asia.
“We have experienced an increase of very talented professionals at banks seeking potential roles at boutique commodity firms and trading houses,” said Tandon, executive director at The Options Group, a New York-based global talent search agency.
It is not a particularly hard sell: After the deep bonus cuts, deferred pay-outs or US$125,000 cash caps announced this year, change comes easy for traders long accustomed to million-dollar bonuses based on a percentage of their book profits.
It is yet another sign of the growing pressure on the world’s investment banks, most of which have already throttled back their high-risk, high-reward speculative dealings – leaving them more dependent than ever on the specialised traders who can help translate hard-to-read signals in opaque physical market into profitable trading positions.
Not too long ago, moving from a merchant trading firm to an investment bank was regarded as the ultimate career step. Now experienced bank traders are happy to go the other way.
“There have been emails in the middle of the night from people,” said George Stein, managing director for Commodity Talent in New York. “We’ve had a lot of candidates going in for first, second and even third rounds of interviews.”
Geneva-based Mercuria, one of the world’s top five energy traders, has recruited Ben Green and Liam Brown, two London-based metals traders from Goldman Sachs, industry sources said last week. Mercuria had hired a gas trading team from Barclays Capital and Nordic power traders from Bank of America last year.
Deutsche Bank’s physical iron ore dealer Richard Shelley joined Trafigura, an independent energy and metals trader based in Lucerne, Switzerland, late last year. Refined oil product traders Jan-Jaap Verschoor and Chris Dorfman left Bank of America for New York-based Hetco recently.
“There’s always been a two-way flow, but it’s now much more one directional to trading houses,” said an analyst at a European bank who has worked with merchant trading firms. “People at the big banks, which turn over huge amounts of cash and are paying only US$125,000 bonuses, are not happy.”
The trend may continue through the first part of the year as traders collect deferred cash bonuses.
Glencore, the Switzerland-based commodities giant, could ramp up its search for commodity professionals as it bids to buy miner Xstrata to create a US$200 billion mining, agriculture and trading powerhouse, headhunters said.
They said other major independent merchants such as Dutch energy traders Vitol VITOLV.UL and Gunvor and Asia’s Noble may also be looking for new talent to position for a market rebound after the difficult trading conditions of 2011.
A senior executive at a merchant trader said it was wrong to assume his peers were simply “scavenging” for cheap talent.
“Some people are seeing the benefits of a private structure, where they can get a piece of the action,” he said. Glencore’s public listing last year made overnight billionaires of a handful of senior traders.
David Messer, chief of newly launched Freepoint Commodities, is at the fore, re-hiring many of his ex-colleagues from Sempra Commodities, the global merchant-trader he ran for over a decade before it was sold to RBS and then to JP Morgan. Big swingers who want to run a big prop book need not apply.
“It’s a business that’s about hitting singles consistently rather than going for the big swing,” Messer said last month.
Goldman Sachs and Citigroup declined comment while other banks contacted by Reuters did not respond.
Privately though, bankers say holding on to the troops has been their worst nightmare.
“We try to keep them engaged, give them the space for entrepreneurial trading, but it’s hard,” says one senior executive at an investment bank.
