Aug. 21 (Bloomberg) -- An exodus of traders and salespeople from Wall Street’s largest firms that allowed smaller brokerages to snap up talent has reversed, said Michael Gooch, chief executive officer of New York-based broker GFI Group Inc.

“Since the end of the first quarter, the banks have been quite successful in regaining their profitability, especially in the fixed-income side of things,” Gooch, 50, whose firm matches trades between banks, said in an interview in New York this week. “What went from being a period where you could pick up salespeople from the Street fairly easily in fixed income -- very quickly that dynamic has reversed.”

After last year’s collapse of Bear Stearns Cos., the bankruptcy filing by Lehman Brothers Holdings Inc. and the acquisition of Merrill Lynch & Co. by Bank of America Corp., smaller brokers including GFI swooped in to hire traders and salespeople from Wall Street’s largest banks, which faced pressure to scale back payouts after accepting government bailout cash.

As banks sought to mend balance sheets amid the financial crisis, withdrawing capital from securities markets, so-called boutique firms emerged to take advantage of the wider gaps at which the securities were bought and sold.

For GFI, that meant hiring brokers experienced in trading corporate bonds and other cash instruments amid a decline in credit-derivatives trading and the departure in April 2008 of more than 20 GFI credit-derivatives brokers to rival Cie. Financiere Tradition.

GFI, which ended talks last year to merge with competitor Tullett Prebon Plc, last month reported a 140 percent second- quarter increase in revenue from matching cash fixed-income trades from a year earlier. Fees from matching credit derivatives dropped 52 percent during the same period.

A ‘Short Window’

“For a company like ours to very successfully change our business mix so that we reemphasized cash corporate fixed-income and made up for what we were effectively losing in credit derivatives, that was a very short window of opportunity,” Gooch said. “Now you’re hearing about signing bonuses and guarantees again for corporate fixed-income traders and salespeople. It’s been a very rapid change of fortune.”

Goldman Sachs Group Inc. set aside a record $11.4 billion for compensation and benefits in the first half of 2009 after cutting compensation 46 percent last year, according to figures released last month with its record second-quarter earnings results.

JPMorgan Chase & Co., the second-largest U.S. bank after Bank of America Corp., said last month that its profit rose for the first time since 2007 on record revenue from trading stock and bond underwriting, which helped to offset rising defaults on consumer loans.

To contact the reporter on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net

Last Updated: August 21, 2009 12:48 EDT