After a year when U.S. President Barack Obama signed a law curbing risk-taking on Wall Street and pay at banks fell, metals traders are reaping bonus bonanzas.
The traders probably earned as much as 20 percent more last year than in 2009, with the most-profitable getting $2 million to $3 million, said Peter Henry, head of front-office search at Commodity Search Partners Ltd. The figure, confirmed by three other recruiters who declined to be identified because they aren’t authorized to speak publicly, compares with no change to a drop of 10 percent in pay across commodities personnel.
“Metals traders are an exception when there’s pressure on banks to cut remuneration,” New York-based Henry said. They “are making more money than other parts of the banks and the bonuses reflect that to some extent,” he said.
Metals traders are setting up for another banner year, with Barclays Capital predicting shortages and higher prices in copper, nickel and tin. Average pay across JPMorgan Chase & Co.’s investment bank and Goldman Sachs Group Inc. fell last year and Morgan Stanley cut its investment bank’s compensation pool, filings showed last week. The Dodd-Frank Act signed in July seeks to stop compensation that spurs too much risk-taking.
The London Metal Exchange, founded in 1877, handled more than 120 million contracts last year, 7.4 percent more than in 2009 and a record, bourse data show. While about 5,000 people attended the annual LME week in London in October, probably only a few hundred work as metal traders at banks in New York and London, recruiters said.
While Goldman Sachs reported a 48 percent drop in revenue from its fixed-income, currencies and commodities division in the fourth quarter and JPMorgan closed its proprietary commodities trading unit, jobs are being added elsewhere.
UBS AG, Switzerland’s largest bank, said last month it would double the size of its commodities group, while Citigroup Inc. and Standard Chartered Plc said they also plan to hire. Australia & New Zealand Banking Group Ltd. expanded its team last year and Societe Generale SA secured 130 power and gas specialists after buying assets from RBS Sempra Commodities LLP. Sempra sold other commodity businesses to JPMorgan.
Copper and tin rose to records in 2010 and nickel jumped as much as 63 percent, while the gain in crude slowed to 15 percent from 78 percent in 2009. U.S. natural gas slumped 21 percent.
Zinc will gain as much as 21 percent this year and copper 12 percent, according to the median estimates of as many as 27 analysts surveyed by Bloomberg News in December. The LMEX index of six industrial metals jumped 24 percent in 2010.
In metals “you will have more traders earning seven figures than normal,” said Henry of Commodity Search Partners.
While pay in commodities was probably little changed to 10 percent lower last year, traders moving firms probably got 30 percent or more, according to Options Group, an executive search and compensation adviser in New York, which based its estimate on a survey of clients.
Some commodity units were diminished by curbs on proprietary trading, or transactions using the firms’ own money. The limits, part of the bill signed into law last year, are known as the Volcker rule, named after Paul Volcker, who steps down as chairman of the President’s Economic Recovery Advisory Board next month. The board brought together business executives to find ways of combating the economic crisis.
The Dodd-Frank Act requires regulators to propose rules preventing compensation that “encourages inappropriate risks.” The Federal Reserve, Securities and Exchange Commission and five other federal agencies have to complete the rules by April. The law has been a regulatory thought leader whose example is likely to be followed by other nations, said Federal Deposit Insurance Corp. Chairman Sheila Bair last week.
“It’s the typical season when people are very anxious and nervous and they start extending feelers elsewhere,” George Stein, managing director at New York-based recruitment firm Commodity Talent LLC, told Mark Crumpton on Bloomberg Television’s “Bottom Line” on Jan. 13. “It is also the case this year, because of all the new regulations, that anxiety is more heightened than I have ever seen it.”
JPMorgan, the second-biggest U.S. bank by assets, told its proprietary commodity traders in August their unit would be closed, a person briefed on the matter said at the time. The group consisted of fewer than 20 traders and reported to the head of commodities, Blythe Masters, 41. The New York-based company doesn’t split out its commodities revenue. Jennifer Zuccarelli, a spokeswoman, declined to comment.
Compensation at JPMorgan’s investment bank last year dropped 2.4 percent to an average $369,651 per person, the company said in a statement Jan. 14. The figures are derived by dividing the compensation pool by the number of employees and don’t represent any individual’s pay.
Goldman Sachs said in October it wound down a proprietary trading team and had still to decide on other units. Isabelle Ealet, 47, global head of the raw-materials business, wasn’t available for comment, said spokesman Michael DuVally. Estimates on commodity pay “are speculative at best,” DuVally said.
Average pay across Goldman’s 35,700 employees was $430,700 last year, 14 percent less than in 2009, the company said in a statement Jan. 19.
“There has been a shift from all the banks to develop their commodities trading into more of a franchise business with less risk taking,” said Douglas Ferguson, London-based head of commodities at Webber Chase Ltd. in London. That means smaller cash bonuses and more deferred compensation, he said by e-mail Jan. 19. Webber Chase has website testimonials from JPMorgan, HSBC Holdings Plc and Standard Chartered.
Morgan Stanley, owner of the world’s largest brokerage, told some employees to expect investment-banking bonuses to drop 10 percent to 30 percent, two people briefed on the matter said last month. Fourth-quarter earnings rose 35 percent to $836 million and the investment bank’s compensation pool for last year fell 2 percent to $7.08 billion, the company said Jan. 20.
Colin Bryce, based in London, and Purchase, New York-based Simon Greenshields lead the commodity-trading unit. Hugh Fraser, a London-based spokesman, declined to comment.
Governments worldwide are pressuring financial institutions to curb pay because of their role in the crisis that triggered the collapse of Lehman Brothers Holdings Inc. in 2008 and the first global recession since World War II. Global banks and brokers lost $1.48 trillion and required $1.28 trillion of capital infusions, data compiled by Bloomberg show.
U.K. Prime Minister David Cameron said Jan. 17 that the government is discussing pay with banks and pressing for smaller bonuses and higher taxes. Cameron said there will be pay limits at Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, in which the state is the biggest shareholder.
European Union regulators approved laws to curb incentives for excessive risk-taking in December, limiting immediate cash payouts from bonuses. The Basel Committee on Banking Supervision, a group of regulators from 27 nations, proposed international rules on the disclosure of pay last month.
Some institutions are expanding. UBS said Dec. 1 it planned to double its team of about 40 people in the next 18 to 24 months. Jean Bourlot, formerly with Morgan Stanley, became head of the UBS commodity business in August.
Standard Chartered will increase its commodities group of about 80 people by 10 percent this year, Arun Murthy, the 43-year-old head of the business, said in November. Australia & New Zealand Banking Group, based in Melbourne, expanded its commodities team by about 25 percent to 57 people in a year, the firm said last month. Stuart Staley, head of raw materials at Citigroup, said in October the company is adding the most new commodity jobs in Asia and Europe.
“For every organization that is reshaping their business, there’s likely another looking to hire,” said Dominic Mound, a Singapore-based consultant at Commodity Appointments Ltd. “Demand for good, quality people, remains strong.”