Wall Street interest-rate traders will probably suffer the biggest compensation cuts for a second straight year, while firms add investment bankers and pay them more, Options Group Inc. said in a report.
Employers may dismiss interest-rate traders and pay the remaining ones in the U.S. 18 percent less on average than in 2013, the New York-based recruitment firm said in a mid-year report released today. Investment bankers in the U.S. and Europe may see a 15 percent jump in total pay, and people working in equity derivatives may get an even larger boost.
Wall Street firms including Goldman Sachs Group Inc. and Citigroup Inc. have warned investors that low volatility and interest rates that are holding in tight ranges have limited trading activity. Daniel Pinto, head of JPMorgan Chase & Co.’s corporate and investment bank, said last month that many clients bet at the start of the year that U.S. rates would rise faster than those in Europe, which didn’t pan out.
“There’s not that much movement in the rates business, so the overall environment for rates is quite bleak,” said Options Group Chief Executive Officer Michael Karp. “Couple that with banks having to reduce headcount and cut risk over the last two years in that business.”
The Options Group report included a survey of more than 3,000 financial services employees that showed one-fifth of people in rates-trading units had their pay cut in half last year. Commodities traders may see increases in compensation, led by a 13 percent bump in the U.S., after the survey showed that just a quarter of them said their 2013 pay met expectations, the least among any group.
Employees in equities divisions will probably see pay increases of 8 percent to 11 percent in Asia, the U.S. and Europe, led by an 18 percent rise among equity derivatives professionals in the U.S. and Europe, according to the report.
“It’s very tough to hire great traders and great salespeople in equity derivatives,” Karp said. “It’s a low headcount, high-profit business, so you have to retain talent.”
Options Group said average 2013 pay increases across Wall Street were higher than at the largest banks, as hedge funds awarded larger raises and smaller banks closed the pay gap with global firms.
“Their compensation will continue to converge over the next year or two,” Karp said.
Options Group said its predictions for this year were preliminary and may change based on second-half results.