Wall Street traders, especially those in fixed income, have had a blowout year, with many desks at least doubling last year’s performance in the first half of the year.
But traders expecting a giant pay increase are likely to be disappointed, and bank execs are already managing expectations, according to several industry headhunters.
Banks will have to strike a balance, because the risk in severely undershooting trader expectations is that they could lose talent to rivals.
“It’s a huge recruiting concern from a retention perspective,” on FICC recruiter said. “We’re already seeing people move based on the fact that they don’t expect comp to be there at year end.”
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Traders have been earning record-breaking scores for Wall Street’s largest banks, which typically translates into substantial increases in compensation when bonus season rolls around.
But there’s nothing typical about 2020. Headhunters that work with bank executives and their traders say employees are getting burned out while working remotely, and firms may not be able to pay up enough come bonus season to hold onto top talent.
Facing a gloomy economic outlook across the country and bracing for billions in loan losses, bank executives are already tempering bonus expectations for their securities divisions — especially in fixed income, currencies, and commodities (FICC) — which have seen stellar performance and helped keep banks profitable.
“People within fixed-income sitting there thinking their heyday or glory day has arrived because they’re up huge and this is their year to get paid, they should manage their expectations, and not get their hopes too high,” Michael Nelson, a managing director with executive search firm Quest Group, told Business Insider. “Banks are going to be very frugal with this trading windfall.”
Amid the market chaos this spring, and the resulting rebound, the surging volatility and stability provided by the Fed has helped produce stellar trading results for the first half of the year.
Revenues at the top-12 banks have grown four-fold in US Treasuries and equity flow volatility, and more than doubled in foreign exchange, emerging markets, investment-grade, high-yield, and residential mortgage-backed securities, Amrit Shahani, the research director at Coalition, told Business Insider.
At JPMorgan Chase, for instance, trading in the second quarter accounted for $9.7 billion in revenue — an all-time firm record.
Leading the way was the fixed-income unit, where revenues doubled compared with last year. Equities revenues jumped 38%, thanks in large part to its equity-derivatives franchise, where the global flow derivatives team finished the first half of 2020 with more than $700 million in revenues, nearly three times as much as the roughly $250 million the group earned in all of 2019, Business Insider previously reported.
The rest of the big-5 US banks have produced blowout numbers as well, primarily in fixed-income trading, adding up to a grand total of $33.4 billion in trading revenues, the most since the first quarter of 2010, according to the Financial Times.
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Source:: Business Insider