Bankers opt for safety of a hiring industry

As a result, many young bankers who might once have been learning eagerly how to become an investment banker or research analyst are instead getting to grips with different skills, complete with different jargon.

Tranched portfolio default swaps, nth-to-default baskets and total-rate-of-return swaps are the order of the day. Old timers at banks who still have only a hazy idea of what these are had better find out, because they are providing a growing proportion of their firms' profits.

Leading banks in the field such as JP Morgan, Deutsche Bank and Goldman Sachs each now employ dozens of credit derivatives experts across structuring, trading and sales. They are the envy of staff in other sectors not only because their jobs look safe but because their bonuses held up well in 2002 compared to the year before.

Keith De Souza, a former Merrill Lynch credit strategist now working as a headhunter at Mantaray Partners, says hiring in credit derivatives is stronger than in other asset classes. It has slowed, however, since 2001 as the top tier banks now have most of the structuring people they need.

"But selective hiring will continue across trading, structuring, distribution and research this year as second tier and more niche houses look to establish a more visible presence or streamline their current business model," he says.

"A single-name default swap trading desk that traditionally has just two or three people is often on the lookout for another, especially now as credit default swaps are increasingly being used as a hedging tool by large institutional investors."

Most hiring would be at the vice-president level, that is, people with three or more years of solid experience. At director level and above, recruiting is more likely to be on a replacement basis.

Within credit derivatives, UK houses would probably hire the largest numbers of people across trading, structuring and distribution, De Souza says. "They remain focused on fixed income, committed to growth and want to increase their pan-European presence."

Other headhunters say that among smaller banks, Royal Bank of Canada and CIBC in particular have robust credit derivatives franchises.

Emerging market derivative products are regaining favour with investors, De Souza says. "We see a steady increase in demand for strong derivative structurers able to originate, develop and market innovative emerging market solutions."

Paul Czekalowski, a managing director and head of European credit structuring at Deutsche Bank, says: "Staff can get into credit derivative structuring from a variety of backgrounds."

He entered the field at JP Morgan in 1997, from a background in interest rate structuring.

Some colleagues he worked with at the time had specialised in asset swaps.

"Finding people with five years' credit structuring experience is hard, because there just are not many of them. But finding people with two years' experience is a lot easier for us." Deutsche expects to hire steadily in credit derivative structuring during 2003, he says.

This maturing of the job market can make it hard for staff from other fields to break into credit derivatives nowadays. The best hope for many, say headhunters, is to do it within their own bank.

One search consultant says. "Credit derivatives departments will often accept, say, a credit trader or collateralised debt obligations structurer from their own firm, while rejecting an applicant from outside who is just as good. The risk of bringing in someone who knows neither the sector, which can be very complex, nor the bank, can be too great."

Julian Harris, of the headhunter Search Partners, says people hoping to break into credit derivatives can draw comfort from the way teams in many banks are structured. The requisite skill-sets are varied, and can often be transferable from other areas of the fixed-income and credit markets.

Harris says: "Some of the best credit derivatives teams are not homogeneous. People with a strong credit background and others with a strong derivatives background often work together, pooling the best of their relevant talents and experience."

The growth in credit derivatives has also provided plenty of jobs for IT experts. Daniel Rosengarten, a software developer, joined Citigroup three months ago as a vice-president to build a credit derivatives trading system.

"What I do is not standardised," he says. "The software needs to cope with many products and track a multitude of data. Building a system for equities trading is a lot easier."

Rosengarten says broad experience is useful for such a job, in which he must understand the business needs of traders as well as their technical requirements.

His background includes a masters degree in financial engineering, a Chartered Financial Analyst qualification, an MBA and a stint as a fixed-income specialist on Wall Street after working as a senior software analyst at Sanford Bernstein.

Many early entrants into credit derivatives have made use of their rarity value to reach senior positions in other firms. Apart from Czekalowski, others who left JP Morgan include Georges Assi and Filippo Lanza, now at Lehman Brothers, and Olivier Staub at Barclays. Tim Frost has remained at JP Morgan where he is European head of credit trading.

Now that the sector has grown, and hiring has slowed down, career progress will be harder to achieve for most staff. But the picture is likely to remain brighter than in other areas.

"Is the market for talented structured credit professionals more buoyant than, for example, telecoms-media-technology investment banking?" asks headhunter Harris. "Without a doubt."