Outlook improves for energy traders

With prices from base metals to hog futures spiralling upwards, prospects are improving for commodities staff. Energy trading, in which banks are large players, is sharing in the better outlook after suffering hard times following the collapse of Enron, the US energy group, in 2001.

Since banks such as Merrill Lynch, Lehman Brothers, Credit Suisse First Boston and JP Morgan slimmed operations or pulled out of sales and trading, the tide has turned. Banks are recruiting, with an eye on derivatives staff.

Trish Collins, chairman of Exchange Consulting Group, a commodities recruitment company, said: "A number of banks are expanding and there are more new entrants waiting on the sidelines. Demand is brisk across trading, marketing, structuring, broking, risk management and analysis."

Headhunters say Barclays Capital, Crédit Lyonnais, Deutsche Bank, Rothschild, ABN Amro, BNP Paribas and Macquarie Bank are among this year's net hirers in derivatives of oil, gas and electricity products.

In September, Rothschild said it was establishing a desk to trade in over-the-counter oil derivatives. BNP Paribas announced plans to establish a European power trading desk in March, while Barclays Capital has made appointments after saying it would enter the European power and gas trading market last year.

Paul Crispin, a recruitment consultant at Principal Search, said: "Banks see a lot of opportunity in the commodities market. Volatile prices have created potential for banks to manage clients' exposure to risk. They have also provided an opportunity to make money from trading."

The partial withdrawal from the market of US power merchants such as Aquila, Duke, Dynegy, El Paso and Hetco two years ago following the Enron collapse, has left banks in a strong position. UBS bought Enron's wholesale electricity and natural gas trading business in January 2002, though it laid off many of its 400 staff. Barclays Capital and Deutsche Bank also hired some of the energy group's former traders.

Collins said: "Banks are building teams because they see an opportunity that many didn't perceive existed in the past." Utilities and trading companies used to provide risk management to end users in the energy markets, said Collins. Now more banks are taking the opportunity to sell their own risk management skills.

At the same time, fund managers' appetite for commodity investment has grown. In September Martin Currie, the Edinburgh investment house, and First State, the Australian fund manager, launched UK resources funds to cash in on demand for commodities investments.

The return to commodities markets is particularly noticeable in the US. Merrill Lynch pulled out of energy trading in 2001 when it sold its global energy markets unit to Allegheny Energy, a US power plant operator. However, it relaunched its US energy trading operation in May and rehired Kuljinder Chase to act as a new head of energy trading based in New York.

Banks are not the only institutions with trading activities. The market includes oil majors and independent trading houses, such as Trafigura, Glencore and Vitol. While banks focus on trading commodity derivatives, trading houses and utilities more frequently trade the physical products.

Crispin said hiring had been strong across the board. "We are seeing interest from all our clients: investment banks, oil majors and trading houses. The market is definitely buoyant: there is demand for good people," he said.

Derivatives knowledge is at a premium and banks are recruiting from each other. However, they expect to place more emphasis on physicals in future. In the US, Bank of America and UBS want to get into the physical power trading market, challenging regulations that limit the amount of any one utility that banks are allowed to own to 5% of equity.

US banks are also campaigning for the repeal of regulation that limits their ability to settle derivatives contracts with the exchange of physical products. If successful, this should boost banks' presence in physical markets.

Colleen Quilty, head of commodities recruitment at Alexander Mann in London, said experience of the physical side of the business gives people greater product knowledge and a better flow of information. "It is surprising that banks do not actively seek the physical experience on which to build their derivatives expertise," she said.

If banks widen their recruitment nets, it should not be difficult to attract staff from companies. Crispin said bonuses at leading oil groups rarely exceeded 100% of salaries, while banks have been known to pay 500% or more.

Trading houses pay even more handsomely. Top traders can earn several million pounds a year according to Simon Hughes, a recruiter at Marshall Warburton.

It was hardly surprising, therefore, that last year David Mooney, head of commodity derivatives at Bank of America, joined Trafigura, the independent Swiss commodity trading house, as head of natural power and gas trading.

Since then, Mooney has recruited Ron Neal, a colleague at Bank of America, and aims to build Trafigura's derivatives and gas and power physicals trading desks. He said he had hired three or four staff in London and Milan and had "extensive hiring plans" for next year.