Credit derivatives set for bonus bonanza

Credit derivatives professionals received some of the biggest bonuses in investment banking for last year and they may be in for another bumper round this time.

Headhunters say bonuses on credit derivatives desks will on average be at least 20% higher than for 2002.

Charles Clouston, head of structured credit at I-Search, a recruitment firm, said structured credit marketers and traders' bonuses have risen at least 30%, with some likely to receive substantially more. He said: "For selected individuals, the sky's the limit."

Lee Thacker, head of fixed-income search at the Whitney Group, forecast bonuses would be up 20% for most credit derivatives sales staff and traders.

These higher packages are expected despite reduced spreads and falling margins on increasingly transparent simple, or flow, credit derivative products.

Thacker said rising volumes have helped maintain the payment pools, while a search by second-tier banks for better staff has ensured that simple product specialists remain in strong demand.

Headhunters said BNP Paribas, Bank of America, Commerzbank, Dresdner Kleinwort Wasserstein, Nomura, Bear Stearns and Barclays Capital are among those that have hired staff.

Thacker said: "Credit derivatives have become a franchise issue. You have to have credit derivatives flow trading now and if you haven't got it you have to pay for it." Despite deteriorating margins, he reckons flow traders and salespeople are able to command guarantees.

However, the best-paid credit derivatives players this year are expected to be exotic product specialists, particularly correlation traders who trade portfolios of credit derivative products. They can expect bonuses of 40% or more higher than last year, says Thacker.

Sean Springer, managing director of Napier Scott, a search firm, said people with three years' experience trading vanilla credit derivatives can expect a total package of $300,000 (e252,000) to $400,000. By comparison, he said someone with similar experience trading exotic structured products could expect a package of $700,000 to $800,000.

Total compensation for heads of exotic credit derivative trading desks could reach between $3m and $4m, according to one headhunter.

Banks will be motivated by the need to reward good people who are highly sought after elsewhere, particularly because the market in London, where there are around 150 traders, is small.

Paul Czekalowski's move from Deutsche Bank to UBS as co-head of global credit derivatives last month is cited by headhunters as evidence of strong demand for structured credit professionals.

Headhunters said the fact that he moved only weeks before the payments are made makes it likely that Czekalowski was handsomely compensated for the loss of his bonus at Deutsche.

Sources suggest he was offered a guaranteed bonus of more than $3m for two years. UBS declined to comment.

Recruiters expect hiring to remain strong next year, particularly when it comes to exotic product specialists.

Clouston said almost all banks have indicated they will be hiring in the first quarter of next year. He said structurers who could provide bespoke solutions for clients, and sales staff who sold the more complex generation of new products would be at the forefront of the recruitment drive.

Another headhunter said there was a huge difference between flow credit derivatives sales bankers and specialist marketers, who could create demand for bespoke synthetic products and were market rarities.