There can be little doubt about it: securitization is booming. How else to describe a sector, especially in the U.S., that has seen bulk hiring across at least four different banks in four months?
Brad Young, a director at the Options Group, a New York search firm, said Wall Street securitization hiring has been higher this year than for the past decade and a half: 'We are seeing two- to three-year bonuses for key team members. Two years ago you wouldn't have been able to get a one-year guarantee.'
Much of the hiring has been for junior bankers and structurers in the home equity sector of the asset-backed securities (ABS) market, says Young. In September, BNP Paribas hired a new head of analytics for its New York securitization team; Michael Donahue, head of global securitization at the French bank, says BNP will continue hiring aggressively for its ABS business. RBS Greenwich Capital hired thirteen people for a new ABS team in August. HSBC added six people to its New York team in May.
Credit Suisse First Boston (CSFB), Morgan Stanley, ABN Amro and Calyon are also understood to have been hiring in ABS.
Why all the activity? According to Dealogic, the data provider, the value of total U.S. securitizations launched in the first nine months of the year fell slightly compared to the same period last year.
However, figures for the total market are deceptive. Issuance of mortgage-backed securities (MBS) has slumped in 2004. But U.S. ABS issuance is up more than 50% vs. 2003. Re-mortgaging is behind the boost: 'Home equity issuance in the first half again surpassed all expectations', writes Moodys, the ratings agency.
Even the MBS market has had its share of hiring excitement. Last week Barclays Capital poached four mortgage-backed securitization specialists from Citigroup for its New York office. Another four came from Goldman Sachs, Prudential, UBS and J.P. Morgan Chase. Tom Hamilton, head of Barclay's mortgage-backed securities business, said there are more to come.
All this excitement is taking its toll on pay. Not only are key staff being offered three year deals worth as much as $3m a year, packages are up for junior staff too. 'Associates who were on $200,000 are being offered $500,000 plus,' says Young. This year's U.S. securitization bonuses will be up 'a lot', he forecasts.
Forecast for Europe
Europe's securitization market is feeling the heat too, but in a different way.
While the home equity sector is all the rage on the other side of the Atlantic, recruiters in the City of London said banks are building teams to deal with MBS and whole-business securitisation (WBS).
Thanks to a quirk in the UK's insolvency laws, whole-business securitisation is particularly developed in the UK market, where it has been used to raise money for everything from pubs to nursing homes and museums.
Keith De Souza, senior consultant at Mantaray Partners, a London recruiter, says mortgaged-backed and corporate securitisations are appealing because they offer substantially higher margins than the asset-backed securitisations of credit card debts and car loans which make up most of the European market.
De Souza says, 'Because profitability is falling on ABS deals, banks are looking at bulking up the high margin side of the business.'
Lee Thacker, a consultant at the Whitney Group in London, said banks typically earn fees of between 0.1% to 0.5% on standard ABS deals; for MBS and WBS deals, fees can be as high as 3%.
Barclays Capital, ABN Amro and CSFB all hired for European MBS or WBS in the third quarter. Barclays Capital poached four from Morgan Stanley and one from Merrill Lynch to focus on MBS coverage and whole-business securitization. ABN Amro hired three for its real estate and mortgage backed securities business. CSFB hired Arvind Bajaj from Morgan Stanley as head of European MBS distribution.
HSBC has also been boosting its securitization presence. In September it recruited five bankers for its European securitization team. They will report to Scott Dickens, the bank's new of head of securitization at the bank. Dickens joined from Bear Stearns in May to head growth of HSBC's securitization business in Europe.
With bonuses looming, recruiters say most London banks have now put securitization hiring on the back burner for this year. But they will be hiring again in a couple of months: 'At this time of year people are waiting to see what they get paid before deciding if it's desirable to move,' says De Souza.
Mantaray says total compensation for analysts working in European securitization should average 65,000 (€94,000) in 2004. It predicts 150,000 for associates, and 265,000 for VP's. De Sourza says the strongest performers will earn 30% more.
Interested in securitization as a career move? Check out this related article on what the industry is looking for.