High yield sector view: Bonuses down for now

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Rumour has it that bonuses at investment banks will be buoyant this year, but there are bound to be exceptions. The high yield market could be one.

According to headhunters, high yield bankers are likely to be disappointed with their end-of-year offerings. Many are expecting a rise; most will receive bonuses either flat or down on last year's payouts.

Despite practitioners' optimism, the bleak outlook for high yield bonuses is not entirely surprising. Global revenues from high yield debt slumped 20% in the first nine months of 2005 according to information provider Dealogic; US high yield revenues slumped 30% during the same period. By comparison, 2004 was a record year.

For a market that's seen plenty of ups and downs in its thirty-year history, the latest down may well be just another undulation en-route to further expansion. High yield or so-called 'junk bonds' issued by companies with poor credit ratings, were flavour of the decade during the 1980s, only to go dramatically out of fashion in 1989. Last year saw a boom driven by low default rates, low interest rates and investors' pursuit of yield. This year's crash was precipitated by Standard & Poors' decision to downgrade debt at Ford and General Motors, flooding the market with billions of dollars of low-grade bonds.

The high yield market may have pancaked, but recruitment hasn't bottomed out. Last week Credit Suisse Asset Management appointed four specialist high yield researchers in the US. In Europe, Calyon, Société Générale and BNP Paribas added to European high yield teams this year, with most of the additions in the UK. "In high yield, everything happens in London," says Andrei Korolev, the new head of high yield trading at Calyon. "We have a bunch of bankers in Paris who help out in high yield, but London is where the specialists are."

UK and US

If London and New York are where most of the high yield jobs are, they're also where high yield bankers are best paid.

Londoners come out on top. Lee Thacker, a consultant at executive search firm Highland Partners in London, says a vice president with five years' experience in high yield sales can expect a total package of around 200,000. Senior directors can expect 300,000 to 500,000, and staff at top high yield players like Deutsche, CSFB, Citigroup and JP Morgan, can expect the most.

Thacker says most City of London high yield bankers are expecting bonuses 10% to 20% higher than last year, but 'most people with high expectations will be disappointed.' Next year, he says banks in London will look to make junior high yield hires after focusing on senior appointments this year; rumour has it that Barclays Capital will seek to re-penetrate the market.

A vice president working in high yield sales in New York can expect a total package of around $350,000, according to Michael Karp, co-founder and managing director of international search firm the Options Group. He says bonuses are likely to be down 10%: "Things were bad at the start of the year, people will be paid down unless markets pick up in the next few months."

However, Karp is optimistic about 2006 high yield hiring: "Next year, high yield will be the place to watch. We're already seeing quite a lot of mandates."

Italy, France, Germany

With Europe's high yield salespeople and traders grouped in London, high yield specialists are a rare sight in continental Europe's financial centres.

"The Italian market for high yield traders is non-existent," says Alberto Gavazzi, a financial services consultant at search firm Russell Reynolds in Milan. "There are some good high yield sales people here," he adds, "But there are hardly ever jobs."

Tracy Turton, a consultant at Horton International in Milan, confirms the rarity of Italian high yield roles. This may be just as well: she says a vice president (VP)-level salesman with five years' experience at an Italian bank is paid €140,000 ($168,000/95,000).

German high yield specialists are better off. Jürgen Merkel at MB Consulting in Frankfurt, says VP-level high yield professionals in Germany can expect to earn €250,000 to €750,000. Although Deutsche Bank tops the global high yield league table, Merkel says most German-focused high yield specialists are London-based.

French high yield salespeople can earn up to €200,000 at VP level, according to Parisian recruiters. Guy de Bravoir, a consultant at recruitment firm Robert Walters, says banks like Natexis have small teams of high yield sales and trading specialists in the City. He says most jobs currently are for proprietary traders working with high yield bonds, and for specialist high yield researchers at asset management companies.

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