Securitization Sector View: U.S., U.K. Hire and Pay Over Europe
2005 is proving a good year for investment banks, but it's proving an even better year for investment banks' securitization specialists. Business is up, banks are hiring, and recruiters say bonuses are likely to be higher than ever.
In the first nine months of 2005, issuance of securitized debt rose to record levels, according to Dealogic, the information provider. Although traditional securitizations backed by car loans and credit card payments faltered, growth was more than compensated by mortgaged backed securitizations, which rose 23% to $940bn, fuelled by the steaming global housing market.
But the hottest segment of the securitization sector is commercial mortgage-backed securitizations (CMBS), backed by payments on commercial mortgages. While the traditional asset-backed sector (ABS) is mature in Europe and the U.S, the CMBS market is a relative spring chicken, particularly in new markets like Germany. Little surprise therefore that it's a growth area for the likes of HSBC and Barclays Capital.
U.K. and U.S: Hiring Across Asset Classes
As in most areas of financial services however, it's the U.K. and the U.S. where pay for securitization professionals is at its most awe-inspiring.
Clare Harris, a director at recruitment firm Alexander Mann Financial Markets in London, says VPs in London-based securitization teams who focus on CMBS can expect to earn as much as $522,000 in total. Peter Arian, managing director of Analytic Recruiting in New York, says U.S. VPs can expect anything from $248,000 to $645,000.
Size is the deciding factor. The U.K. generated nearly half all residential MBS issued in the first half of 2005, and accounts for over half the collateral on outstanding European CMBS. European CMBS issuance, which hit $24.6bn last year, continues to lag the U.S, however, where bankers are expecting issues of $25bn in August alone.
Recruiters in both countries say hiring is strong, particularly for more complex collateralized debt obligations (CDOs), which allow banks to distribute tranches of securitizations according to risk.
"We're seeing continued interest across all asset classes, but particularly for credit- related areas like CDOs and new products like collateralized fund obligations" says Arian. "People are venturing up the credit curve a little."
"Banks are looking at more esoteric asset classes and CMBS products," says Harris. "There has been a growing trend to establish separate real estate groups, within which CMBS teams are being built quite aggressively."
Barclays Capital, Deutsche Bank, and CSFB have all boosted London securitization teams this year. HSBC announced plans to launch a European CMBS conduit in September. BNP Paribas and Barclays Capital have both made high profile hires in the U.S.
Arian says U.S. securitization specialists should be paid well compared with last year. In London, Harris predicts static pay in the mature ABS sector, but says bonuses should rise 20% in the hotter CMBS arena.
Germany: Keen Interest
Recruiters report keen interest in staff to work the growing German market.
"It's a very active area," says Oezcan Acikel, a securitization specialist at Frankfurt search firm Smith & Jessen, "Most banks are hiring. It's not exactly a boom, but everyone seems to be looking to add one or two in extra headcount."
Germany's market is being fuelled by changes to the country's regulatory framework, allowing overseas investors to refinance the non-performing loan portfolios of its banks via mortgaged backed securitizations. BNP Paribas, Barclays Capital are among those recruiting.
Pay is marginally higher than Italy. Acikel says a Frankfurt-based junior VP working with real estate-backed securitizations can expect to earn $359,000 to $600,000 in total compensation, of which $120,000 should be a bonus.
France: London Calling
French securitization specialists are more likely to find themselves based in London than Paris. French banks like Société Générale, BNP Paribas, and Calyon play a key role in the market, but recruiters say they typically split teams 50-50 between London and Paris.
Jean Turcat, a recruiter at Robert Walters in Paris, says this is changing as banks move a growing number of originators and structurers in France to deal with the expanding French market. According to Standard & Poors, for example, asset backed securities issuance in France more than tripled in the first half of 2005 vs. the first half of 2004.
Denis Marcadet, managing director of Parisian search firm Vendômes Associés, says VP-level securitization specialists in the French market can expect to earn up to $264,000, based on a salary of $96,000 to $144,000 and a 120% bonus.
Italy: Rising Star
Italy's securitization market is a comparatively youthful beast. While U.S. organizations have been securitizing their revenue streams for the past two decades, Italian securitizations date back only to 1999.
However, Italians are making up for lost time. Ratings agency Standard & Poors says Italy dominated the European asset-backed securitization market in the first half of 2005, accounting for $5.6bn of deals, 38.4% of the European total.
Significant deals are in the pipeline: Gestore della Rete Trasmissione Nazionale, the Italian grid operator, is expected to securitize $1.86n to $3.6bn of client debts before the end of the year. Meanwhile, the Italian government is expected to lend momentum to the country's mortgaged backed securitization market, with significant sell-offs of state property expected in the next few years.
Recruiters say hiring in Italy's securitization market is limited, with most international banks basing Italian teams in London. Italian banks are late to the party: Unicredito launched its first residential mortgage backed securitization only in April 2005, for example.
Nevertheless, Tracy Turton, a partner at search firm Horton International in Milan, says Italy's banks pay their securitization specialists quite handsomely: a senior Milanese vice president (VP) working on securitizations can expect a base salary of $144,000 to €158,000, plus a 120% bonus; a junior vice president should hold out for €80,000 to €100,000 in base pay, plus up to 100% bonus.