Increasing activity on commodities desk is pushing compensation for experienced traders, including signing bonuses worth millions of dollars. Even less-experienced staff are earning high bonuses as investment banks seek to expand their trading operations.
It seems the recent popularity of commodities products has caught some firms off-guard: According to the Financial Times, signing bonuses were "unheard of" in the sector two years ago, and commodities traders were "largely unwanted" during the 1990s and after the collapse of Enron, to the point where investment banks trained few new staffers in their commodity trading units.
Recently, however, soaring prices for all manner of commodities has pushed institutional money managers, hedge fund managers and investment strategists to reevaluate the role commodities play in their asset allocation models. It also means the managed futures industry is looking for talent, and banks are expanding their commodities desks.
Earlier this week, Citigroup said it planned to nearly double the size of its global commodities trading team and increase its range of products by the end of the year, reflecting increasing competition in the sector. John Casaudoumecq, the bank's global head of commodities, said Citigroup plans to increase the number of traders handling oil, metals and other commodities from 85 to 150 by the end of 2006. "We are in a long-term commodities cycle, which may last 15 to 20 years," the Financial News quoted him as saying. "Our goal is to take what we do in interest rates, foreign exchange and credit risk and apply it to commodities." In addition, JPMorgan, Merrill Lynch, UBS, BNP Paribas, Deutsche Bank and others have been expanding their commodity trading businesses.
The demand for traders is not only impacting the top, notes the FT: Less experienced traders are reaping six-figure signing bonuses and other guarantees, despite some concerns they may lack necessary experience. "There is more potential for a blow-up if you have someone who does not have experience to deal properly with the risk a bank is taking on," one analyst told the newspaper.