Data from the International Swaps and Derivatives Association suggests credit derivatives volumes doubled in the first half of this year. Does this imply bonuses will double too? Unfortunately not.
For one thing, says Alex Tracey, managing director of the search firm Clifden Partners, "given the margin compression within the product, it will have been a lot more difficult to make money on those increased trades."
Tracy doesn't believe it's possible to extrapolate bonus figures from the ISDA volume. A derivatives analyst in a U.S. bank agrees. "The ISDA numbers aren't terribly informative," the analyst says. "They tend to increase exponentially simply due to the nature of the product and aren't really indicative of the performance of the business, except in the back office."
Nevertheless, the analyst believes strong demand for credit derivatives expertise continues to exert a favorable influence on pay. "There's enough of a bid out there that recruitment demand is an important driver of compensation," he says. "The real risk this year is that banks are over- paying to build their franchises."
Another derivatives recruiter, who declined to be named, says bonuses for credit derivatives professionals look promising. "There is a relative shortage of talent and people are well-bid. We're still seeing some moves and guarantees that are 30 percent higher than bonuses for 2005."