Sector snapshot: Covered bonds
What's happening, who's hiring, and how much are they paying in the world of covered bonds?
What are they?
Bonds secured against mortgages or loans to the public sector. Unlike other forms of asset-backed securities, the mortgages or loans that back the bonds stay on the issuer's balance sheet, making them liable to make up the difference if there's a shortfall.
What's the temperature?
Tepid, but getting warmer after Gordon Brown announced plans to give covered bonds preferential treatment on issuers' balance sheets, thereby reducing the amount of capital that needs to be held as security. Similar arrangements are already in place in Germany (the birthplace of the covered bond industry), and elsewhere in continental Europe, where the market is valued at around 1 trillion.
Who's hiring?
Headhunters say Merrill Lynch is busily investing in its covered bond platform, as, they say, is Goldman Sachs. "It's such a big market that every bank wants to do covered bonds to get the league table credits," says Lee Thacker, Partner at headhunter Heidrick & Struggles. Market leaders in Europe are Deutsche Bank, ABN AMRO, Barclays Capital and BNP Paribas, according to Bloomberg.
Who are they hiring?
As with any area of the fixed income business, covered bond operations are an amalgam of originators, salespeople and traders. Thacker says recruits typically have a background in financial institutions, asset backed securitisation, or sovereign and debt.
Amanda Rajkumar, head of the markets practice at search firm The Rose Partnership, says most recruits will come from a DCM bond orgination background, often selling a combination of bonds and some covered bonds.
What with Germany dominating the European covered bond market, it also seems many recruits are German...
What are they paying?
Covered bonds are more about volumes than margins, so pay isn't as huge as it might be for more structured products. Thacker says senior originators can earn 500k to 750k, established traders should be in line for 350k to 400k. Rajkumar agrees - a vice president-level originator can expect around 500k, she says.
What future?
Bright, according to Armin Peter, head of the covered bond syndicate desk at UBS: "Covered bonds are already one of the fastest-growing products on the market. The UK government's legislative changes will further support their development in terms of quality and acceptance by a broader range of investors."
