An ongoing boom in demand for oil, gold and grain is fueling profits for commodity trading desks even as the sub-prime mess has soured fixed-income trading, once a meal ticket at most banks.
As a result, says the Financial Times, "Banks are pulling commodities traders out of retirement and doubling their salary guarantees." Options Group, a New York-based search firm, estimates that 2007 bonuses for commodity salespersons and traders climbed 15 - 20 percent from 2006. The firm also predicts that banks will add 350 new commodity traders in the first half of 2008.
A record 550 commodity traders were hired in 2007, the FT says. Banks accounted for about 365 of those new slots. "Some banks are offering traders incentive payments of up to 17 percent of their own profit and loss to entice them or retain them onboard," the newspaper says.
The best-known gauge of commodity prices, the S&P GSCI (formerly the Goldman Sachs Commodity Index), soared 29 percent through Dec. 21 of 2007.
The FT pegs agriculture, emissions, shipping, forestry and physical trading as areas of opportunity as commodity desks reach beyond their traditional focus on the energy complex and precious metals futures. As new markets develop, banks are being forced to take on "people with a less than obvious skill-set, especially in emerging markets," Options Group's Damian Goodburn told the newspaper.
Asia-based traders in commodity hubs like Singapore are seeing the largest pay hikes, averaging 25 to 30 percent higher than in 2006. Meanwhile, salary growth for U.S. and London positions is restrained by the banks' credit-related losses - a potential recipe for defections.