Chop for prop traders?

With banks' appetite for risk fading faster than England's Six Nations prospects, the outlook for the average proprietary trader isn't what it was.

Charles Ferguson, managing director of Ferguson Solicitors - a firm that specialises in trader employment issues - says redundant prop traders are coming through the doors thick and fast.

Even worse, it seems banks are doing their best to wriggle out of guaranteed bonuses and the like by blaming their former trading supremos (rather than unforeseen events) for losing all that money.

"Investment banks are trying to impugn gross misconduct in circumstances where traders were caught out by the market," says Ferguson. "This means they're losing out on significant amounts of deferred stock, guaranteed bonuses, all kind of benefits."

Job prospects for prop traders down on their luck don't look great. Earlier this week, the Financial Times reported that various US hedge funds have begun chopping trading talent. The likes of UBS and Merrill Lynch have made overt commitments to cut back on prop trading activities and according to the FT, UBS plans to eliminate additional prop trading staff in the months to come.

If this isn't bad enough, most banks are likely to be a lot more risk averse, making prop trading a less lucrative game than it was. Bear Stearns, for example, made losses on 62 days last year, up from just 13 in 2006. Lehman was up from five loss-making days in 2006, to 33 in 2007.

Nor is Goldman likely to pick up prop trading rejects from its rivals. Headhunters say it's trimming its own structured credit trading desks and has more than enough talent to reassign internally.

Saved by a hedge fund?

Russell Clarke, director of headhunter Mantis Partners, says it's not as bleak as all that, with some banks shifting structured credit traders working on client accounts across to prop trading (although you'd need to be in work for this to be a viable option).

David Durham, managing director of hedge fund headhunters Durham Consultants, says hedge funds are also after prop talent still, with some hiring "as we speak."

Whether hedge funds will be willing and able to hoover up all the prop traders coming out of banks is, of course, another matter.