One of the things that makes investment banking so exciting (if you’re benefiting from it) and frustrating (if you aren’t) is the fact that sometimes “hot” sectors get so hot that there’s a full-on labour shortage and the employers have to pay up for anyone with even a little bit of experience. Right now, that’s the situation for energy traders. The last year saw an almost perfect storm of favourable conditions; a huge squeeze on carbon permits, clear trends in natural gas and electricity pricing and lots of “good volatility” pushing revenues up. It was so easy to make money that profits were apparently made by luck rather than skill, but that hardly matters when you have multiple large players all wanting to staff up.
And the classic structure of a hot sector pay bonanza will be familiar to anyone who remembers TMT in the late 1990s, or structured finance in 2006, or China in the A-Shares boom. The energy sector is slightly unusual, though, because as well as the big banks and the hedge funds, there is also active involvement from specialist trading houses like Trafigura and Gunvor, and from the trading arms of power utilities themselves (the utilities are often a little bit sensitive talking about this, but Electricite de France made over $700m of trading profit last year, for example). The oil trading companies are feeling the need to diversify into other fields like gas and power and the hedge funds see energy as a source of uncorrelated profit. All of which means that compensation for 2018 was up 20%, with the prospect of more to come. Bloomberg says the top energy traders should be looking at $2.5 to $3m, with seven figure packages being given to people who would never have expected them a few years ago.
Interestingly, analysts are, if anything, in even more demand than traders. The data revolution has been particularly marked in energy markets, with sunshine and wind driving short term electricity supply peaks and global shipments of liquefied natural gas providing opportunities for arbitrage trades between markets that had previously been separated by their pipelines. And the supply is very limited; it’s not possible to raid an industrial company for a research team in the way that you sometimes can for a junior trader. Quants and programmers with even basic knowledge of power markets (or with a background in weather forecasting) are in hot demand too.
It won’t last, of course, these things never do. Not so long ago, in the immediate aftermath of the collapse of Enron, energy trading was an area that banks were eager to announce they were getting out of. Even more recently, Deutsche and Barclays shut down unprofitable energy franchises. At some point in the next couple of years there will be a market dislocation, big losses and some of the banks and hedge funds will quietly stop hiring. Or the labour market will come back into rough balance and only the proven revenue generators will hang onto their incomes. But for the time being, energy guys, enjoy your day in the sun (or your day out of the sun, if you’re short solar).
A somewhat less glamorous area (at the moment) is custody banking, but if you were doing it at BNY Mellon, you could at least take advantage of the generous flexible working benefits and avoid the commute a few days a week. No more. The UK employees at least have been instructed that in order to “increase collaboration, enable faster decision making, and better serve clients”, they’re going to be expected in the office, full time hours, in all circumstances except illness or family emergency.
In many ways, this is just as much of an indication of the state of the labour market as the mega pay packages for energy traders. This was a very popular benefit – even people who gave BNYM low marks overall on Glassdoor listed it as a positive. It was also a family-friendly policy in an industry that knows it has a problem with gender representation. So why kill it? Basically, because they can. It’s the name of the game in the banking business cycle – good times mean relaxed dress codes and massages, but in bad times it’s back to buttoned up collars and constant grinding presenteeism.
A rare piece of good news for a banker in court – the charges against Robert Bogucki of Barclays’ FX desk have been dismissed by a judge who regarded them as too weak to show to a jury, even though the prosecutors had emails talking about “loose lipped market mongers” and “spank[ing] the market”. The case related to alleged front-running of $8bn of USDGBP options being bought by Hewlett-Packard when they were taking over Autonomy plc, but the judge thought that no reasonable case could be made that a client (as opposed to counterparty) relationship existed. (Reuters)
Kate Richdale – Goldman Sachs’ chair of investment banking in Asia – has left to join KKR, with a role in government relations, fundraising and dealmaking. She had joined GS after the 1MDB scandal, but the departure is likely to raise questions about franchise damage. (FT)
And Lucy Baldwin, the BoA high flyer who left last week, will be showing up at Credit Suisse in a strategy role in their equities business. (Business Insider)
Some hedge funds in London will be getting onsite inspections of their money laundering controls at the end of the month, after having received letters last week asking for a list of their “highest risk” clients (Financial News)
More fruity quotes from the Barclays/Qatar trial; in discussions about the legality of the transactions, Roger Jenkins used some choice language and said “I’m not going to take a hit to save [some senior executives’] job” (Bloomberg)
JP Morgan analysts have searched through 25,000 earnings call transcripts to get a sense of corporate sentiment (Bloomberg)
And people tend to overestimate their partners’ intelligence even more than they overestimate their own (BPS Research Digest)
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