Bloomberg News

Bonus Cuts as Jobs Decline for Oil-to-Metal Traders: Commodities

December 13, 2012

Oil-to-Metals Bank Staff Retreating for Second Year

UBS, Switzerland’s biggest bank, plans to stop trading oil, base metals and agriculture, though it will still handle precious metals and index-investor products. Photographer: Gianluca Colla/Bloomberg

Investment banks are cutting commodity staff for a second year and pay will probably drop for a third time as revenue declines, bonuses shrink and new regulations limit how much money traders can risk.

Employees in commodity trading, sales and research at 10 top banks from Barclays Plc to UBS AG (UBSN) declined to 2,386 by September, from 2,612 at the end of 2011 and 2,777 a year before that, according to Coalition, a London-based analytics company. Average compensation will retreat everywhere except Asia, said Tyler Jackson, the Singapore-based executive director of Options Group, which has recruited more than 10,000 financial-services workers over two decades.

Financial firms announced more than 300,000 job cuts since the start of 2011, according to data compiled by Bloomberg. Almost 20 percent of Wall Street banks’ employees are unlikely to get year-end bonuses, Options Group estimated last month. Commodity revenue at the banks tracked by Coalition dropped 19 percent to a combined $5.2 billion in the first nine months amid the smallest price swings since at least 2002.

“The super returns are gone for a while, maybe forever,” said Oral Dawe, the former chief executive officer of the Asia- Pacific commodity business at JPMorgan Chase & Co. who runs his own private equity and investment advisory businesses in Singapore. “But don’t count banks out. They will never get out of commodities unless forced by regulation because the asset class is now an integral part of global financial management,” said Dawe, who spent a decade at Goldman (GS:US) Sachs Group Inc.

Floor Trading

UBS, Switzerland’s biggest bank, plans to stop trading oil, base metals and agriculture, though it will still handle precious metals and index-investor products, a person with direct knowledge of the decision said Oct. 31. The person asked not to be identified because the details were private.

Barclays, the second-largest U.K. lender by assets, stopped floor trading on the London Metal Exchange, the world’s biggest metals bourse, last month. The bank will continue to handle contracts electronically and by phone. The company also expanded into precious-metals storage, opening one of Europe’s largest vaults near London.

Deutsche Bank AG, Germany’s largest lender, is cutting power and gas trading jobs in the U.S., and David Silbert, the global head of commodities, is leaving, a person briefed on the matter said Dec. 11. The changes don’t affect the rest of the Frankfurt-based bank’s raw-materials business, which includes metals, coal and steel, the person said.

Commodity Business

The 9 percent decline this year in commodity staff compares with a 7 percent drop in the fixed income, currencies and commodities group, said Coalition. The firm tracks banks from Goldman and Morgan Stanley to Credit Suisse Group AG and Royal Bank of Scotland Group Plc. Bank officials declined to comment. Average pay will fall less than 10 percent, according to Options Group data that include base salary, cash and non-cash bonuses.

Employment and pay are declining after the Standard & Poor’s GSCI gauge of 24 commodities fell 1.8 percent since the end of December, the worst year since 2008. The MSCI All-Country World index of stocks rose 12 percent, and a Bank of America Corp. index shows Treasuries returned 2.3 percent.

Traders are making less money as price swings diminish with the 100-day measure of volatility in the S&P GSCI declining to 14.1 in May, the lowest in at least a decade, data compiled by Bloomberg show. Goldman’s commodities business was hurt by low volatility and volumes in the third quarter, Harvey M. Schwartz, who will become chief financial officer early next year, said on a call with analysts on Oct. 16.

Gold, Soybeans

The super-cycle that drove an almost fourfold gain in commodity prices since the end of 2001 is over as China’s growth slows and supply expands, Edward Morse, Citigroup’s head of commodities research, wrote in a report Nov. 19. Jeffrey Currie, his counterpart at Goldman, predicts a 7 percent gain in raw materials over the next 12 months and Hussein Allidina at Morgan Stanley sees more increases in gold, silver and corn.

Raw-material prices almost doubled from the end of 2008 through June 2011 as the Fed bought $2.3 trillion of debt. Global growth will accelerate to 3.6 percent in 2013, from 3.3 percent in 2012, the International Monetary Fund predicts.

Commodity assets under management rose to $429 billion in October from $395 billion at the start of the year, according to Barclays, which tracks index-linked funds, exchange-traded products and medium-term notes. Contracts outstanding across the members of the S&P GSCI expanded about 12 percent this year, data compiled by Bloomberg show.

Coal, Copper

The U.S. Dodd-Frank Act, which seeks to boost transparency after the global financial crisis, is imposing stricter limits on bank capital, proprietary trading and rules for swap dealers. New standards from the Basel Committee on Banking Supervision, known as Basel III, would more than triple the core capital lenders must hold to absorb losses.

While banks’ commodity business is slowing, they are still expanding in Asia as they boost sales to China, the biggest consumer of everything from coal to cotton and copper. Traders in the region will probably get a pay increase this year as companies seek to keep key staff, said Options Group’s Jackson.

Standard Chartered Plc expanded its commodity team by 25 percent this year, taking staff in trading and sales to about 100, said Singapore-based Arun Murthy, the head of the global commodity unit. The bank, which got 60 percent of its revenue from Asia Pacific in 2011, may add as many as 20 people in the next six months in places including Shanghai and Dubai.

Citigroup, Mercuria

Citigroup is expanding in commodities by hiring Jose Cogolludo in a newly created position of global head of corporate sales for commodities, it said Nov. 14. Ron Ruffini was hired as head of sales in Latin America and head of mid- and downstream oil sales for the Americas, and Fasil Nasim will join the bank as head of corporate energy sales for Europe, the Middle East and Africa, it said.

Banks are also losing staff to the lure of more cash compensation from trading companies. Mercuria Energy Group Ltd. added people in Beijing, Shanghai and Singapore this year as the Geneva-based company expanded into metals and agriculture. Closely held Mercuria hired Roger Jones from Barclays as global head of non-oil trading and set up an iron ore, steel and coal trading team for Asia headed by Marcus Lyu from Noble Resources Ltd. The firm also named Andrew Perkins from Morgan Stanley as its global head of agriculture, based in Singapore.

Trading Firms

Trafigura Group, the third-largest independent oil trader, moved 30 people to Singapore in the past year to trade metals and bulk commodities, it said in April. Chief Financial Officer Pierre Lorinet relocated from Geneva in September. More than 10,000 jobs in Singapore were linked to offshore trade in commodities and energy in 2010, 40 percent more than 2006, government data show.

“Some banks will extend deferral and vesting periods from two to three years out to five years,” giving employees an incentive to leave, said Options’s Jackson. “This is one of the reasons why professionals at banks are more interested in switching to a physical trading firm or hedge funds.”

To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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