02/01/2013

Issuance Boom Ignites Employment Prospects

The employment outlook has suddenly become a lot brighter for securitization professionals hoping to catch on with Wall Street banks.

With issuance of asset-backed bonds and collateralized loan obligations at a post-credit-crisis high, and mortgage-bond production finally starting to show signs of life, a growing number of investment-banking institutions are filling seats that have remained empty since the market crash.

Deutsche Bank and J.P. Morgan, for example, are on the lookout for fresh talent. And Credit Suisse and RBC Capital are planning to follow up on recent additions by bringing in even more new blood. Adding to the sense of optimism is the fact that banks including Citigroup, Deutsche and RBC rewarded their securitization professionals with larger bonuses at yearend 2012 than they handed out a year earlier.

To be sure, overall compensation is still well below pre-crisis levels and industry-wide headcount remains at a fraction of where it stood during the market’s heyday. Nor are there plans for widespread rebuilding projects at major banks. But after years of big bonus cuts, heavy staff reductions and tepid issuance volume, the additions have job seekers feeling better than they have in some time.

“It’s amazing what a 40% increase in new issuance volume can do to people’s attitudes,” one source said, referring to the fact that sales of asset-backed bonds in the U.S. jumped to $219 billion in 2012 from $157.1 billion in 2011.

Executive recruiters describe something of a turning point in the hiring environment, in which underwriters that have gotten by with bare-bones staffing levels are taking a serious look at last year’s market growth and are coming to the conclusion that they will need deeper benches to handle that business. The turnaround appears especially prominent for origination and structuring specialists, who faced bleak employment prospects in recent years even as traders, salesmen and quantitative specialists more often were able to find work.

That’s partly because as the market grows, banks need to develop more innovative deal structures. “The idea of doing more with less is becoming increasingly more difficult. The market is growing too fast. We haven’t seen this kind of interest in securitization bankers in at least six years. But more and more firms are digging up old contacts on that side,” one recruiter said.

The CLO market offers an example of the trend. As deal volume soared to $55.7 billion in 2012 from $12.9 billion in 2011, there was a jump in the number of searches for mid-level bankers who could assemble deals with structural tweaks demanded by issuers and investors alike. “There is an overall lack of talent at many of these banks. Banks are facing a shortage of vice presidents and directors . . . guys that can run offerings,” another recruiter said.

Credit Suisse, for example, just hired a CLO banker (see The Grapevine on Page 1). So did RBS. RBC appears to be in the hunt as well, as it continues an aggressive buildup of its securitization capabilities.

CLO specialists also are faring particularly well when it comes to compensation, with average pay increases of about 10% expected for this year. That means vice presidents focused on origination and structuring of the deals can anticipate combined salaries and bonuses of $400,000 to $600,000 this year, while directors can look forward to packages of $500,000 to $1 million and managing directors will get as much as $2 million. CLO salesmen and traders will take home more as well, with top traders at major dealers earning about $500,000.

For asset-backed bond bankers, a 5% pay hike appears to be in store. That means vice presidents and directors will earn an average of $300,000, while managing directors haul in $500,000 to $700,000.

Mortgage-securitization specialists face more uncertainty. The overall sentiment is that new-deal production, currently at a trickle, will pick up this year amid increasing certainty about how the market will be affected by the Dodd-Frank Act and other new regulations. That will mean personnel that banks including Credit Suisse and Wells Fargo added in anticipation of a market comeback will have more work to do — and could be joined by additional staff. If nothing else, they could see their paychecks grow along with the market.

There also is still money to be made arranging secondary-market trades of mortgage bonds at regional broker-deals. In that eat-what-you-kill environment, MBS-sales specialists were rewarded handsomely last year as deal volume surged and prices rose. They appear well positioned to keep benefiting from continued market gains in 2013.

Senior sales professionals on broker-dealers’ mortgage-bond desks typically receive commissions equal to 40% of the brokerage-fee revenues they generate. In 2012, that meant total pay packages of $800,000 were commonplace for well-connected players.

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