October 20, 2011
Currency Traders Feel Pressure As Wall Street Sheds Jobs
Note to Wall Street currency traders: tread carefully if you value your job.
Banks hit by sluggish trading revenue are cutting staff in fixed income, currencies and commodities by about 10% globally, according to Options Group, a New York-based recruitment firm.
Currency traders were already in the budget cutters' cross hairs in September. A collapse in the value of emerging-market currencies caught many off guard.
As losses piled up, banks were quick to fire underperforming traders, several traders on the foreign-exchange desks at large banks said. In other cases, some successful, but highly paid, staffers have found themselves out of a job.
"Foreign exchange is getting hit more than its fair share," one trader said. "The leash some people had got shorter."
Traders spoke under condition of anonymity because they aren't authorized to talk to the media. Goldman Sachs Group Inc. was among the banks reporting a decline in third-quarter foreign-exchange trading revenue this week. Chief Financial Officer David Viniar said in a conference call the market was "difficult to navigate."
September's losses come at a tough time for traders in the currency market, where some $4 trillion changes hands every day. The rise of computerized trading is reducing the need for banks to maintain a large team. Banks that jumped into currency dealing when the financial crisis battered other businesses such as mortgages are now on the retreat.
In London, the largest currency trading hub, banks have hired 148 people on their foreign-exchange teams this year, compared with 272 in all of 2010, said Simon Head, who manages the fixed-income and currencies team at recruitment firm Correlate Search.
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"Make no mistake, this year is no 2010," Mr. Head said.
A foreign-exchange trader at Barclays Capital in New York was let go last month amid a dramatic sell-off in developing-world currencies that had many banks scrambling to prevent losses, traders with knowledge of the situation said. Barclays Capital is a unit of Barclays PLC.
These traders say the employee, who traded Latin American currency options, may have struggled to manage options-related risks in last month's turmoil.
A spokesman for Barclays, the world's second-biggest currencies dealer, declined to comment. A person close to the firm said the trader's departure was part of an ongoing culling. Several other foreign-exchange professionals have been let go by Barclays Capital this year, bankers say, including a foreign-exchange analyst this summer.
The Brazilian real and Mexican peso plummeted 15% and 10% against the dollar at one point as worries about the U.S. and European economies spread to developing-world countries.
Prices of options that traders buy to hedge their risks soared, in some cases making them unaffordable. As the market for some currency options seized up, traders had difficulty covering their risks.
"More than several emerging-market desks' volatility books got blown up," a top foreign-exchange banker at a major firm said. "Banks have taken big lumps in their derivatives business in the last few months."
Other factors, including new regulations against trading and a drop-off in client activity, are likely to spark layoffs among currency staffers even if revenues impress. Many bankers simply cost more these days, since Wall Street firms are paying higher base salaries to avoid doling out eye-popping bonuses. That makes them vulnerable to cutbacks when banks need to save.
Credit Suisse Group AG and Bank of America Corp. have been laying off investment-bank employees. A Credit Suisse spokesman said the firm continues "to be proactive about monitoring the size of our business."
In September, Bank of America laid off Peter Antico, its head of global Group of 10 currency trading. His departure wasn't tied to his performance, and was rather part of general cutbacks, people familiar with Antico's departure said.
A Bank of America spokesman confirmed Antico's departure but declined to comment further.
The bank's third-quarter revenue from fixed-income, currencies and commodities dropped some 90% from a year earlier. Bank of America said the decline was partly due to adverse market conditions, but it doesn't provide specific information on its currencies business, which some observers said outperformed.
One of the biggest European banks in the currency-dealing business has reduced the number of traders in a satellite office that handles currency options by more than 50%, according to a person familiar with the matter.
But the culling may just be starting.
"Unless revenues pick up, I would expect to see a reasonably aggressive cutting into the fat--and even muscle," a London-based banker said
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