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Bonus Checks to Shrink Sharply for 2007
Asset Backed Alert, Harrison Scott Publications Inc. (October 19, 2007)
A bleak picture is developing for this year's bonus season.
As vast swaths of their colleagues are being laid off - and struggle to line up new positions - those left at the controls of Wall Street's structured-product underwriting and distribution desks are likely to receive yearend checks that are 10-30% smaller than those they took home a year earlier.
Sales specialists charged with marketing asset-backed securities, mortgage bonds and CDOs are expected to fare the worst, reflecting a reduction in the supply of such deals and a retreat by investors - both results of the recent credit-market collapse.
For example, managing directors responsible for sales of asset-backed securities are likely to pocket 2007 bonuses of $700,000 to $800,000, according to a report that New York recruiting shop Options Group plans to release next month. While compensation for sales professionals varies greatly, those individuals typically received bonuses of $900,000 to $1.5 million in 2006.
Options Group's report, based on data collected over the last six months, also indicates that CDO sales heads will see their typical bonuses dip to about $1.5 million, from a 2006 level of $2 million to $2.5 million. Those peddling mortgage-backed offerings are likely to get about $1 million, down from $1.5 million or so in 2006.
Moving down the food chain, Options Group's estimates of bonuses for third-year associates selling asset- and mortgage-backed bonds are coming in at $40,000 to $50,000. Last year, $75,000 was the norm. Bonuses for sales associates in the CDO sector are projected at $175,000 to $200,000, down from $250,000.
There's one bright spot for those lower-level staffers, however: Their base salaries probably won't take hits, hovering at an average of $80,000 in the asset- and mortgage-backed areas and $100,000 on the CDO side.
Some pain is also in store for structuring professionals and traders, although it might not be as severe. Managing directors in that crowd will probably receive bonuses of $1.1 million to $1.2 million this year, down from $1.3 million to $1.7 million last year, according to Options Group.
Because bonuses represent huge portions of the annual compensation awarded to securitization professionals, they are on market players' minds heading into the end of each year - and are frequently followed by a spurt of job-hopping. In recent years, those rewards had been swelling, driven by seemingly unstoppable growth in the markets for all types of structured products.
That all changed this year, when the subprime-mortgage market's collapse mushroomed into a worldwide credit crunch. "The problem is, most of these guys only had a half of year's worth of work," said Chadrin Dean, a partner at executive-search firm Integrated Management.
Last month, for instance, the worldwide volume of new term structured-finance issues totaled a mere $73 billion, down from $256 billion in September 2006, according to Asset-Backed Alert's ABS Database.
That said, smaller bonuses are something many will be willing to live with if it means they get to keep their jobs. Indeed, a number of investment banks have already cut staff or are planning to do so in response to the market swoon, including Credit Suisse, J.P. Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley and UBS.
Substantial bloodletting has also taken place among issuers, especially those involved in mortgage-related asset classes. And headhunters predict that thousands more could be out of work before things start turning around.
In the face of such a tough employment environment, recruiters say they're being bombarded by calls from executives who are desperate for new jobs. But they often have nowhere to place them, with the exception of a few hedge fund managers and other investment shops that have been hiring.
And even then, "Everybody wants to go to the buyside . . . but there is only so much these guys can absorb," Dean said.
A byproduct of the buyer's market for securitization talent, meanwhile, has been that companies with openings have shifted their hiring practices to focus on the unemployed. That's because those individuals, who traditionally have been at a disadvantage when job hunting, aren't bound by existing contracts that can be costly to buy out.
Among those zeroing in on the unemployed is broker/dealer Further Lane Securities. The New York shop said last week that it intends to draw on the growing pool of out-of-work salesmen and traders to beef up its own ranks.