Banks and funds pay top dollar to secure commodity talent

By Kevin Morrison
Financial Times, London
Monday January 1, 2007

http://biz.yahoo.com/ft/070101/fto010120071424249461.html?.v=1

LONDON -- London Commodity traders, once the overlooked Cinderellas of the financial trading world, are being offered multi-million-dollar lock-in payments reminiscent of the early dotcom boom, when banks were also desperate to expand into new areas by offering guaranteed payments to key staff.

The value of such traders -- and energy traders in particular -- has risen sharply over the past 18 months, amid the continuing commodity price boom that has prompted hedge funds and top-tier banks to expand their commodity trading businesses.

Such new entrants are competing with the established bulge bracket banks in commodities such as Goldman Sachs, Morgan Stanley, and Barclays Capital.

However, these banks have tied many of their senior traders into lucrative share deals, making it often impossible for them to join the new entrants to the commodities markets.

Banks appear willing to pay not only significantly higher base salaries to commodities traders, but also guaranteed bonuses to attract and retain such staff.

Guaranteed payments represent a salary and bonus package that will be paid to a trader regardless of the subsequent trading performance at the bank.

Among the biggest such recent guaranteed payments was one made by Deutsche Bank, who hired David Silbert as their head of commodities from Merrill Lynch, where he had headed up the bank's European commodity business. People familiar with the situation said Mr Silbert was on a three-year guaranteed payment worth £10m-£15m.

Deutsche Bank would confirm Mr Silbert's appointment but would not comment on his remuneration package.

Such guaranteed payments are fixed costs that could come back to haunt the banks in the event of a downturn, when revenues decline. Equally, however, the fixed nature of such deals will repay the banks for as long as the commodities boom continues.

Given such lucrative lock-in payments, aggressive new entrants to the commodities markets are increasingly being driven to look elsewhere to find top traders. In the energy industry, this has meant going directly to the big oil groups such as BP, Royal Dutch Shell, Total, and ChevronTexaco.

Industry insiders estimate that at least 30 traders -- including David Ferner, Christophe Balleaux, and Chad South -- have left BP in the past 18 months to go to either banks, private oil traders, or hedge funds.

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