LONDON • Banks are taking a hatchet to their bond-trading businesses, and the biggest casualties are proving to be the people with the most experience.
About 70 per cent of credit traders cut in London last year at the 12 largest investment banks had worked in the financial industry for more than 10 years, according to data compiled by headhunters Michelangelo Search. That is increasingly leaving trading desks to be manned by more junior colleagues.
Experienced, better-compensated staff are falling victim to banks' efforts to reduce costs, as they try to generate profit within constraints imposed by regulators and central banks since the global financial crisis. There is more to come, as banks from Bank of America to Goldman Sachs Group consider cuts as soon as this quarter.
"I've been in the fixed income business for 35 years, but most of my cohort is now missing in action," said Mr Tim Skeet, who has worked in bond-market roles since 1981, and is currently looking for a new position in the industry. "There's a 'juniorisation' of the workplace underway in London, as banks focus more on costs than revenues."
Banks are facing a greater cost of trading, as they try to meet regulatory requirements designed to make financial institutions safer, plus the introduction of new technology that reduces the cost of deal making.
Critics say the absence of employees who have worked through a full credit cycle creates its own risk.
Banks once dominated credit markets, buying and selling debt securities to maintain large warehouses of notes to meet client requests.
Now, they are dumping their holdings and acting more like middlemen - connecting buyers and sellers - as they respond to rules designed to make them hold more capital or take less risk.
"The fixed income world is following the classic path of a maturing industry, where it becomes more regulated, more automated, requires fewer people and margins decrease," said Mr Carl James, global head of fixed income trading at Pictet Asset Management in Geneva.
Revenue from fixed-income, currencies and commodities trading, or FICC, was on track to drop to US$65 billion (S$91 billion) last year at the 10 largest global investment banks, according to data compiled by financial research firm Coalition as of Nov 26. That is the lowest since the financial crisis and less than half of what was earned in 2009.
About 60 credit traders and analysts were let go in the City last year, according to Michelangelo.
The loss of experience on banks' trading desks comes at a time when credit markets are grappling with a global selloff, as commodity prices plunge and emerging markets slow, stoking investors' concerns about the state of the global economy.