Commodity Pay Falls Faster Than Oil as Goldman Cuts

Commodity Pay Falls Faster Than Oil as Goldman Cuts

2008-12-02 08:59:23.0 GMT

(Adds oil at three-year low in seventh paragraph.)

By Lars Paulsson and Chanyaporn Chanjaroen
Dec. 2 (Bloomberg) -- Investment banks may reduce
compensation for commodity traders as much as 75 percent as
prices of oil and copper fall the most in at least two decades.
The best paid metals and energy traders may earn $1 million
to $1.5 million in salary, bonus and related pay this year, down
from $5 million to $8 million in 2007, according to estimates by
London-based recruitment company Kennedy Associates. Bonuses at
Goldman Sachs Group Inc. and Morgan Stanley, the biggest oil-
trading banks on Wall Street, may fall 60 percent, according to
Armstrong International, another London-based recruiter.
"At the end of the day, the commodity industry is not
bullet-proof," said Jason Kennedy, 38, chief executive officer
of Kennedy Associates, whose clients include Merrill Lynch & Co.
"It's following the trend."
Banks and hedge funds that piled into raw materials as
crude, copper and gold rallied for seven straight years, cut jobs
during the second half as the Reuters/Jefferies CRB Index
tracking prices of grains, fuels and metals declined, heading for
its biggest annual drop ever. Goldman Sachs dismissed 10 percent
of its employees in November, including in commodities. Zurich-
based UBS AG, Switzerland's biggest bank, said in October it will
end over-the-counter trading in industrial metals and energy.
"The manic scramble in commodities in 2007 and early 2008
has calmed down," said Shaun Springer, 52, chief executive
officer of Napier Scott Executive Search Ltd., which has
recruited for banks since 1992. "It has moved from a frenzy to
nigh on dormant."

Safer Haven

Banks, brokerages, trading companies and hedge funds have
about 5,000 employees in commodities and energy, according to
Kennedy Associates.
The firms grew as gold surpassed $1,000 an ounce in March
and oil rose to a record $147.27 a barrel on July 11. Crude fell
to the lowest in more than three years in New York today.
Until July, raw materials markets were among the only bright
spots for the financial industry, where losses and writedowns
increased to almost $1 trillion since the start of 2007 in the
worst financial crisis since the Great Depression. Financial
institutions slashed more than 190,000 jobs since June 2007.
Benchmark copper for three-month delivery lost 48 percent
this year on the London Metal Exchange and front-month crude oil
slipped 50 percent on the New York Mercantile Exchange. Both are
heading for the biggest annual decline since at least 1987, while
the CRB Index of 19 commodities has fallen 35 percent this year.
Spokespeople in London for New York-based Goldman Sachs,
Morgan Stanley and Merrill Lynch declined to comment on salary
and bonuses.

Executive Pay

Barclays Capital spokesman Will Bowen in London said the
bank's pay decisions "have always been determined on a
meritocratic basis across the firm, and this continues to be the
case."
Barclays is bucking the trend by expanding its team by a
third this year to more than 300 through hiring and its purchase
of Lehman Brothers Holdings Inc.'s North American businesses,
Benoit de Vitry, 46, head of commodities, said Nov. 13 in a
telephone interview from New York.
Some refugees from Wall Street banks are taking safer
positions at utilities and companies such as Amsterdam-based
Trafigura Beheer BV, the world's third-largest independent oil
trader and E.ON AG, Germany's biggest power producer.
Energy traders and risk managers at banks are being paid
about 7 percent more than their peers at energy companies,
according to Brighton, England-based recruiter Global Resource
Solutions Group Ltd. A year ago, the gap was 18 percent.

'Best Career Options'

Oil, gas and power companies pay middle-ranking trading
staff average salaries of about 90,000 pounds ($133,000) a year,
with senior positions commanding 380,000 pounds, said Global
Resource.
Nuon NV, the second-biggest Dutch utility, hired Gregor
McDonald from Dresdner Kleinwort Group as its head of natural gas
trading. Matthew Nicholas and Erik Hokmark joined Swiss utility
Energie Ouest Suisse from Lehman Brothers.
"For the first time in the past five years utilities and
producers are seen as the best career options due to their
commitment to the markets coupled with the more aggressive
compensation structures that they have adopted," said Elliot
Pickering, a consultant at London-based Human Capital Search,
which specializes in recruitment for commodities.
"We are certainly attracting high calibre candidates from
investment banks and hedge funds," Pierre Lorinet, the chief
financial officer at Trafigura, said in an e-mailed statement.
E.ON earned three times as much from buying and selling
energy in the third quarter as it did in the first six months of
the year.

Dusseldorf, Abu Dhabi

"We have seen increased interest from individuals in the
financial sector looking to come over to us, and it's possible
there could be some correlation with the current situation,"
Dusseldorf-based E.ON Energy Trading AG Chief Commercial Officer
Gareth Griffiths said in an e-mailed response to questions.
Masdar, the Abu Dhabi state renewable-fuels company, hired
Itaru Shiraishi from Fortis in Amsterdam as lead carbon finance
specialist in November.
RWE Supply and Trading GmbH, a unit of Essen-based RWE AG,
Germany's second-biggest utility, hired Paul Dawson in July from
Citigroup Inc. in London as head of market design and regulatory
affairs.
Energy and commodity funds will probably lose 40 percent of
their employees in a year as returns slide and investors withdraw
record amounts of money, said Zug, Switzerland-based Gardner
Finance AG, which tracks the performance of 630 funds that invest
in natural resources companies and markets.
According to Gardner Chief Executive Officer Michael
Laznicka, "there's no way that some of these managers can
sustain their current performances and survive."

--With reporting by Mathew Carr in London. Editors: Stephen Voss,
Stuart Wallace

To contact the reporters on this story:
Lars Paulsson in London at +44-207-673-2759 or
lpaulsson@bloomberg.net or;
Chanyaporn Chanjaroen in London at +44-20-7073-3544 or
cchanjaroen@bloomberg.net

To contact the editors responsible for this story:
Stephen Voss on +44-20-7073-3520 or sev@bloomberg.net;
Stuart Wallace in London at +44-20-7673-2388 or
swallace6@bloomberg.net