Bond traders for decades were the kings of investment banking – not least with their compensation packages. Time's up though, even in the traditionally slow world of Swiss banking.
In «Liar's Poker», a Wall Street bible, Michael Lewis gives insights into the world of bond traders at Salomon Brothers and the crew of their boss Lewis Ranieri, the «Big Swinging Dicks». Apart from a questionable taste, their prime characteristic is an unquenchable thirst for money.
Stock traders by contrast are the losers in «Liar's Poker» and Lewis did all he could not to be dropped into their camp as an intern at Salomon's.
Life has changed in investment banking since the publication of the book in 1989. Ranieri, who was the first of his guild to trade mortgage loans on a big scale, today is better known as one of the «banksters», who helped push the financial system over the cliff in 2008.
Lost Illusions
The big banks, which used to tempt the Ranieri's of this world with compensation packages worth millions of dollars, have lost their illusions. Almost all of the main players have cut back their business with interest and mortgage loans, capital intensive and risky as it is – not least Switzerland's UBS and Credit Suisse.
The losers of yesteryear are the stars of today: Lewis today would surely opt to be a stock trader.
«Bloomberg News», the news provider incidentally founded by a former partner of Salomon Brothers, reported that the equity traders today call the shots at several investment banks. The best example for this thesis: Timothy O'Hara in October was named head of the investment banking unit Global Markets at Credit Suisse. Timothy O'Hara was in charge of equities trading.
Rising Salaries of Equity Traders
In other words: The losers today command the biggest salaries.
Salaries in equities trading have been rising steeply over the past three years, «Bloomberg News» reported, while the bankers at the bond desks saw their remunerations dwindle.
Equity traders will earn 7 percent more this year compared with a year earlier, while bond traders will take a 4 percent cut, according to Options Group, a salary analysis firm.
The salaries follow the profits: Most big banks earned in the third quarter of 2015 markedly more with equities than with bonds – with the notable exception of UBS, as a «Bloomberg News» table shows.
The ascent of equity traders has only just started. Banks need much less expensive capital to cover the risks of dividend-carrying stocks. And equity trading is technically advanced, yielding additional savings for the financial services companies.
Market share thus is of even higher importance and Morgan Stanley showed that UBS and Credit Suisse dropped down the list of companies by mid-2015.
Fixed-income papers are still traded over the counter, with liquidity being restricted. The decision by Credit Suisse to drop out of the primary market with fixed-income securities in continental Europe will not have improved the situation.
Despite the fact that fixed-income trading volume by far exceeds the volumes of equity trading on a global scale, and even as margins with bonds are higher, equity trading today enjoys support from the very top.
CS Chief Executive Tidjane Thiam recently told «Bloomberg News» that he saw big opportunities in equity trading, a service that Asian customers appreciated very much – the clientele the bank wants to attract.
