Commodity Pay Falls Faster Than Oil as Goldman, Funds Retrench

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 cuts 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 oil rose to a record $147.27 a barrel on July 11 and gold surpassed $1,000 an ounce in March.

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 46 percent this year on the London Metal Exchange and front-month crude oil slipped 47 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 declined 33 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.

Oil, gas and power companies pay middle-ranking trading staff average salaries of about 90,000 pounds ($135,000) a year, with senior positions commanding 380,000 pounds, said Global Resource.

‘Best Career Options’

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 metals and energy markets.

“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.”

To contact the reporters on this story: Lars Paulsson in London at lpaulsson@bloomberg.net or; Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net