As the dust settles on the vague outlines of the Volcker Rule, we know you will all be very eagerly evaluating its impact on jobs.
Here, following our own perusal of analyst notes and the excellent summaries (and here) provided by Alphaville, is a short analysis of the types of jobs that could be coshed by Volcker, plus those that may actually benefit.
We'll follow this up later with a look at which banks can be particularly expected to cut staff/pay as a result of yesterday's news.
1) Dedicated prop traders
As we noted yesterday, this clearly doesn't look good for dedicated prop desks within banks.
The real question is, however, how prop trading is defined, and how much of it banks do. CreditSights' analyst Dave Hendler notes that in the press conference following yesterday's announcement, Austan Goolsbee, chief economist at the Economic Recovery Board emphasized that the rule is not intended as a straight reenactment of Glass Steagall and is not intended to restrict any trading activity related to clients.
As such, any form of prop trading related to market making for clients, should be fine. As we also noted yesterday, most prop trading jobs, which nowadays relate to precisely this, ought therefore to be safe.
Hendler, like most other analysts, emphasizes the extent to which banks have reined in their pure prop activities. At Goldman, they now account for ~10% of revenues; at European banks it's lower than 5%.
"Before the credit bubble burst in 2007, some banks were noting that 20-40% of capital markets revenues were related to in-house hedge funds or prop trading activity," Hendler notes. Most banking prop traders have, therefore, been coshed already.
2) Prime broking
This is a scary thought, particularly as banks have been building up in prime brokerage (particularly in Asia) recently, but the FT points out that according to the Wall Street Journal, under the proposed rule commercial banks would be prohibited from owning, investing in or advising hedge funds or private equity firms.
The implication? Prime broking jobs could be passé too.
3) OTC derivatives desks
Legislation to curb OTC derivatives has been in the pipeline for a while, but yesterday Obama reemphasized his commitment to, to "close loopholes that allowed big financial firms to trade risky financial products like credit default swaps and other derivatives without oversight."
Faster action may be expected on this. Jobs will be created for technologists facilitating the move to exchanges. However, Jobs for traders and salespeople working at the more bespoke end of the OTC derivatives spectrum look threatened.
4) Interdealer brokers
Interdealer brokers like ICAP derive around 20% of their revenues from working with banks' prop desks. The realization of this appears to have sent their stock plummeting this morning. If business with prop desks disappears, so may some of the IDB jobs that relate to it.
And the beneficiares?
There is one clear beneficiary of all this. And that is...
Given the possibility of avoiding the rule by engaging in client-related activities, expect a lot more effort to go into proving that this is the case. Trading floors can expect a severe uptick in the amount of bureaucrats proving that prop trades are busy working on trades related to customer flow.