These are troublesome times for people working in fixed income sales and trading in investment banks. As we pointed out last week, analysts at Goldman Sachs have assembled a handy list of all the recent poor prognostications regarding the banking industry and fixed income trading is included in almost every one. Elsewhere, Bernstein analyst Brad Hintz has spoken ominously of a full-scale 'rout' in capital markets.
So far, so dire. If you work in fixed income trading in Europe, however, the situation is made more poignant by one all-important thing: the fast approaching European Union bonus cap.
"2013 is the last year that our salespeople and traders will be able to get decent bonuses before the CRD 4 pay rules [the bonus cap] are due to come in," says the head of HR for fixed income at one European bank. "However, we're currently running at only 80% of budget and it looks like this year's fixed income bonus round is going to be very poor. People are going to be very disappointed as a result - this was their last chance to get paid."
In the distant past, fixed income sales and trading bonuses were among some of the largest in all banking. For example, Kareem Serageldin, the soon to be-imprisoned former global head of structured credit trading at Credit Suisse, famously earned a total of $7.3m in 2007, of which only $279k was his base salary. However, under the EU's proposed bonus cap, bonuses will be restricted to no more than 2.5 times base pay - meaning that Serageldin would have earned no more than $1m in total (something that may have discouraged him from mis-marking his positions in search of a higher bonus).
Fixed income bonuses could suffer most under the cap, and bonuses rather than jobs are likely to be hit in 2013.
Christian Robbins, director of Cherry Bull, a financial markets recruitment firm, said banks probably won't make redundancies as a result of poor fixed income revenues: "Most desks have already been pared back to the bare minimum and banks can't cut any more without jeopardizing service levels." Instead, Robbins agrees that banks will cut their fixed income bonuses for 2013.
European fixed income traders and salespeople who are waiting for one final big payday need to hope that George Osborne's efforts to contest the bonus cap in the European Court of Justice are successful, or that the bonus cap is delayed for another year. Unfortunately, lawyers tell us this is very unlikely.