Stock traders are overtaking their bond-market peers in Wall Street’s ultimate currencies: promotions and pay raises.
At Deutsche Bank AG, Credit Suisse Group AG and Morgan Stanley, equity-trading executives have taken the reins of their banks’ entire trading divisions in the past two months. Average pay for equity traders is likely to climb for a third straight year in 2015, while bond traders face an equal streak of declines, according to a report from recruitment firm Options Group Inc.
Jumps in equity-trading revenue topped those in fixed income at eight out of 10 of the biggest European and U.S. banks in the third quarter, data compiled by Bloomberg show. During the past five years, equities outperformed that strongly only in 2013. Total third-quarter equity-trading revenue grew 3 percent from a year earlier, while revenue from fixed income, currencies and commodities fell 17 percent.
“Participation in the bond market has vanished since 2008,” said Michael Woischneck, a money manager at Lampe Asset Management in Germany, which holds the equivalent of $7.1 billion. In contrast, stocks are “well supported, and flow into equities is there for years to come.”
Fixed-income businesses have come under pressure from capital rules and a shift to electronic trading that has crimped margins in some markets. Banks have sought to limit the amount of capital that bond trading businesses consume, curbing their willingness to serve as a market maker for debt they may have to hold for weeks or months.
Equity businesses typically require less capital, and much of their move toward electronic trading predated the financial crisis. Revenue growth from the business has outpaced fixed-income in four of the past five years.
Banks driving the trend in the third quarter included Citigroup Inc., where revenue from equities trading jumped 31 percent from a year earlier, while dropping 16 percent for fixed income. At Credit Suisse, the difference was a 9 percent gain versus a 53 percent slump. Among the 10 banks, only bond units at Deutsche Bank and UBS Group AG posted bigger gains than their counterparts in equities.
The gap in performance is being felt in management changes and compensation. Equities traders globally will probably see an average 7 percent jump in pay this year, led by derivatives and electronic trading units, according to the Options Group report. Fixed-income traders face a 4 percent drop, driven by declines among securitized product and credit teams, the data show.
Last month, Credit Suisse promoted Tim O’Hara, previously its equities chief, to run the entire trading division, as the Zurich-based bank separated the business from investment banking. Gael de Boissard, who led the bank’s fixed-income business, retired as part of the shakeup.
Deutsche Bank named equities head Garth Ritchie, 47, to run its trading business. In New York, Morgan Stanley rewarded Ted Pick, 47, for taking the firm’s equity-trading business to the top spot globally by making him global head of sales and trading in October.
The European lenders also stepped back from some fixed-income businesses. Credit Suisse shook Europe’s bond markets in October by deciding to drop its role as a primary dealer across the Continent. Deutsche Bank has said it would cease trading most credit-default swaps tied to individual company debt as capital regulations make it more costly to operate in that market.