Wall Street, where hundreds of commodity traders lost jobs last year as the recession set in, is on a new hiring phase where banks and hedge funds want to pay top dollar but only to a few, highly productive people.
The actual number of hires is unlikely to match the pace seen during the commodities super-cycle from 2003 to 2008, when investment banks ran a maze of desks that handled almost everything in the energy, metals and agricultural space.
Analysts say the recession has taught the industry the importance of being lean. Yet, the doubling in oil and copper prices from the lows of last year has reinforced the wisdom of investing in traders who can maximize opportunities in market swings.
A search on jobs portal e-financialcareers.com showed less than 10 jobs advertised for commodity traders since the start of July, with compensation as high as $1.5 million. A similar search a year ago threw up a few hundred postings.
Some firms like Goldman Sachs (GS.N) are willing to pay higher salaries than ever to lure the best talents from rivals and keep their own star traders, headhunters say.
Whilst clients throughout the spectrum ranging from banks to hedge funds continue to place a higher priority on risk management, more are showing interest in proprietary trading that uses the firm's money to place bets, said George Stein, managing director at Commodity Talent, a New York headhunter.
Some even sought meteorology experts -- or traders who had delivered physical oil to customers -- to better understand the fundamentals of the markets they were betting on, Stein said.
Layoffs in commodity markets came at investment banks such as Credit Suisse (CSGN.VX), UBS (UBSN.VX), Lehman Brothers and Bear Stearns last year as the recession slammed their business, in some cases wiping out entire operations. Numerous hedge funds that trade commodities went bust too.
Goldman Sachs, the bank hurt least by the recession, said it had allocated $6.7 billion for total compensation and benefits in the second quarter of 2009. That was almost double the $3.4 billion profit it made for the quarter, helped by commodity earnings higher than a year ago.
Given Goldman Sachs' 16 percent reduction in total employees from a year ago, to 29,400, the bank had allocated an average of $226,156 per employee in the second quarter. That was up 75 percent from the $129,200 budgeted a year ago.
If that quarterly figure is annualized, it comes to about $904,000 per employee, or almost $1 million -- a record.
Analysts said commodity traders were among those in big pay league at Goldman Sachs because they are the people accountable for the kind of profits that Goldman is doing, said Gustavo Dolfino, president of WhiteRock Group, another headhunter in New York.
Dolfino estimated the top Goldman Sachs bonus for this year -- including for star commodity traders -- will be around $11 million -- still a fraction of the tens of millions the company paid out as late as 2007.
JPMorgan Chase & Co (JPM.N), the second largest U.S. bank and a significant player in commodities, is also girding to pay more for talent after leading banks like Goldman Sachs and itself were freed from the government's TARP program.
TARP, or the Troubled Assets Relief Program, allowed banks to receive public bailout money. Those that stayed in the program could have faced government dictates on pay and the strongest of the lot have exited by repaying monies they took.
JPMorgan, which has acquired collapsed energy trader Bear Stearns and plans to venture into physical oil trading like Goldman Sachs, set aside $6.9 billion as second quarter compensation for all employees -- down slightly from the $7.6 billion in the first quarter.
But its staff base of 220,255 people is much larger than Goldman Sachs, so its average employee will get about $125,000 if the quarterly figure is annualized.
We will be facing the real compensation issues when we get to the end of the year, Chief Executive Jamie Dimon said.
Analysts said Wall Street banks may also pay to poach talent from rivals. Citigroup (C.N) reported lower commodities revenues for the second quarter. Bank of America (BAC.N), which had a ten-fold rise in commodities turnover in the first quarter, also reported a lower second quarter for fixed income, currencies and commodities, without a breakdown.
Some analysts think the commodity markets overhaul proposed last month by government regulators could cut the role of energy market makers like Goldman Sachs, which may face limits on the number of oil contracts it could hold at any time.
That could dent proprietary investment activity and cool the red-hot demand now for talent there.
If regulators don't act, there will be a lot of competitors gunning to make Goldman-like profits and not all of them will be as well managed or successful, Reuters columnist James Saft wrote.