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The Financial Times: Banks pay top dollar to secure commodity talent

By Kevin Morrison,Commodities Correspondent
Published: January 2 2007 02:00 | Last updated: January 2 2007 02:00

Commodity traders, once the overlooked Cinderellas of the financial trading world, are being offered multi-million-pound lock-in payments reminiscent of the early dotcom boom, when banks were desperate to expand into new areas by offering guaranteed payments to key staff.

The value of such traders – and energy traders in particular – has risen sharply over the past 18 months, amid the continuing commodity price boom that has prompted hedge funds and top-tier banks to expand their commodity trading businesses.

Such new entrants are competing with the established bulge bracket banks in commodities such as Goldman Sachs, Morgan Stanley and Barclays Capital.

These banks have tied many of their traders into lucrative share deals, making it often impossible for them to join the new entrants to the commodities markets. Banks appear willing to pay not only much higher base salaries to commodities traders, but also guaranteed bonuses to attract and retain such staff.

Guaranteed payments represent a salary and bonus package that will be paid to a trader regardless of the subsequent trading performance at the bank.

Among the biggest such recent guaranteed payments was one made by Deutsche Bank, which hired David Silbert, as head of commodities, from Merrill Lynch, where he had headed up the European commodity business.

People familiar with the situation said Mr Silbert was on a three-year guaranteed payment of £10m-£15m. Deutsche Bank confirmed Mr Silbert’s appointment but declined to comment on his remuneration.

Such guaranteed payments are fixed costs that could haunt the banks in the event of a downturn. Equally, however, the fixed nature of such deals will repay the banks while the commodities boom continues.

Given such lucrative lock-in payments, aggressive entrants to the commodities markets are increasingly being driven to look elsewhere to find top traders. In the energy industry, this has meant going directly to the big oil groups such as BP, Royal Dutch Shell, Total and ChevronTexaco. Industry insiders estimate that at least 30 traders – including David Ferner, Christophe Balleaux and Chad South – have left BP in the past 18 months to go to either banks, private oil traders or hedge funds.

Copyright The Financial Times Limited 2007

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