Commodities Traders Exiting From Investment Banking Jobs

It’s one of the hottest areas for growth within investment banks, and yet the banks have to get out of the business.

That’s the good news-bad news story from Bloomberg on how just as commodities trading is adding substantially to big banks’ bottom lines, they have to divest themselves of the business. And that certainly has repercussions for the dozens of top commodities traders on the Street.

Ever since the Volcker rule, named for former U.S. Federal Reserve Chairman Paul Volcker, was included in the Dodd-Frank Act, it has placed new limits on banks taking risks with their own capital. And on October 18th, the U.S. Commodity Futures Trading Commission voted to curb trading further in 28 commodity futures, including oil and gold.

As a result, the big banks are shutting down their commodities units. Among them, JPMorgan Chase & Co. (JPM) and Bank of America Corp.

This is all taking place at a time when money is sloshing into commodities trading and generating huge revenues. Revenues generated by the 10 largest banks’ commodity units increased by almost 16 percent to a combined $5.49 billion in the first nine months, year over year, according to data gathered by Coalition, a London-based research company. Meanwhile, overall revenue at these banks shrank by 12 percent.

That money has to go somewhere, right? No surprise that commodity hedge funds attracted $7.91 billion from investors in the first 10 months, 10.2 percent more than a year ago and above the hedge-fund industry average of 2.1 percent, according to New York-based eVestment|HFN.

It also means as investment banking jobs in commodities trading disappear, the best traders will look elsewhere for opportunities. “A lot of banks are going to struggle to retain their top traders over the next few years,” said Justin Pearson, managing director of Human Capital, a London-based firm which helps to recruit commodity and energy traders.

The list of refugees is growing. Kieran McKenna, who traded oil for Credit Suisse Group AG (CSGN) and JPMorgan, started a hedge fund that will start taking money from outside investors in December, called Mastic Investment Advisory AG. Former JPMorgan trader Damien Bombell has started a hedge fund to invest in metals, grains and energy. To name a few.

Do you think the forced exodus of top commodities traders will put further downward pressure on investment bank earnings and hiring in 2012? Add your comments below.

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