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Credit & Risk Management

Credit & Risk Management Market Commentary, Q3 2015

• Article by BRUIN Financial

Credit & Risk Management Market Commentary, Q3 2015

MARKET OVERVIEW

As predicted at the end of Q2, Q3 saw a significant slow down in the number of new roles released within the Risk space. The magnitude of this was much greater than we expected, as a result of the usual summer lull combined with a number of Tier 1 Banking Institutions announcing cost-initiative exercises necessitating hiring freezes across Risk. Roles that carried over from Q2 were either filled as a matter of regulatory urgency or put on hold as a result of budget constraints. This slowdown was exacerbated by volatility in the Chinese market, which has seen the prices of commodities fall worldwide.  Factor in uncertainty over the possibility of an increase in interest rates by the FED, meaning that we have seen a much slower Q3 than expected.

With the decline in the number of new roles coming out, the Market has seen a shift towards parity between candidates and clients in terms of appetite to leave/appetite to hire. As expected, candidates at this time of year have their bonuses at the forefront of their minds, and as such are less willing to commit to new roles without financial assurances around these from a prospective employer. This is consistent across all levels of seniority. In order to secure the right candidates, institutions have to go to greater lengths to ensure that candidates will not be financially disadvantaged by moving; whether in the form of delayed start dates to take into account bonus pay-outs, or in some cases verbal assurances about bonuses being guaranteed.

Where bonuses cannot be guaranteed, or where the candidate stands to lose out in their total package in their first year of joining, we are seeing even more dramatic increases in base salary to offset this. This has pushed the average salary increase across risk much closer to the 25% mark than in the previous quarter.

In Risk Change Investment Banks are currently at very different stages of Regulatory compliance across Market, Credit and Operational Risk. Some have made an early move on large Programmes such as the Fundamental Review of the Trading Book (FRTB) and are already very organised with entire teams in place whilst some have barely started as they assigned their budget to other Regulatory requirements in the first half of the year.

It appears some Banks have held off on spending as they look to ensure that externally assigned reform from Regulators aligns with their internal strategic reform goals.

This means a number of large Investment Banks will have significant hiring and regulatory pressure to come in late 2015 and through 2016. Likewise those banks ahead of the market will receive pressure to hold onto talent that has already implemented early Regulatory compliance.

ROLE PROFILES

Market Risk

In line with the general market trend, hiring in Market Risk has slowed down significantly in Q3. This is because hires in Market Risk depend heavily on the hiring appetite of larger organisations; with many of these announcing hiring freezes it is only natural that this area would experience stagnation.

Hires that were made in this space in Q3 were mostly the filling of legacy roles from earlier in the year. These roles tended to be niche in nature hence the longevity of the hiring process for them. Candidates within Market Risk Analytics continue to be a sought after commodity, with firms willing to go to great lengths to secure hires in this space. This manifests itself in the form of external promotion and bonus buyouts.

Investment Risk

Investment Risk remains a buoyant area for hires across all asset classes and across all levels of seniority. Candidates with Multi-Asset experience are currently in vogue; however they are also few and far between.

Firms on the buy side are currently attempting to put in place Liquidity Risk functions within their Investment Risk teams. As these roles are unprecedented on the buy side, firms are looking at candidates with pure Investment Risk experience as a small portion of their existing roles will have liquidity responsibilities.

Credit Risk

The majority of movement across the Credit Risk space in Q3 has been seen within both Commodities Trading Houses and Brokerages. A common theme within the banking world is for roles in this space to be filled internally or directly.

The majority of the roles at Ratings Agencies appear to be within the Structured Credit space. Many of the typical corporate credit analysis roles within Ratings have been filled internally or directly.

Within Asset management, Credit Risk teams tend to be quite lean. With the candidate pool of buy-side Credit Risk Analysts being shallow, many buy-side clients are willing to consider candidates from the sell-side FI/NBFI candidates for their roles.

Credit Research

Credit Research continues to be a very network-driven environment, especially at the senior end. Many of the roles that go to agencies within this space tend to be junior/mid-level roles of a niche nature e.g. specific geographies and sectors. There is very little flexibility from clients on the candidate background for credit research roles. This means that clients are finding it hard to attract candidates with these specific backgrounds as they are seen as sideways steps with little by way of a new challenge or exposure.

Operational Risk

There is a continued desire to hire within the Operational Risk space due to regulatory pressure. The main volume of roles seen has been across the FLOD with knowledge of particular business areas or products favourable to each particular role. Operational Risk roles however are positions where agencies are less in demand as the roles are less technical and often less niche in nature and therefore we have not seen great volumes of positions in this space.

On the buy side, we have seen the usual flow of Operational Risk roles at a steady pace. Processes on the buy side tend to take longer due to inflexibility on background from clients, who demand previous buy side experience. This does not give candidates the appetite to move as they see it as a sideways move as these roles tend to be relatively generic across firms.

Quant Risk

Quantitative Risk has bucked the trend in terms of volume of new hires, with a steady flow of roles coming through throughout Q3. These positions are becoming frequently more niche and will typically take almost an entire quarter to fill, if at all. This is due to the scarcity of candidates with the required technical skillset and experience, as well as candidate uncertainty over moving into roles with an unprecedented breadth of responsibility.

Particular areas of activity in the quant space in Q3 include Operational Risk Modelling and Counterparty Credit Risk Analytics. With the scarcity of candidates in these areas; guarantees around bonus to secure new hires are now mandatory, and salary uplifts are towards the top end of market rate. This is exacerbated by counter offers metronomically following offers in this space.

Projects & Change Risk

There has been consistent hiring across Market, Credit and Operational Risk both from a Permanent and Contract perspective; however contract rates are high enough that many top candidates do not wish to consider permanent opportunities.

Anything below VP Level on a permanent basis has been more difficult for Financial Services firms to fill as relatively junior candidates can command much higher take home pay as contractors. Market Risk candidates who also have Counterparty Credit Risk expertise appear to be particularly sort after in the Risk Change space and across Risk Change there has been a move largely towards Risk SME’s at both Business Analyst and Projects Manager positions. There also appears to be a definite shortage of Quant Risk Business Analysts in the market.

PREDICTIONS

From a revenue perspective, the Credit & Risk Management desk had its biggest ever quarter. This is reflective of the senior hires within the Risk market that took place in this quarter, many of which were legacy roles from H1. However, overall job flow was down below expectation.

We expect Q4 to be a quarter of two halves. The first 6-8 weeks should see a new influx of roles across Risk from those institutions which instigated hiring freezes in Q3, as well as number of roles arising due to attrition. However this will slow down in the run up to Christmas, and the pressure will be on firms to complete hires before the start of the New Year.

Hiring processes are expected to take longer due to negotiations around bonuses and the challenge of finding candidates who are seeking new opportunities at this time of year.

Investment Banks who have moved early in the Regulatory Risk space will hold fire on further spending as they review budgets and assess value for money. This is compounded by the fact that a number have new MDs across Risk Change at Tier 1 Investment Banks who will want to review budgets and spending.

Irrespective, they will come under pressure to keep hold of their best Risk Change professionals from competitors who lag behind on regulatory requirements. A number of big players who have had freezes on are expected to start hiring again as Regulatory compliance necessitates bringing in Risk Change professionals. The market is therefore expected to remain buoyant in the Risk Change space.