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Credit & Risk Management

CREDIT & RISK MANAGEMENT MARKET COMMENTARY, Q4 2015

• Article by BRUIN Financial

CREDIT & RISK MANAGEMENT MARKET COMMENTARY, Q4 2015

MARKET OVERVIEW

The final quarter of 2015 saw the advent of a widespread hiring freeze across many of the larger investment banks in Credit & Risk Management. Freezes that began in Q3 continued across Q4, with some institutions alluding to further hiring suspensions in the New Year. Much of the reasoning behind this hiring malaise has been due to regulatory pressures both locally and internationally. Investment banks have also been negatively affected by the adverse financial climate that has emanated from the slowdown in the Chinese economy and the continued fall in commodity prices.

Base salary increases for external moves continue to be higher than the average across Financial Services, but remain at a steady level for now (circa 25%). Clients have become less flexible as the year has progressed to appeasing candidates asking for above market rate on salary. This may be due to there being less choice for candidates than was the case in H1.

The 4th quarter saw considerable movement in Stress Testing as banks look at the requirements placed on them for delivery in 2016. FRTB and Market Risk requirements also continued to dominate in the market in terms of budget allocation and hiring.

From a change perspective, many Investment Banks remain extremely concerned about the potential implications of FRTB on their trading activity moving forward. A result of their consultation with the Basel committee means that compliance for the regulation is being postponed until 2019 at the earliest and it is thought that this could be pushed back again to 2020. In its current guise, FRTB could completely halt some Investment Banks trading activity and at the very least make trading in more exotic products impossible.

Because of the implications of FRTB a number of banks have chosen to run FRTB as a Front-Office led initiative with significant support from their Risk departments rather than as a Risk led initiative but generally speaking more firms seem to have decided to have it as a Risk led Programme.

Credit Risk requirements were fewer with many Credit Risk Programmes being set up by firms much earlier in the year and no considerable new initiatives on the horizon. Likewise, Operational Risk requirements have been less frequent with the majority of hires in near-shored roles. Across the market individuals with CVA and Counterparty Credit Risk expertise in Change were highly desirable.

ROLE PROFILES

Credit Risk:

With the larger institutions, including most Investment Banks, continuing the cost cutting exercises of Q3, Q4 saw most of the Credit Risk hiring emanating from the smaller houses. We saw an increased interest in Project Finance roles with opportunities opening up in Rating Agencies as well as medium to large Asset Managers. These roles tended to be mostly replacement hires but we have seen significant interest for expansion in this area and expect further growth in 2016.

Operational Risk:

Operational Risk teams continue to grow across both the first and second lines of defence. The majority of roles have come from the first line looking at controls across a particular business area.  We feel that of all the Risk Management areas Operational Risk is the most likely area to see people moving internally, as the knowledge of the business and relationship building skills inherent in these roles lend themselves to internal candidates. Internal candidates tend to come either from operations-aligned roles or alternatively those with an Audit background.

Market Risk:

Whilst Market Risk Analytics continued to be busy across Q4, hiring within Market Risk Management and Reporting dropped off significantly as the year ended. However this is forecast to change in the New Year as, given the business critical nature of the work in MRM, roles in this area are often granted exception to hiring freezes.

Stress Testing, both from a BAU and Change perspective, remained busy and is expected to do so in the New Year. Given current financial market volatility and regulatory emphasis, professionals in this space can expect to be in demand in 2016.

Investment Risk:

This continued to be an area of stable hiring in Q4. However a great many roles were re-releases from earlier in the year with businesses looking to widen the scope of the hire or in some cases making large changes to the seniority and responsibility of the role to ensure that teams were able to keep pace with the high level of work that this quarter demanded. New roles that did come to market were highly specialized and often required a mixed background of different risk areas.

Quantitative Roles:

The Quant market remained an area of relative buoyancy across the last quarter, particularly across counterparty credit risk analytics. The demand for professionals with strong programming skills and credit product knowledge in Tier One Investment Banks remains high, with firms keen to hire CVA Quants, Model Validators and Quant Developers.

Given the scarce nature of professionals who will meet all of the pre-requisites for roles in the Quant space, and the general clamour from the candidate pool for new learning opportunities in a new role, the challenge for firms in the New Year will be to identify those candidates with the ability to adapt to new situations and responsibilities.

PREDICTIONS

Overall, we predict a slow but steady start in the first quarter of 2016, with hiring across all areas set to increase as the markets improve throughout the year.

In the Investment Banking space we expect movement as headcount freezes are lifted and candidates react to bonuses in the latter stages of Q1. Investment Banks will continue to be squeezed by the regulator and we expect the greatest volume of roles to be in those areas that can help shield the business from potential regulatory pressure. This will greatly buoy the Risk market as a whole, increasing the competition between banks for the best talent.

Asset management will maintain the usual steady rate of hires in all sectors. Due to increased market pressures on traditional funds, we expect an expansion in the more niche investment portfolios such as alternatives (infrastructure, real estate and private equity). This will mean a greater demand for more specialist candidate experience. We also expect that the salaries of Asset Manager will continue to rise with base pay more comparable to Investment Banks, as discussed here by our COO Kirstin Duffy.

Stress Testing requirements in the Change space will continue in the early part of the year as budgets are released and new regulatory requirements loom for delivery. Because of the negative press associated with failing a Stress Test banks will be keen to ensure they do what they can to fulfil their requirements.

Despite the deadline for FRTB compliance being pushed back, a number of Investment Banks will still look to ramp up hiring for the regulation across what are considered to be Key or Foundation work streams, especially those who have done little work on the regulation to date.  A number of Management Consultancy firms who have won large pieces of work across both the Stress Testing and Market Risk regulatory change areas will also look to expand their current teams so that they can fulfil the business that they have won. It is noticeable that towards the end of 2015 a number of the Big 4 were actively looking to work with recruitment consultancies who understand the landscape well and it is predicted this will be a big hiring space in 2016.

There will be a large number of candidates in the market in the early part of next year who have been working on BCBS239 as that Programme across all areas of Risk goes live. These individuals will provide Risk Change departments with a wealth of Risk Change  options.