Foreign exchange teams have done well this year, but they're unlikely to be fully compensated for their efforts.
According to a study by the Bank for International Settlements reported in The Times, Britain is the world's largest centre of FX activity, with trading up 71% in three years. But FX Week, the FX specialist publication, points out that most of the gains made in the last quarter by diligent FX teams were obliterated by losses in credit businesses.
Bear Stearns, for example, saw profits slump 61% thanks to losses on two hedge funds and the re-pricing of its fixed-income portfolio, offsetting what a source said to FX Week were "strong revenue gains from the European and Asia foreign exchange businesses." Lehman said FX benefited from "increased volatility" and the "unwinding of carry trades", but lost US$700m in write downs on leveraged loans and mortgage-related securities in third quarter. And Goldman saw revenues at its fixed-income currencies and commodities division rise 71%, but lost US$1.7bn on credit products.
Unsurprisingly, therefore, those FX traders who've been doing so well for themselves are said to be dubious whether they'll be paid; many share their bonus pools with loss-making fixed-income divisions. "Even if the FX desk has done well, banks will tend to view things from a wider perspective and take into consideration losses across the wider global markets business," says Peter Harwood, a consultant at Principal Search.
Nevertheless, banks will need to compensate FX staff if they want to keep hold of them after bonuses have been paid. Harwood says poaching this year has been particularly vicious, with people being approached whilst on gardening leave and at least one FX pro moving after as little as nine days in a new role.