Creditflux Newsletter

When would-be millionaires trailed back to the mainstream world of work in 2001 and 2002, smirking colleagues joked that they had found a new meaning for some of the buzzword acronyms of the dotcom era. B2C was not “business-to-consumer” but “back to consulting”. B2B was not “business-to-business” but “back to banking”.

Something similar is happening in the financial labour market today. Some of the many financial professionals who have spent the past year or so polishing business plans for hedge fund, advisory and riskless brokerage start-ups are drifting back to jobs with boring old banks.

Of course, the difference between the new generation of budding entrepreneurs and the dotcom kids is that most of the latest wave never dreamed of starting their own businesses. Or if they did, it took the vicious shove of a global financial crisis to persuade them to go hunting for seed capital and office space.

They are not so much “wannabe” as “hadtobe” entrepreneurs. They have less hair, more wrinkles and bigger mortgages than most of those who were trying to get started in 1999 and 2000.

But “back to banking” is once again the movement of the moment. The biggest reason is that banks are hiring. That is tempting many former stars who were sitting out the crisis at buy-side, advisory and brokerage firms.

So far there have been only a handful of examples. Structurer Paul Levy’s move to UBS in London and trader Brent Eastburg’s decision to join Standard Chartered in Singapore both fit the trend. But we hear of several officials who are thinking of dropping plans for new ventures in favour of taking a job with a bank.

Remuneration is clearly also a pull. Competition between banks for credit sales people, traders and structurers is growing, fuelling compensation packages and turning bankers’ bonuses into a hot political issue globally.

But there are other forces pushing employees back to banks. Many credit traders and structurers have spent the past year or so trying to set up funds. Many would still like to do so. However, pension funds, endowments and family offices aren’t rushing to invest in credit hedge funds. For every start-up credit fund manager Creditflux writes about there are at least another two telling us they expect to be up and running “by the end of the next quarter”: most have been saying the same thing for months.

Banks, by contrast, have capital they need to put to work (and they want to earn better risk-adjusted returns than they could by following politicians’ suggestions and doling out loans to failing printers and car parts makers). Several big institutions are rebuilding their prop desks (see page 1). Others are getting back into market-making, both in cash and credit derivatives, and are increasingly willing to use their balance sheets in size to win business.

The banks’ growing appetite for risk is making it harder to succeed as an agency broker – the other popular start-up model of the past two years. In a less obvious way, this also puts independent advisory shops at a disadvantage. Smart structurers can provide a useful service to clients. But structurers with a bank balance sheet at their disposal can offer something extra. They can not only tell an Asian insurance company what it should do with its portfolio of Fitch-only rated 6-7% CSOs, they can buy the deals and hedge them by throwing them into a big, bubbling correlation pot.

There may be fewer banks around than two years ago, but suddenly it seems that everyone wants to work for one.