The Last Look…
Posted by Colin Lambert. Last updated: April 19, 2022
A hot topic in 2022 has been, as most of you will know, the jobs market – the institutions are in a game of leapfrog when it comes to the salaries being paid to keep people and this is leading to a degree of unease amongst some I speak to. Firstly, there is the question of sustainability, then there is the potential problem of a ‘brain drain’ from FX.
There is no doubt that FX finds itself in an interesting position. Four or five years ago there was a process of ‘juniorisation’ where a fair number of senior personnel, with 20 years-plus in the job, were replaced with a new generation, sometimes with less than five years in a role. The inevitable doom-mongers saw this as a harbinger of disaster, which, of course, it wasn’t, although some argued that the latest generation of managers were not really tested in volatile markets, March 2020 and the first quarter of 2022 are putting lie to that.
The problem is, however, that a lot of this new generation are the ones taking the crypto-dollar (although if they’re real believers they should demand payment in a cryptocurrency of their choice!) This is leaving the FX industry with what could be termed a ‘double turnover’ problem, in that just when a new generation of managers is getting properly accustomed to the role, they are leaving, meaning the next generation down is now firmly in the spotlight.
Again, though, I think this is over-stating the matter. There are still plenty of senior people in charge at the institutions and a good crop of the new generation that are highly-skilled and still happy to be employed by a major financial institution. The fact is, talking to a couple of people who know about this type of thing, several banks were fine with losing some good staff because it opened up promotion channels for the next generation and enabled them to keep those people engaged. It’s not that they wanted to lose those they did, rather they saw it as an opportunity in the midst of what some would have us believe is a crisis.
A friend recently observed on this subject that the crypto jobs are still likely to be there in a year or two’s time – assuming the industry continues to grow – and in fact it might even be a better time to move because we still don’t know the winners and losers in this game.
One thing I am confident about is that like fintech, there will be a relatively small number of firms who succeed in crypto; of the rest, the lucky ones will be swallowed up by their bigger competitors, the unlucky will just wither and die. Stock options and ownership are all very well, but they count for nothing if the business isn’t succeeding.
Firms in the crypto space are cashed-up and happy to pay a premium for the right people – they have an industry to populate after all.
To me, the more challenging problem for the banks’ markets businesses in particular comes from the bloating of salaries. This is not to say people don’t deserve it, I have always maintained a salary is a reflection of a market, just as an exchange rate is, but more to question how sustainable it is. I have little doubt that the end of this year and Q1 2023 will witness a collective groan from markets personnel as they hear about their bonuses – the assumption being that if they’re getting 30% more salary (and benefits) the bonus is likely to be trimmed!
The saving grace for some could be the increased volatility and associated profitability – if the institution is making more money they rarely care about the details of how much is being paid to staff. The risk is a return to the recent ‘normal’ of sporadic volatility and less positive revenue profiles – in those circumstances the inevitable round of cutbacks will follow.
At a high level then, this is just another example of the disruption to traditional finance being caused by crypto, but it could have micro consequences down the line. Demand – and opportunity – is high in crypto at the moment and that is luring more and more staff. Firms in the space are cashed-up and happy to pay a premium for the right people – they have an industry to populate after all.
The real challenge for everyone involved is a throwback to the early(ish) days of this evolution – a crypto ‘winter’ – followed by a shift on the part of most who have moved, to rush back to TradFi. For the longer term, however, there may be a bigger issue for TradFi asset classes like FX – attracting new talent. The longer the crypto boom lasts, the more it will be embedded in society and the more these firms will be able to take their pick of the talent – at the cost of the big organisations.
The banks have been challenged in recent years by the tech giants, they are now being challenged by a younger, up-and-coming industry. History tends to show us that the banks will struggle to compete, that 30% pay rises won’t be enough…until there is a real crisis. The last global crisis centred on the banks, but often they don’t. It will be interesting to see what happens if the banks remain the beacons of light in a dark economic world the way they did, for example, in the 1980s and 90s.