Recruitment in the trade finance sector in the UK is picking up and this could lead to skills bottlenecks, which is beginning to trigger higher remuneration packages for some positions. Justin Pugsley reports.
For a good part of the last 10 to 15 years many banks have been downsizing their trade finance departments or pulling out of the business altogether. According to Alan Shepperd, managing director of recruitment specialists, Commodity Trade Finance, there was a significant drop in the number of available positions. This in turn led to many people leaving the industry altogether. Either trade finance was not seen as a lucrative enough profit centre or simply not seen as a viable core business.
Other banks maintained a presence, but nonetheless streamlined their teams. Then there’s the whole process of consolidation among banks. This leads to downsizing to eliminate duplication and trade finance departments were certainly not spared. From a candidate’s point of view, this hardly made the sector a particularly attractive career proposition.
Graduates entering the City of London, for instance, would generally prefer more lucrative and glamorous positions in investment banking such as doing mergers and acquisitions. However, in the last couple of years, some banks have been once again expanding their trade finance businesses and their teams. “This is a result of an understanding of the additional amount of finance required to service the commodity flows, in energy in particular, resulting from the dramatic increase in prices seen in the last two years,” states Jakob Bloch, managing director of London-based commodity recruiter Commodity Appointments. “Also the investment banks perceive there to be opportunities in the commodities sector in trading, broking and risk management, and regard commodity finance as an additional service they can offer.”
Names such ABN Amro, JPMorgan Chase and Bank of America keep cropping up. Also, there is a whole new type of player entering the market and they differ from the traditional banks. These include logistics companies, which have bolted on trade finance functions.
“Additionally, more funds are operating in this area, although they tend to concentrate in a niche business area, with a view to making a high return on higher risk business,” states John Whitehead, trade finance recruiter at Commodity Appointments.
Others are heavily focused on supply chain finance. And not to mention there are the various boutique banks focused on services niches ignored by the larger players. All of this bodes well for a sustained pick-up in the level of recruitment. “For the last three to four years we’ve seen a pick-up in demand from sectors such as commodities and risk management,” explains Andrew Breach, debt and structured trade finance consultant with recruitment firm, Michael Page City. With many other banks having abandoned the trade finance sector, the remaining players now see an opportunity to consolidate their positions and grow market share.
A steady earner
Trade finance may not generate huge profits like some sectors of investment banking do, but it is at least a stable activity with a relatively predictable cash stream. Indeed, world trade flows continue to grow steadily and don’t fluctuate in the same way as share prices do, which can create huge boom and bust swings in investment banking profits. “In the last 12 months we’ve seen a number of organisations continue to recruit to build upon their established teams,” says Sean Carr, managing director of specialist recruiters Carr Lyons.
Recruitment consultants report strong demand for positions in the Middle East. Indeed, the region is going through an oil-driven boom, which is creating strong two-way trade. Many Gulf states are embarking on huge construction projects, which in turn is driving demand for imports of cement and other building materials.
“There’s a lot of demand for relationship managers and marketing people,” says Carr. For these types of positions a knowledge of Arabic is generally not sought after. For trade, English is heavily used in the Gulf region.
An understanding and experience of the region and its culture is seen as more important. When it comes to languages, recruiters are usually seeking European ones such French, Italian, Spanish or German for London-based positions.
He adds that there has been considerable demand for people with a knowledge of the Indonesian markets, which is related to soaring commodity prices. A market that often comes up is China, which can be difficult to recruit for. Apart from knowledge of banking and English it usually requires an understanding of the local culture and Mandarin. This often favours recruiting locals, but it can be difficult to find suitable candidates with the right combination of skills. This is generally an issue for recruiters in Singapore and Hong Kong and less so for London.
Another trend helping reinforce recruitment is the commodity boom. Surging prices of oil and metal over the last few years have attracted considerable interest from banks. Higher prices often equate to larger loans and hence more business for the bank.
Many have been boosting their commodity trade finance teams, which is considered a specialist area. Commodities in particular offer banks the opportunity to market an even greater range of derivative products to their clients. This dovetails with the greater volatility seen in commodity prices, which in turn sees corporates turning to banks for innovative hedging solutions.
Such solutions are easier to construct for commodities, because the major ones are traded on exchanges around the world. This means that banks are increasingly packaging special types of loans with embedded derivatives.
To aid with this trend some banks have merged their commodity trade finance teams with derivative specialists. As of yet that doesn’t seem to have to have created any new requirements from banks in terms of skills demanded, even for marketing personnel.
“I think it would be extremely difficult to find someone with expertise in derivatives and trade finance,” says Shepperd. “The two are completely different areas with very different skill sets.” He adds that it would probably be a mistake for banks to seek people with a knowledge of both areas. In the more niche areas of the commodity market there has also been growing demand for staff. For instance in the cocoa market, there is demand for trade finance professionals with a knowledge of the workings of the Ghana Cocoa Board (Cocobod).
Also, unlike multinationals and their trading communities, which are increasingly moving to less lucrative open account payments, in West Africa letters of credit remain the dominant payment method. Indeed, these types of markets with their higher risk profiles demand high levels of expertise and experience from trade finance professionals. According to Breach such people are increasingly sought after.
Elsewhere there remains a steady demand for back office people. This is despite the fact that many banks are outsourcing various back office functions and using technology to automate many of those processes. “These type of activities are very labour intensive. Import/export generates a lot of paper work,” says Shepperd. “Despite the technology and automation there is still an ongoing demand for back office support staff.”
He also notes that remuneration packages for senior back office staff have increased considerably. “There’s quite a big pay gap between junior and senior staff,” he says. “But at least some of the bigger banks are training new back office staff. The growing pay differential could be a reflection of the fact that many junior back office staff don’t stay in the sector, which makes those with experience more valuable.
However, not all areas of the recruitment market within the trade finance sector are doing well. Over the years there has been diminishing demand for those specialising in ECGD guarantees. “Export credit business receives a lot less attention,” says Breach.
There is a possibility of a pick-up in business in that area. The UK recently sold 72 Eurofighter jets to Saudi Arabia in a government-to-government transaction. There may be related spin-off projects from the deal, which may involve ECGD export guarantees. There is also the possibility of other future arms deals in the Gulf along with supporting transactions.
Then there’s the construction of the two aircraft carriers in the UK to be built in collaboration with France. It’s possible that parts of the ships may be built in France and may involve transactions between private sector companies. As of yet it is still unclear as to how the project will proceed. But for the time being: “Banks involved in ECGD business are not doing as much as before. There’s less requirement for people,” says Breach.
With the world economy growing steadily and global trade continuing to expand, some banks still see opportunities in the sector. This is despite the move towards open account and greater requirements for investment in technology to keep pace with ever more demanding corporate customers. With fewer players in the market than a few decades ago, the remaining trade finance banks see an opportunity to consolidate their positions. In the long run this could lead to greater profitability.
Demand for structured trade
However, recruitment consultants point out that there could be looming skill shortages. On the structured trade finance side, for example, there is a missing generation of trained bankers to replace the current one.
Indeed, many banks are very keen to get involved in structured trade finance as it offers the possibility of creating value-added transactions. This can make up for the fact that traditional areas such as documentary letters of credit are failing to keep pace with the growth in world trade.
However, Breach says structured trade finance is a difficult position to recruit for. “The term structured trade finance can mean different things to different people,” he explains. This is not just down to whether it is from a banking or corporate point of view. “If you take 10 people they’ll all come up with different answers as to what they think is an ideal candidate,” explains Breach.
Also, there are a variety of different positions linked around the term structured trade finance. There are originators, there’s structured trade finance support, auditors, analysts and those who actually structure the transactions. Also, different banks have different products and particular specialisations. All this makes selecting candidates much harder than for more plain vanilla type roles. Nonetheless, up-to-date skills and experience are keenly sort after. Usually candidates need to be highly numerate and foreign languages can be a big plus, particularly for originator roles.
But due to the fact that banks were for years downsizing their trade finance operations, recruiters say that there is a growing shortage of experienced professionals. This is particularly so for structured trade finance. That in turn translates into higher remuneration packages.
In fact when experienced trade finance professionals are poached, their current employer often outbids the poacher to keep them on board. “In particular, for new entrant organisations, or those looking to achieve significant growth, it is the originators who are commanding the greatest salaries,” states Whitehead.
Some estimates suggest it costs the equivalent of three times the salary of an experienced person to replace them. This is welcome news for employees, but not for banks, which are trying to sustain profit margins. Some trade finance professionals are reported to be even getting end-of-year bonuses equivalent to 50-100% of their salaries. This is particularly the case for quality candidates, whom banks want to keep on board. Recruiters say this is a trend, which hasn’t been seen for a long time in trade finance circles.
“We are also seeing opportunities to move entire teams from one bank to another, which has been seen in the past with brokerage teams, and so on, but not in trade finance,” according to Whitehead. In turn it may encourage new blood into the business. According to recruitment consultants French banks, along with some of the very big UK ones, are training people. However, for most other positions, increases in remuneration packages are tending to be more modest.
Meanwhile, there’s an issue concerning the implementation of the Employment Equality Age Regulations 2006, which came into force in the UK on October 1. The new laws are designed to protect older workers from being discriminated against in favour of younger workers in terms of hiring, firing and promotion.
Many commentators feel these laws could have a particularly big impact on the City given its heavy focus on younger workers. Indeed, for any employer found guilty of age discrimination, the penalties could be enormous. The law puts no limitation on the amount of compensation payable to the victim.
However, in terms of recruitment for trade finance posts, consultants think there is unlikely to be any major impact. But trade finance may not quite offer the potential for huge bonuses available in investment banking, but it is at least more stable. In the City that counts for a lot. Investment banking is highly cyclical. When a downturn hits, the lay-offs are considerable and for many that means the end of their City careers. Stability is a selling point, which banks must get across to candidates if they want to ensure an ongoing supply of skills. With new positions being once again created in trade finance, banks need to start thinking about the next generation.