Looks like the junk CDOs we sold to them is now biting them in the rear. I guess they won’t buy anything from us any time soon. No wonder the dollar is dropping like a rock. Anyway, how can we all profit from this? http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/05/cnbanking105.xml Downturn hits banks’ fixed-income trading By James Quinn, Wall Street Correspondent Last Updated: 8:11am BST 05/10/2007 For years, fixed income, the dull younger brother of the investment banking family, has brought home the bacon on an annual basis. # Ambrose Evans-Pritchard: Jump off the deranged bull now # In full: Sub-prime crisis Former UBS chief executive Peter Wuffli High-profile victim: Peter Wuffli was ousted as UBS chief executive in July Not for its bankers the chunky fees from advising on global mergers or strategic investments. Instead, those in fixed-income have ridden high on the back of cheap debt, ample liquidity and constant product innovation. But now, three months in to the credit crisis, the blame witch-hunt has started, and the spotlight is on the oft-ignored specialism. Merrill Lynch’s Osman Semerci and Dale Lattanzio - both of whom departed the bank’s fixed-income arm on Wednesday - may be two of the highest-profile victims to date, but they are unlikely to be the last. Within Merrill itself, mortgage arm First Franklin, which falls into its fixed-income division, is to cut an unspecified number of jobs from its 2,800-strong workforce. Speculation abounds that up to 15pc of staff in its fixed-income arm may be forced out between now and Christmas, although it is understood such suggestions are currently very wide of the mark. advertisement But Merrill is not alone in its culling, with bank after bank announcing cut after cut. At the end of August, Deutsche Bank shut its proprietary credit trading desk in London, with up to seven employees, including desk head Gerry Jackson, leaving the bank Two days previously, RBS cut its US structured finance operations, shedding a quarter of the more than 20 staff on its collateralised debt obligation (CDO) team. Thousands of jobs have gone in banks’ mortgage origination and repackaging arms - areas that usually fall under the fixed-income bracket - including at Lehman Brothers, where 1,200 workers lost their livelihoods. But as well as the worker bees, a number of high-profile scalps have been taken. Edward Cahill, Barclays Capital’s head of CDOs, departed in August, not long after Citigroup’s co-heads of global credit trading, Jim Higgins and Dave Pichler. Earlier in the year, HSBC’s American chief Bobby Mehta walked after the sub-prime mortgage crisis forced the bank into its first-ever profit warning. Perhaps the biggest name to fall victim is Peter Wuffli, ousted as UBS chief executive in July. Although Wuffli was not directly involved in fixed income on a day-to-day basis, he presided over a strategy which led to the collapse of Dillon Read Capital Management. He was followed earlier this week by Huw Jenkins, head of UBS’s investment bank. DRCM lost SFr120m (£50m) of the bank’s own money in three months, largely from its proprietary investing desk, which has since been repatriated to the main bank. Financial services recruitment firm Options Group recently estimated that about a third of Wall Street’s fixed-income staff would lose their jobs by the end of 2007 unless market conditions improve. Speaking to senior bankers, many are taking a watch-and-wait strategy. On the one hand, many banks feel bruised after suffering write-downs and losses, with the natural response to be to find someone to blame. On the other hand, culling whole teams could be a knee-jerk reaction too far, particularly if the credit markets begin to open up again. Federal Reserve data published yesterday showed that the level of US commercial paper outstanding rose this week for the first time since July, up $4.5bn to $1,860bn (£911bn). If that continues, the summer’s woes may soon be a distant memory. However, with a number of banks yet to comment on the extent to which they have been hit by the downturn in fixed-income trading, the culling is unlikely to be over yet.