I’m not one to post articles, but here is a great one: Credit Seizure? $6 Million Pay Turns on Relationships (Update1) By Shannon D. Harrington and Pierre Paulden May 7 (Bloomberg) – In the course of a three-and-a-half- hour dinner at Manhattan’s Smith & Wollensky steakhouse, Emil Assentato went from also-ran to the top of the world’s fastest- growing credit market. By the end of the meal, Assentato, 58, the head of Cie. Financiere Tradition’s North American securities business who races cars on weekends, had persuaded more than a dozen credit- derivatives brokers led by Donald Fewer and Michael Babcock to defect from rival GFI Group Inc., court documents allege. In the end, 21 would leave for Tradition with the promise of $130 million over three to five years, about $6 million apiece. Tradition’s attack did more than decimate GFI’s credit- default swap desk. It also raised the bar for the extraordinary'' pay commanded by derivatives brokers who match buyers and sellers between banks, according to affidavits filed by New York-based GFI in a suit against Tradition. As Wall Street buckles under the biggest credit-market losses in history, brokerage firms are seeking to tap the $10 billion of fees generated by middlemen, who spend as much as $500 million a year entertaining traders with strippers, football games and evenings at trendy Manhattan bars, based on court records and interviews with industry officials. It’s astounding that people get paid that much to be intermediaries,’’ said William Cohan, a former investment banker with Lazard Ltd. in New York and now an author of books on Wall Street. More than Clients So-called interdealer brokers pair bids and offers between the world’s largest banks in derivatives markets that have no public exchanges such as credit-default swaps and interest-rate products. Unlike traders and investment bankers, the brokers don’t take on risk or devise trading strategies for their clients. As the notional amount of credit-default swaps ballooned from less than $1 trillion in 2001 to $62.2 trillion last year, the brokers became more valuable. According to the International Swaps and Derivatives Association, the amount outstanding expanded 81 percent in 2007. Interest-rate swaps grew 34 percent to $285.7 trillion and equity derivatives gained 39 percent to $10 trillion. Fees for brokerages, including GFI, ICAP Plc, Tullett Prebon Plc, Creditex Group Inc. and Cantor Fitzgerald LP’s BGC Partners Inc., may rise as much as 20 percent to $12 billion next year, according to Citigroup Inc. analyst Donald Fandetti. Matching Up Trades' A Morgan Stanley trader who wanted to reduce his exposure to General Electric Co. debt by buying credit-default swaps would telephone a credit-default swaps broker, who would then find a trader at another bank to take the other side of the deal. A broker enables both to retain anonymity. ``They're just matching up trades,'' Cohan said. Some brokers make more than customers at top-tier investment banks, based on numbers supplied by Options Group, a recruiting and consulting firm in New York. The average managing director on the credit-derivatives trading desk at a Wall Street firm, such as Morgan Stanley or Goldman Sachs Group Inc., earned between $1.5 million and $1.8 million. A head trader is paid about $4 million in salary and bonuses, according to Options Group. Demand for brokers comes while Wall Street eliminates 65,000 jobs to compensate for a slump in sales and trading of asset- backed securities and high-yield corporate debt. Credit-default swaps skirted the freeze in credit markets that began with the collapse of subprime-mortgage securities in July as investors and traders used the instruments to bet on potential losses for companies from Bear Stearns Cos. to Ambac Financial Group Inc. to Tribune Co. All About Relationships’ Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite. GFI handled as much as 40 percent of the credit-derivatives trades between the world’s banks in 2007, collecting $318 million in revenue, according to Citigroup’s Fandetti. Derivatives are financial instruments linked to stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or weather. It's all about relationships,'' said Andy Nybo, a senior analyst at Tabb Group in New York, who analyzes market structures and exchanges. It’s more than a phone call. You invite him to a Yankees game. It’s tight-knit and built on entertainment and social interaction.’’ Massage Parlors That’s not unusual in the world of derivatives brokers, according to Willy Stemp, 52, a consultant at London-based Mark to Market Plc. Some entertain traders every night of the week in the hope of winning a client, said Stemp, a former broker. Brokers aren't looking for highly technical Ph.D.s and MBAs,'' Stemp said. They’re looking for personality people, with a decent education and sharp wits.’’ The entertainment can go further than expensive restaurants and bars. According to a complaint filed by former Tradition broker Brett DiLiberto in the Southern District of New York and made available on electronic databases, the firm regularly paid prostitutes to entertain traders.'' DiLiberto, as part of his job, frequently visited brothels masquerading as massage parlors,’’ and was required as part of his entertaining duties to retain other prostitution services,'' according to the complaint. DiLiberto also said he went on a January fishing trip to Costa Rica in 2006 that was an extended orgy.’’ On one occasion, DiLiberto said he was recalled from vacation to attend a customer drinking and drug party.'' Axiom Suit DiLiberto sued Tradition, saying the job drove him to alcohol and drugs and almost broke up his family. He claimed the brokerage refused to let him resign, preventing him from finding new employment at rival firms. Jennifer Van Hofwegen, a spokeswoman for Lausanne, Switzerland-based Tradition in New York, declined to comment. Assentato didn't return calls. DiLiberto didn't return repeated calls to his home in the past two days seeking comment. In 2005, the partners of now-defunct New York-based credit- derivative brokerage Axiom Global Partners LLC accused James Cawley, the chief executive officer, of spending $40,000 one evening at a strip club entertaining a client, according to a court affidavit. The partners, who also accused Cawley of hiring prostitutes, wanted Axiom shut down. They later settled the case and agreed to withdraw the allegations. Prostitutes, Strippers Cawley is now CEO of New York-based IDX Capital, another derivatives firm. False and defamatory allegations were made against Mr. Cawley three years ago because he attempted to change this culture,’’ according to an e-mailed statement from spokesman Lewis Goldberg. Cawley is suing for libel, Goldberg said. Brokerage firms spend as much as 5 percent of their revenue on entertaining, Citigroup’s Fandetti said. On fees of $10 billion, that would come to $500 million for the industry. GFI has a longstanding policy of not reimbursing employees for adult entertainment,'' according to a statement. Still, the defecting GFI employees spent $1.6 million last year entertaining clients who paid the firm about $50 million in fees, GFI President Colin Heffron said in an affidavit for the suit against Tradition seeking to prevent the brokers from joining the competitor. The firm spends large sums of money’’ to foster crucial broker-trader relationships,'' Heffron said. Three Amigos Tradition's raid on GFI followed the departure of three London-based GFI brokers, dubbed the Three Amigos, who quit in June to join Tullett for 2 million pounds ($4 million) in a signing bonus and a guaranteed minimum of 2 million pounds annually for three years, GFI said in legal documents. Fewer, 44, earned $3.2 million last year in addition to dividends from his ownership interest in Gooch's Jersey Partners Inc., the majority owner of GFI, the company said in its suit. Babcock, the former head of GFI's most-profitable credit- derivatives desk in New York, took home $3.5 million, according to GFI's petition to the Supreme Court of the State of New York asking for a temporary restraining order against the departing brokers. Fewer and Babcock didn't return repeated calls seeking comment. GFI, down 48 percent this year through yesterday, fell 14 cents to $12.40 at 9:58 a.m. in Nasdaq Stock Market trading. Tradition rose 1.2 Swiss francs to 197 in Swiss trading. The company has a market value of about 1.1 billion francs ($1 billion). Marking the Peak? The salaries commanded by the GFI brokers may mark the peak, Citigroup's Fandetti said. Eight banks led by Morgan Stanley and UBS AG may spend $40 million to create a brokerage that will cut costs by using combined electronic and so-called voice brokering. While GFI introduced electronic trading for credit derivatives in 2004, it hasn't taken hold in the U.S. Like credit derivatives, brokering trades in U.S. Treasuries was conducted over the phone until 1999, when Cantor Fitzgerald introduced ESpeed Inc., an electronic-trading service. Now all trading is screen-based, Tabb Group's Nybo said. Because credit derivatives are more complex, it may be years before they are traded electronically, he said. Three days after Assentato hosted the steakhouse dinner, none of the brokers showed up at GFI's trading desk at 100 Wall Street. GFI that day matched one trade instead of the few hundred it typically averaged, credit-derivatives broker John Piluso said in an affidavit. For many of the brokers, the money was too much of a lure. I am just a guy from upstate New York who was offered a lot of dough; what can I do?’’ Daniel Polidore, one defecting broker told Piluso before departing, according to the affidavit. The case between GFI and Tradition is GFI Securities LLC v. Tradition Asiel Securities Inc., 601183/2008, New York Supreme Court (Manhattan). To contact the reporter for this story: Pierre Paulden in New York at ppaulden@bloomberg.net; Shannon D. Harrington in New York at Sharrington6@bloomberg.net
unlimited expense account to entertain clients with hos and blows is a hard job… 6 million bucks a year ? god…
“god…” as in there is now definitive proof there is one?
im going to start a firm where companies can outsource that part of the job. my job would be to go to strippers and do rails upon rails. i am now accepting applicants