Barclays Capital is spending millions to move into mortgage-backed securities, even as the specter of higher interest rates promises to crimp trading volumes and dealers' profits. The U.K. bank last week hired five mortgage professionals from Citigroup Global Markets, including Tom Hamilton, managing director, head of MBS trading, and Scott Wede, managing director, head of Ginnie Mae trading. The hires were first reported at www.bondweek.com last Tuesday.
The new talent didn't come cheaply: Hamilton will reportedly receive up to $10 million a year for two years regardless of what happens with trading volumes, according to one head of MBS at a U.S. dealer. This compares to the $2-3 million a year going rate for a head of MBS trading at a top firm, according to one head of MBS research.
Rivals said the buzz is that Levent Kahraman, head of collateralized mortgage obligation trading at Citi, was offered $7.5 million a year for two years to join Barclays in a similar role. Wede, meanwhile, is said to get more than $5 million a year, also for two years. The hires were meeting with Barclays brass last week in London and could not be reached by press time.
Eric Bommensath, managing director and global head of fixed income for Barclays in London, declined to address specific compensation figures. But when asked whether it made sense to pay up for talent given rate expectations, he said, "Why not? We have a long-term strategy and are here for the long haul. We are not here only for the bullish period."
The pay packages were the talk of the Street last week, with several MBS veterans wagging their tongues at what are considered exorbitant compensation levels in the face of a more challenging environment for mortgages. "I guess at current exchange rates they look at it as a 30% discount," quipped one MBS professional, referring to sterling's strength against the dollar.
Barclays is the latest non-U.S. bank to throw money at the MBS market. HSBC recently hired Neal Leonard and Todd White from Lehman Brothers as managing directors and co-heads of its MBS business (BondWeek.com, 5/27). And BNP Paribas has signaled its intention to staff up an MBS proprietary trading desk (BondWeek.com, 5/28). "This has been an attractive market for some period of time and as a result is attracting some new players," said Jonathan Sobel, head of MBS trading at Goldman Sachs in New York.
