LONDON (Reuters) - At least 20 commodities traders, several senior, have left Goldman Sachs in the past months, dealing a blow to Wall Street's long-time king of commodities as talent moves to better paying trading houses and hedge funds.
The departures, according to around a dozen insiders and trading sources, mirror the exodus of traders from rival banks over the past two years.
The outflow is driven by shrinking profits and tighter regulation of banking, which gives funds and trading houses greater scope to trade and to reward success.
Goldman said the departures will not have an impact on its standing in commodities.
"We are not downsizing our commodities business. It remains a core part of our franchise," a spokesman for Goldman said. "The positions we need to refill, we will refill".
A source at Goldman said the departures were a combination of resignations and regular annual headcount reductions, and were not specific to commodities but happening across all the bank's businesses.
But insiders say some of the departures were triggered by unusually low bonuses at Goldman, widely recognized over the past 20 years as the most prestigious and well paying of the big five banks in commodities alongside JP Morgan , Morgan Stanley , Deutsche Bank and Barclays .
Earlier this month, Reuters reported that Goldman had ceded leadership in commodities trading revenues to JPMorgan, according to regulatory disclosures by the banks.
"Goldman held on to talent a little longer than other banks because it has a deeper pocket. It (the exodus) happened to other banks a lot earlier," said one trader who recently left from a major bank to a trading house.
"It is definitely a part of regular turnover at any banks that happens after bonus every year. But indeed a large number of Goldman guys are jumping ship at the same time and going to non-banks," he added. "What this means is even Goldman can't do anything and even they can't make money, because of regulations".
FUNDS AND TRADERS HIRE
Goldman sources stress the only departure at the most senior partner level was that of Jeff Resnick, the global head of trading in commodities, who resigned after many years at Goldman without joining any other firm.
However, several managing directors - one level below partners - have left Goldman recently.
"Every year there is a trimming of staff at the analyst, vice-president and director level but the number of managing directors leaving commodities strikes me as higher than I've noticed in the past," said Will Ainger, co-editor of SparkSpread, a publication that tracks the moves of people in commodities businesses.
Among managing directors, Ben Green joined trader Mercuria's metals desk; Macquarie has hired Arun Assumall as head of new commodity products; Europe's oil trading head Taimur Hassan went to a hedge fund; U.S. power trading head Raj Sethi, U.S. oil trading head Andre Eriksson, European power and gas specialist Phil Beatty and Australian power expert Troy Wilson resigned.
On levels below partners and managing directors, Mercuria hired Liam Brown for its metals desk, Graham Capital Management recruited Laura Hunt as a power trader, Vitol hired Tom Baker for its oil desk, Koch took on Michelle Lei as an oil analyst.
Oil derivative trader Ben Jacobs will join a hedge fund, London-based emissions trader Andrew Mugadu and coal trader Bruno Roch resigned. Some had worked for Goldman for 10-15 years.
"Many of those are proven successful senior people so it is very hard to imagine they have been all fired," said a former senior commodities trading business employee at Goldman.
Goldman has this month begun a new round of staff cuts in its trading and investment banking to reduce costs following the elimination of 2,400 positions last year, sources familiar with the matter said earlier this month.
Recent staff cuts have been less drastic than in March 2011, when 5 percent of its trading staff was let go.
Goldman is known to create staff cuts lists early in the year and send at-risk employees a signal through low bonuses that are handed out in February. Those who do not get the hint are let go in mid-to-late March.
"Some very decent guys just weren't paid properly. So they said: 'Screw it' and went to funds," another insider said.
Goldman is believed to employ around 400 traders in its commodities trading division, which generated $1.6 billion last year, according to regulatory filings, down from as much as $4.5 billion in 2009.
Banks dramatically expanded their trading operations in the early 2000s to capitalize on booming commodities prices. But new regulations being introduced after the 2008 financial crisis drastically limit risky investments with their own capital, known as proprietary trading, or with clients' money.
Insiders say Goldman has long made a point of crediting the unrivalled scale and scope of its trading operation, rather than the skill of individuals, as the key ingredient of its success.
The latest departures will test that assertion.
"Goldman did a very good job of convincing people that it wasn't the trader, it was the chair," one senior commodity executive said. "Other companies are coming along and are ready to pay more for that talent."
A former Goldman insider said that new rules on limits on the amount a bank is allowed to hold in derivatives in certain commodities, known as position limits, meant that banks would inevitably have to scale down their businesses.
"They are not getting "hedge exemptions" for using commodity futures to hedge large synthetic commodity index portfolios for investor clients, nor when hedging large OTC (over-the-counter) derivative deals with oil and metals producers," he said.
Hedge exemptions from futures position limits are easier for oil companies or trading companies with large physical assets that can point to an exact amount of stored oil in a tank that is being hedged by futures, or to similar stockpiles in metals.
"Goldman's platform has had a large proprietary component. The percentage of payouts at trading companies are difficult to compete with for prop guys," said the head of trading at a large rival of Goldman.
Trading houses, most of them are unlisted, pay bonuses in cash while a big component of Goldman's annual bonuses are stock options vesting in 3-5 years.
Bank bonuses are generally down.
Citigroup cut last year's bonus by about 30 percent. Morgan Stanley capped 2011 cash bonuses at $125,000 per person. Goldman Sachs snipped compensation by over 20 percent, and Bank of America reduced the cash portion of its bonus by 75 percent.
To take one example in Europe, Barclays Capital saw a 32 percent reduction in bonuses.
"At a trading house, it tends to be about 10-15 percent of the profit individual traders make," said a former trader at a bank, now working for a trading house. He said a trader can earn up to 10 percent on the first $1.5 million he makes and up to 15 percent on everything above that sum during a given year.
"But traders take it granted if you make profit. If you make losses you get fired on an ad hoc basis more easily than at banks."
(Additional reporting by Ikuko Kurahone, Zaida Espana, Simon Falush, Jessica Donati, Emma Farge, Christopher Johnson, Jonathan Leff; Editing by Anthony Barker)