Barclays and other banks have no choice but to fire their superstar prop traders now that the deadline for Basel III capital requirements is approaching.One of the traders caught in regulatory crosshairs is Todd Edgar, the star prop trader who Barclays poached from JPMorgan by offering his 11-person team a $50 million pay package and 15% of its profits.
Just two years later, Barclays can’t afford them, so they were fired yesterday, according to the Telegraph.
But no one’s been calling it firing when it’s a star trader recently because the main cause for getting rid of them is usually regulatory.
A Barclays regulatory filing that singles out payments to some “code staff” employees because they are “materially influential” says that Barclays spent $670 million paying the salaries of top Barclays Capital investment bankers and traders in 2010. They don’t say exactly how the $670 million is divided amongst the traders, but there were fewer than 231 of them.
In the future regulatory environment, without a lot of money to trade, the stars can’t bring in the returns that justify their high salaries. There are still a number of traders who have been or will be forced out of investment banks because the banks can’t afford to give them money to trade with anymore (because of Dodd Frank and approaching Basel III capital requirements, for example).
One thing for them to do is start a hedge fund, which is what people expect Edgar and his team will do.
So get ready for tons of new hedge funds.