Bull Bear Report Jan 23 2011

Credit Analysts Are the New Belles of the Ball as Investors Demand Deeper Research

By kyle stock

Related: What It Takes to Become a Credit Analyst | Working at Moody's

There's probably no better time than now to be a traditional, roll-up-the-sleeves credit analyst.

Investment banks are planning to hire professionals to analyze bonds for proprietary traders and portfolio managers, while traditional lenders seek the same to inform loan decisions.

"It is very much is back in vogue," said Diane Vazza, head of global fixed-income research at Standard & Poor's Corp. "After the period that we've just come to in the economy, folks now realize that fundamentals speak volumes."

Global Sage, a New York-based recruiting firm, expects to place 60% to 70% more credit analysts in 2011 than it did last year. Chief Executive Richard Stein said banks and investment houses are offering hefty sign-on bonuses and buying senior credit analysts out of opulent deferred compensation deals.

"There used to be a time when being a credit analyst was being the Cinderella of Wall Street," Stein said. "But now they've got their space at the ball, so to speak."

The municipal research team at Deutsche Bank, for example, has expanded from four to six members to meet new demand from institutional investors that have traditionally analyzed bonds in-house. Carol L. Flynn, head of the group, said investors, rattled by the recent crisis, are putting a premium on deep research.

"When everything is going swimmingly, it's sometimes hard to distinguish one kind of research from another," Flynn said. "I've been in the business since 1993; and clearly I have never seen an environment like this. It's a very fun time."

Meanwhile, Moody's Corp., one of three major credit-rating agencies, has bolstered ranks by 716, or 20%, since the end of 2007. Lisa Westlake, the company's human resources chief, said her team is still shopping for credit analysts and has been more vigilant in keeping its talent pipeline full in recent months.

Demand for savvy credit critics has been driven, in part, by the disappearance of debt safety nets.

Bond insurance, once a $2.3 billion business that made issuers with shaky financials more attractive, has all but disappeared in recent years. Big positions covering mortgage-backed securities and toxic collateralized debt obligations drove many companies that guaranteed credit out of the business. Macquarie Group Ltd. and Berkshire Hathaway Inc. made forays into bond insurance in 2008 and quickly retreated. Ambac Financial Group Inc., one of the last holdouts, filed for bankruptcy in November and analysts now wonder if credit guarantees are gone for good.

Meanwhile, professional investors have lost some faith in traditional bond-rating agencies. Stein said such firms still have "a lot of egg on their faces" from giving top ratings to financial instruments that blew up in 2008 and 2009. Those assessments were the focus of an April Senate inquiry.

Meredith Whitney, the analyst who predicted troubles at Citigroup in 2007, has pledged to build a new, independent credit-ratings agency. Whitney, who did not return phone calls and e-mails for this piece, has argued that companies like Moody's and Standard & Poor's have been complacent, particularly with respect to municipal debt.

However, as banks and brokerages look to build and bolster their own desks of credit-quality experts, the pipeline for such talent is relatively thin. Credit analysts, and programs to train them, were some of the first things cut when the economy darkened in recent years.

Between May 2008 and May 2009, the ranks of credit analysts thinned by 6,450, almost 9% of all such positions, according to the federal Bureau of Labor Statistics. There are now roughly 68,000 credit analysts in the country, earning $67,230 a year, on average.

Mark Angott, president of Detroit-area recruiting firm Angott Search Group, is getting more requests for credit analysts from his client base, local and regional banks around the Midwest. But he thinks the market for such professionals will get tighter before the ranks of qualified candidates grow.

"You can't just say: 'We're going to groom up a credit analyst program tomorrow,'" he said. "The basic economics of supply and demand will start to kick in and I really believe that we're going to end up with a shortage."

In recent years, Standard & Poor's, in cooperation with New York University's Stern School of Business, developed a new set of proprietary certification programs to hone the skills of its own analysts.

The offerings are a rigorous step, but still don't compare to the two-year training program that Vazza, the firm's fixed-income research head, says she went through at Chase in the early 1980s. Pupils were grilled in "the five C's" of credit -- character, capacity, capital, collateral and conditions -- and if they failed to top 70% on a test, they were fired, according to Vazza.

"It was the Mercedes of training," she explained. "You don't see those types of programs anymore and I'm really not sure the banks would underwrite that cost again."

Write to Kyle Stock

Related: What It Takes to Become a Credit Analyst | Working at Moody's

Play the new finance career game from FINS!

Financial Dream Jobs - Sign Or Decline
You just got an offer for your dream job,
You have to be barefoot all day.

  • Copyright ©2014 Dice Holdings, Inc. All rights reserved.
Log in 
FINS Login
*Indicates required field
User Name*
     Forgot Your Password?
Or log in using your Facebook account:
Connect with Facebook