Investement bank power vs utility power trading

Hello, I'm pretty deep in discussions with a US BB investment bank about joining as a VP on a power trading desk in London, I'm currently a relatively junior power trader at an EU utility. Anyone familiar with European power markets will know theres a pretty large shortage of power traders atm so we're in demand.

Question is - does anyone have experience trading power in both a bank and utility? and whats the upside to the bank? apart from the obvious prestige that come with trading with a BB I don't see much benefit  in power trading where I have significantly more expertise surrounding me in the utility, which I think would benefit be much more as a trader in the long run. If I was a few more years into my career I think the switch would make sense as I would have much more upside financially. But banks have been brutal in cutting their energy desks before so it would seem like theyre just trying to hop on the bandwagon for a while and cut cut it loose pretty quickly if prices take a tumble again.

My current role is purely prop trading european power,gas,carbon and cross-border vs a role that would need to involve a lot of deal flow I imagine since banks can only 'market make'

Anyone else have thoughts on it?

Thanks

Comments (11)

Jul 31, 2021 - 7:33pm

I have.

It is very simple.

Security vs. Compensation. 

Everything else is moot.

Yes, the banks have different hedge profiles and can bring in different client sets.

If you are only trading prop, then limits are your big concern...hence my opening statement.

Choose whats best for you.

Namaste.

D.O.U.G.

Jul 31, 2021 - 10:16pm

You at a utility trading prop, is your payout cost/percent of book or is it a ranking system based on firm performance. Same question goes for the bank, some banks are more direct payouts some are more merchant/ranking style.

Also how much belief you have in bank's deal flow and origination team that is the key when evaluating banks.

Aug 1, 2021 - 7:55am

marcellus_wallace [D.O.U.G.] Thanks for the concise input. always helpful to have someone strip away the extraneous stuff.

As it stands I'm on a % of book PnL so I already have upside exposure, really about limits as you said. My instinct tells me to hold out for another while and then move to a independent house or european supermajor when I want bigger risk. A relatively high 7 figure daily VaR isnt too unusual at my firm. Do you know what would be usual for an energy trader at BB banks?

I'm not interested in the BB - HF path  which also dulls the prospect of moving to a bank.

Thanks!

Aug 1, 2021 - 10:07am

Marcellus?  Been a while for me to give accurate #'s

Namaste.

D.O.U.G.

Most Helpful
Aug 1, 2021 - 3:24pm

So to be clear. 
When you say you are trading prop with direct payout, %book structure. I assume you are at what I call a "marketer or merchant" which is owned by a utility. Not at a utility just doing procurement around assets.

7figure var/vol is pretty good truly and a good seat, if your %book is 8% or higher after costs (which I am guessing is the case). At a BB you will be getting prolly a higher salary and with strong originator flow your var could be 1.5-2x that amount but very likely your payout is near 3%. So I would not move unless its a major promotion in responsibility truly based what it seems you enjoy. The reason the bank gig will  have higher var you will prolly have to deal with 3-5 year structures at some point.

As for your long term…you mention no bank -> HF model. Truly the market is hella hot as you mentioned and the way I categorize ind-houses/hfs/smaller-prop now is all the same lots of the funds are basically copying the ind model the last 18 months and will continue to do so. I think thats the better move for you wait out this year/coming winter as the market will get even hot or as hot. Then truly look into the HF/ind opportunities I say this only cause you looking at 10-12% then and possibly 15% (at a few). Likewise you will have the credit/balance sheet to do same things as at the BB

I am a bit biased but I lean the market is has lots of vol now and continues in next 2-3 years. So truly think ind-houses/HFs are the best places to be if you a hard worker/energetic etc. This is the time to risk your career, I would say.

Aug 2, 2021 - 2:58pm

 I think it really depends on your view of where the market is going and what tenor you would want to trade down the road. I can't really comment on the EU but in the US I think there is huge opportunity coming to "firm" renewable energy. IMO the banks and bigger commodity merchants will get a look at these products first. There will most likely be a lot of fat on these more structured trades which as the trader you will get to share/manage in the PnL. In terms of tenor, if you like short term I would imagine the utility has a better view and position in the shorter tenor. In the longer tenors though the banks will rule that market. Getting that bank experience from market making 5 to 10yrs out would be very insightful and could be transitioned to companies like Traf, Merc, Vitol, etc in a spec role. This is also coming from someone who prop trades the front twelve at a prop shop and is jealous of some the trades the banks get to look at...

Aug 3, 2021 - 4:31am

Cheers guys, appreciate the input. marcellus_wallace you're spot on, its a merchant arm of a utility, deal mostly in PPAs, market access for 3rd parties and prop trading, not just trading around the assets. I think you're right with in saying wait it out a bit, I also don't want to spend this winter on gardening leave and miss some of the most interesting markets in quite some time. re:HF/Ind  I'm certainly interested in places like Vitol, traf , hartee etc so I'll look at them at some point.

monty09 I agree trading at a utility/merchant utility is fun, I also have volumes of fundamental info that I would never get at a bank depending on third parties to aggregate it. So while I might have greater upside exposure on comp at a bank I'm not I would be able to take advantage of it?

gctrader I think Europe is the same, lots of 'flexible' small scale gas plants & batteries coming to market now in the UK, I think it will be replicated across the continent in the near future. I'm not sure if the banks will get first look though, a lot of the value in these is the optionality of the ultra short-term markets and balancing markets, which is the playground of utilities and small trading shops which I think explains why you see some banks and supermajors hoovering up short-term power trading firms in Europe at the moment. Structured products at 5-10yr tenors would be a nice area to be exposed to but I think my preference is actually the shorter tenor, trading mostly the front 12 and even front month, as the renewable build out continues the volatility on these time frames is going to be nuts.

Lots to think about but I think its pretty clear which way I'm leaning.

thanks!

Jan 11, 2022 - 6:42pm

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