Some bankers in syndicated lending are paying for the rough third quarter with smaller or flat yearend compensation packages.

Hit hardest are loan traders in fixed-income departments, whose bonuses are as much as 50% lower than a year earlier. Though losses in the secondary loan market were marginal for the year, other fixed-income products were badly hurt by volatile world markets last fall.

"Compensation levels are the worst I've seen in the last five to six years," said one veteran loan trader. "The reason is that people ran up some losses."

Most syndicated lenders contacted for this story reported flat to slightly lower bonuses for 1998, except for Chase Manhattan Corp. and Donaldson, Lufkin & Jenrette. Chase bankers, on the heels of a strong fourth quarter, got bonus increases of 10% to 20% above 1997.

The generally smaller pay packages reflect an end to a four- to five- year run in which lenders' compensation ballooned with the fattening market. Though volume hit $1.01 trillion in 1998-the second-largest year on record-late-summer tumult in the capital markets burned off profits at some firms and caused deep losses at others.

The disparity in compensation among lenders is relatively new. Commercial bank pay has historically been oriented toward salaries more than bonuses.

Volatility in compensation "is increasingly the case each year," said a loan analyst at a top-five commercial bank lender. The trend, the analyst said, is tied to the loan market's convergence with the bond markets.

Michael Liebowitz, an executive recruiter at Highland Search Group LLC in New York, said competition from investment banks for top people had also driven the compensation boom during most of the mid-1990s.

"By and large it was because the investment banks were ramping up their loan departments, and their general compensation has been historically higher anyway," he said.

According to recruiters and bankers, entry-level syndicated lenders with an MBA earn base pay ranging from $85,000 to $100,000 a year. Bonuses can equal one year's salary or exceed it by as much as 200%.

Top lending executives at leading banks make about $3 million a year- with some top executives making as much as twice that.

Pay for loan traders varies more widely because it is performance-based. However, loan traders are usually paid less than traders of other securities.

"Overall, syndication came out with a plus sign," said Robert Woods, head of syndication for Societe Generale's New York office. "But at those firms where loan trading is tied to fixed-income products, it wasn't a good year."

One trader at an investment bank where loan trading shouldered some of the blame for fixed-income losses said, "People probably weren't as happy as they would have liked."

Bonuses for lenders at Goldman, Sachs & Co., Lehman Brothers, and J.P. Morgan & Co. were lower than in 1997, sources said. They are also expected to be down at Citigroup Inc. and Bankers Trust Corp., which are expected to announce bonuses soon. Bankers Trust, as part of its planned buyout by Deutsche Bank, is taking the unusual step of paying 1999 bonuses in the second quarter, to keep key employees.

Unhappiness aside, don't expect a flood of job applicants in the market, said Highland's Mr. Liebowitz. He said that, like pay, demand for loan professionals is ebbing.

"The bid isn't there the way it was over the last few years," he said. "Fewer executives are making the marginal hire. People at the top are being told to play with the hand you've got."

Mr. Liebowitz also said layoffs and a decline in demand by foreign banks are keeping a potential flood of free agents from entering the market. He said he expects this year to be an "average" year for post-bonus turnover.

At least one resignation, the December departure of Jerry Fall, a Morgan vice president in loan trading, was compensation-related, a source said.

Another source at the firm declined to comment on Mr. Fall's departure but said the company remains committed to loan trading.

Meanwhile, there is some growth in the loan trading market. Societe Generale is awaiting final approval from Paris to launch its loan trading desk in New York, which would be run by former Citicorp loan executive Kevin P. Meenan. The desk is tentatively scheduled to begin work Feb. 8.

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