Crippled by lawsuits linked to the 2007-2008 financial crisis, American banks are grappling with an exodus of their best bankers and traders, lured by the huge salaries of little-regulated hedge funds.
Michael Cavanagh, 48, was the favorite to succeed Jamie Dimon at the head of JPMorgan Chase, the nation's biggest bank. But he gave up on that golden prospect in March to join the Carlyle Group instead.
"He is fine," a banker friend told AFP, requesting anonymity so he could speak freely about Cavanagh's decision. He said Cavanagh has no plans to return to JPMorgan.
Many renowned bankers and traders have chosen the same path in recent months, leaving Wall Street for hedge funds or to build ventures of their own.
In June, Bank of America lost Bill Egan, who had served as co-head of Bank of America Corp.'s global financial institutions group. He joined Oaktree.
And Jeff Feig also left his post as a top foreign exchange banker at Citigroup in June, just months after the bank lost its global head of foreign exchange, Anil Prasad.
Anthony Noto, who helped Twitter make its initial public offering, joined the social messaging platform in early July from Goldman Sachs.
And in another sign of the trend, one of Wall Street's most powerful women, Blythe Masters, left JPMorgan in April.
She helped develop credit default swaps, complex financial instruments that provide insurance against non-payment of debt. They are accused of having played a major role in triggering the financial crisis.
- Limited speculation -
"The trend has been in place for four or five years since Dodd-Frank took effect," said HedgeCo Networks hedge fund research and services firm CEO Evan Rapoport, referring to a 2010 Wall Street reform and consumer protection law.
"You have a mass of traders, investment bankers and money managers coming to hedge funds. They don't have the ability to operate in the same way. It also has do with compensation."
A key provision known as the "Volcker Rule" limits proprietary trading, a lucrative practice that can account for 10 percent of revenue for big banks and allows for deposits to be traded on the bank's own accounts.
Proprietary traders are the stars of the trade floor. They are often given free rein to speculate on banks' capital and pocket a percentage of the gains.
The Volcker Rule, which goes into force in July 2015, aims to avoid speculation on individuals' deposits that are guaranteed by the federal government.
In order to conform to the rule, JPMorgan, Morgan Stanley and Goldman Sachs sold in recent months their highly lucrative proprietary trading operations.
Most traders "have no choice. They have been forced to leave," said Rafferty Capital Markets analyst Richard Bove.
"The funds available to trade with have been cut off because of the Volcker Rule. Traders are in a very difficult position; they have been pushed out of business."
- $119 million bonus -
MorningStar analyst Michael Wong stressed that "some of the pay packages have been limited over the years in big banks. There has been scrutiny over investment bankers' pay."
At hedge funds, "compensation is a lot better as well, hedge funds offer them better pay and less regulation," Wong added.
James Levin, head of global credit for Och-Ziff Capital Management Group, made $119 million last year -- more than the income of the bosses of the six biggest American banks combined ($108.7 million), market documents show.
The 31-year-old gained notoriety in 2012 by making more than $7.5 billion in structured credit debt products.
Cavanagh will be paid $39 million at Carlyle, more than twice his JPMorgan earnings.
But money is not the only reason so many bankers and traders are leaving the big banks.
There is also growing public outrage at bankers seen as ruthless and ready to break the law amid a series of scandals.
American banks have paid more than $90 billion in financial fines for missteps and mistakes linked to the crisis.
Those actions are being investigated around the world, with a focus on suspected manipulations of the LIBOR benchmark interest rate index used to make adjustments to adjustable rate mortgages.
A Deloitte consulting study published in October that interviewed business students in top colleges and universities found that the banking sector was losing interest.
"Banking is a less popular career choice among business students now than before the collapse of Lehman Brothers five years ago," Deloitte said.