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Chicago has been called the capital of the derivatives industry, thanks to the once-bustling open trading pits at the Chicago Mercantile Exchange (CME), the Chicago Board Options Exchange (CBOE) and the Chicago Board of Trade, where derivative contracts such as futures and options are traded.
Although trading floors on the big exchanges have mostly been replaced by electronic trading, the dense concentration of derivatives professionals and their business remains in the Windy City. The Chicago metropolitan area had about 45,000 jobs in derivatives and related sectors in 2016, according to a Financial Times article that year.
Despite that, Wall Street banks have pulled their derivatives business out of the city in recent years, given the reduced need to be near the exchanges. U.S. Bank is one of the last banks with a derivatives team there, and that’s just fine with Jonathan York.
York, managing director and head of the U.S. Bank Derivatives Products Group, said Chicago’s location and talent pool make it a perfect choice for the bank.
“We made a strategic decision to grow our business here when everyone was leaving,” York said. “And we’ve been able to attract great talent – senior people with bank experience who wanted to stay in Chicago after their banks left. Plus, we’re a Midwestern bank, and being central in the United States is such an advantage, especially when meeting with clients all over the country.”
U.S. Bank overall has increased its commitment to Chicago in recent years, including acquiring Charter One branches there in 2014 and more than doubling its employees base to 2,500 from 1,000 in 2008. In addition, the bank has invested more than $100 million in community and economic development in the city’s historic Pullman neighborhood.
For the derivatives team, that has meant increased support and collaboration from other areas of the bank, as teams pull together to create a “One U.S. Bank” experience for customers.
Derivatives, which are financial tools to hedge against business risks, got a bad reputation during the financial crisis, when some large financial institutions were highly leveraged, and their proprietary positions moved against them.
York said U.S. Bank doesn’t do the kind of deals, like proprietary credit default swaps, that were highlighted in movies and documentaries about the crisis.
“We only deal with clients of the bank to help them better manage a business risk they have, as opposed to dealing with hedge funds or other speculators,” he said.
For example, York’s team recently worked with a large real estate developer who was facing risks associated with construction labor shortages, which are drawing out the time it takes to build. Projects that used to take 24 to 30 months to build now turn into longer projects. The longer a project takes, the more interest rate risk developers have because it’s difficult to predict where rates will be that far in the future.
“My team created a customized strategy to manage their interest rate expense,” York said.
The Derivatives Products Group (DPG) also recently helped a large, international fashion house with overseas manufacturing hedge its foreign currency-dominated interest rate risk.
York’s team has nearly doubled in size in the last five years, while growing its client business by nearly 300 percent, in terms of transactions completed. Part of that growth stemmed from a change in 2014, when DPG began doing its own trading and created its own risk book to better facilitate client hedging. In a nutshell, that meant they were able to do business directly and more efficiently with Fortune 1000 companies.
Other contributing factors to the team’s success are its agility and deep talent.
“Being a relatively small and flat team means we can pivot very fast to meet clients’ needs,” York said. “We’ve also made a concerted effort to attract more diverse workers and to promote from within. We tell them if they work hard, they can get promoted and have a great career at U.S. Bank.”
U.S. Bank’s reputation for strong ethics and its corporate culture of doing the right thing and putting people first also helps attract the best talent, he said.
Still, York knows it’s not a career for everybody. “There aren’t a lot of dull moments,” he said. “You’re either attracted to this fast-paced environment or you’re not.”
York is excited about the opportunities for his team in Chicago going forward, and the continued expansion of the bank’s Corporate & Commercial Banking business line.
“The biggest complaint companies I work with have is not about a slowing economy, but that they can’t find people to help them run their business,” he said.
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