Future and Opportunity of Investment Banking

[RayRichardMurphy]

Hello, My name is Ray Murphy. I'm a sophomore student at Emory University in Atlanta, working towards a major in Finance and International Business (typically a secondary major) and a minor in Statistics (if I can finish - I'm not so sure).
I was hoping to go into the Investment Banking. Many of my ex-Senior friends from last year and 2- years ago were swallowed up by various eager banks upon graduation. Their employers were mostly Bear, Wachovia, Suntrust, JP Morgan, Goldman, etc - with a few more other regional employers such as Coca-Cola, record companies, etc. Those who went to Wall Street, and even those who went to Suntrust, Wachovia, etc. all got sweet jobs - mostly as analysts. Some of 2nd years claimed to be well north of $150K - with no end in sight. Needless to say, many of them got laid off. To tell you the truth, I have lost contact with most of them (abandoned FaceBooks, emails unreturned, phone numbers have become "this phone number does not exist...") Those who kept their jobs complain of being totally ragged out, of a horrible CYA work environment, and are not so assured of their "no-end-in-sight" salaries anymore. In fact they seem to have adopted more of an "I hope I keep this salary" type of attitude.
I have to say, Investment Banking looked quite glorious - until the financial sector collapse. Anyone from a top-tier school could be assured of making $1M+ after 10 or so years. Sure the hours were long, but that was glorified. Tough, rich, affluent, intelligent, and indefatigable - who would not want to be like that? But now we are entering an era of regulation and restrictions. Everything is being socialized. President George Bush claimed these measures will be "temporary" to "restore" the previous harmony - but with the failing bailout and increasingly drastic measures - it looks like these changes are here to stay.
What is going to happen to those salaries and positions now? Will someone entering as an analyst, trader, etc. still be able to make $1M+ after 10 or so years? Will there be good opportunity to get these jobs? BusinessWeek, NYT, etc. are all full of stories of students who wanted to be investment bankers - now switching to engineering, science, mathematics, consulting, etc. In other words, they seem to have dropped their desire to become investment bankers.
Perhaps more favorable conditions will be restored upon an economic expansion? That shouldn't be more than 4-6 years from now - possibly 8 depending how bad this recession is. I would greatly appreciate any direction in this. Thanks is advance, -Ray Murphy

 

[doug reich]

Hello Ray,

Please look around these forums for the answer -- this is the question all students are asking today.

Particularly look at the threads tagged with "current events" -- there have been some lively discussions.

 

[RayRichardMurphy]

I just figured out why I was having trouble formatting my previous post I was going through a proxy (I usually browse the web anonymously) - for some reason this triggered formatting restrictions/filters. Also, the tags on the front page are not the same as the tags as you browse the forums.

To the topic. I did find a few posts that were quite similar to what I was looking for.
For example, this thread by Andy was quite useful. Unfortunately it seems to be outdated, as it assumes the economy is "just exiting a recession". As far as I can recall, 2005 was a relatively excellent year. There were a few other relevant threads. It looks like it's over for Wall Street.

Hi Doug,
I found this quote from you:
"Everything will be completely back to normal on February 19, 2009. Congress will have restored the country to its last "save point" in 2005 on that date. Please wait until then to enter the job market; otherwise you will meet with calamity."

Sounds good to me, but I don't think its very realistic. Perhaps I took it out of context of what you were saying?

Despite all these great threads, I didn't find much about the future of investment banking. All I know is that people from fairly high Universities (Duke, etc.) are dropping IB like the plague.

Thanks,
-Ray Murphy

 

[doug reich]

I believe that post you quoted from me was sarcasm. I think it will be quite competitive and difficult going forward for the next year.

 

[Andy Nguyen]

Congress will have restored the country to its last "save point" in 2005 on that date
Knowing our government, when they select "Last Known Good Configuration", it somehow will fail because the routine backup process screwup and nobody noticed it.
While I have nothing to say on the investment banking side, I would say that going into this industry amid the current condition requires lot of faith. You will need strong faith that the market will improve (the timing is a guess at this point), that you provide things employers want, that easy money is gone, that hard work is mandatory for everyone.

On that another note, I enjoy this article very much. The author is the same guy who wrote Liar's poker.
The End of Wall Street's Boom - National Business News - Portfolio.com

 

[RayRichardMurphy]

"you provide things employers want, that easy money is gone, that hard work is mandatory for everyone."

I got the impression that it always was like that on Wall Street. Tough to break, and tough to stay. If you didn't work hard - you were gone. If you didn't provide what the bosses wanted - you were gone. The money was never "easy" - but if you could hang on - there was lots of it to give to you.
I though it was a given that everyone tried to suck what they could out of everyone, and that you had to be a workaholic. That's kind of why it appealed to me. While others got thrilled partying, I got thrilled working full time, going to school full time, being on the swim team, and still finding time for dates in the meantime - succeeding greatly in all on little sleep.

I've been reading the article you posted. I am 3/4 of the way through, and it is very interesting - although it is quite bleak. I have never read Liar's Poker, maybe I should?

I am curious. Do such positions even exist right now? Citi just laid off 53,000 employees. You can be assured that those laid off were analyst and i-banker types, not the big fish. All of Wall Street is scaling down its investment banking right now.

Thanks a lot,
-Ray Murphy

 

[Andy Nguyen]

It has been always like that. You work hard banking on the big bonus you get at the end of the year. Bonus is a big part of the total comp. People work hard for the bonus, not the base salary. It's well understood, especially in the investment banking side.
Now, you have to work harder and there is no certainty the job will be there tomorrow. The bonus is gone. Goldman just announced that their execs will not get bonus this year.
What tomorrow will hold for IB? I don't know. Nobody knows.

It's a good time to catch up on yesterday reading like Liar's Poker. If you are into IB, it's one of the must reads just for the fun of it. The list of all the books is Master reading list for MFE - QuantNetwork - Financial Engineering Forum

This is a quantitative community so I'm afraid you will not find much discussion about IB-side career. That's a job that major media is doing a fine job covering.

 

[IlyaKEightSix]

Thanks for the article, Andy. Major eye opener. I guess the silver lining in this is now that perhaps the honest people who've always done it the honest way through hard work now have a chance to get in, rather than the people whose fake smile covers all of the bullshit that created this whole mess.

I hope.

Edit: I believe Oliver Stone and Michael Douglas are shaking their heads now. That said, Gekko's still the man. The guy was ruthlessly efficient and made profits where there were profits to be made (never mind the insider trading BS that a lawyer actually analyzed and acquitted GG of all charges).

 

[bigbadwolf]

You work hard banking on the big bonus you get at the end of the year. Bonus is a big part of the total comp. People work hard for the bonus, not the base salary. It's well understood, especially in the investment banking side. Now, you have to work harder and there is no certainty the job will be there tomorrow. The bonus is gone. Goldman just announced that their execs will not get bonus this year.

In the FT:

UBS to change executive pay model

The bank on Monday said its 12 most senior executives would not receive bonuses this year and the compensation system for all senior staff would be revised from 2009.

For next year, compensation for the group's top 2-3 per cent of staff will be revised to put more emphasis on long-term performance. Under the changes, bonuses in cash and shares will be staggered over a period of three years. The bonuses will also be adjusted to take into account losses as well as profits. Mr Kurer said the system would set a trend.

"I'm convinced this is essential, and the entire financial services industry will have to adjust its compensation models to the new realities," he said.