Thursday, December 21, 2006

Good time to get into investment banking?

I'm not sure how to interpret the record bonuses paid out to investment bankers these weeks. Most journalists, and also quite a few investment bankers I've talked to, take the way things are going well now as proof that things will go badly very soon. I don't know if this is a realistic assessment though. What I observe is that most financial journalists are embarassed they didn't see the tech bubble bust coming in 2000, and now they are predicting a crash just in case one happens - this time they will have predicted it! The only indication I have so far from the ground that things might not go so well is that Bear Stearns has decided not to recruit Summer Associates next summer and has canceled their career presentation at London Business School on short notice. I don't know what the reasons are. I know Goldman plans to hire ~40 summer associates for their London office (IBD and FICC) next summer, so those numbers look good.

So I actually think so many people predict a crash right now mainly to insure themselves against embarassment should a crash occur. In fact, I think we might have plateaued a bit but soon things are going to rise even faster. I think the record bonuses may be a symptom of something very different, not a bubble, but a symptom of how the spread between the stars and the "underperformers" is getting bigger. I'm not talking about investment bankers strictly, it is a common phenomenon that the highest earners in most countries see their income growing disproportionately, while the bottom earners are losing purchasing power as time goes by. Capital is getting more and more concentrated in fewer hands. So in essence, if this is true, it is a great time to become an investment banker. If the world is more and more split into the lucky and the unlucky ones, it matters more and more which side you join.

These are just some thoughts I'm going through, I'm still alert that many insiders are telling me this is not a good time to enter, but in the end I notice among all courses at the MBA and in general my strongest interest lies in finance and economics, so I want to go into that field. As I mentioned in my last post, I have to take some serious career decisions right now. Luckily since classes are over I had a lot of time to think and reflect. The funny thing is, after 4 months of going here and there mentally, I am back to where I started: I definitely want to leave consulting, and the only field that excites me is Global Markets/ Sales & Trading. It is funny how you can get confused and end up at square 1 again, but I guess at least now the decision is more thought through than in the beginning. So milkround is coming up and my plan is to focus only one 4 or 5 banks that have a great programme in markets. January will be busy!


Alpine said...

Hi Angie:

Interesting post. I current work in PE and have just been accepted to LBS. I am considering switching to IB for a number of reasons post-MBA but am concerned for the same reasons as you are. Why are you interested in S&T (I don't consider S&T IB)? I have many friends in S&T and most hate it because it's not particularly mentally challanging or has a bright future given the continued automation of trading. Anyway, good luck. Have you thought about going into IB (not S&T) or PE? What about asset management?

Anonymous said...

I am a chartered accountant from 1975 and fully endorse your views on investment banking;
Trading in currencies,trading in gold, investment banking areas are good for future MBA careers than Management consulting, venture capital, Hedge fund areas.
Good Luck to you.
Merry christmas!!!

pl keep writing; your blog is worth reading anytime.

Anonymous said...

Good luck with the decision Angie. Happy holidays!!

Anonymous said...

Well you got your range of options clear.....i am frolicking between a wide range..almost embarrasingly wide ;).

Anonymous said...

Hey Angie

Interesting post. Personally, I think all jobs get boring after a while(sorry if I seem pessimistic!). Seriously, I think once you learn your job and get good at it, the challenges seem to get smaller. However, if I had to choose between IB or S&T, I would choose S&T. I think it's more fun! Watching the stocks on your screen is addictive. And the excitement and the buzz in the room is hard to ignore. However, I am biased. I worked as a stockbroker in the Internet bubble, and it was one of the most exciting times in my life. Luckily for me, I worked with a really good broker, so no one got damaged financially. I think IB is very slick and very sales oriented(more than trading). I think it's true about trading getting automated, however there will always be room for gut and street decisions. Models are not 100% proof against losses, as the case of Long Term proved.

I agree with Alpine, and think PE and asset mgmnt are quite interesting as well. esp. PE.

Anyway, hope you are enjoying your holidays, and looking forward to next years posts! I apply to LBS for second round, so wish me luck!


Anonymous said...

Alpine, S&T can be much more mentally demanding than IB. You're referring specifically to flow trading, which, yes, is becoming redundant in several sectors, and also is fairly mind-numbing. However, S&T encompasses significantly more.

For example, take Deutsche Bank's London Principal Finance prop-desk: they invest as principal in new issues of all kind of credit and debt, and have started taking P/E style positions in some of the related equity assets. Or their distressed debt desk, which is effectively a €5bn hedge fund.

Or, if you want more complexity, try structuring assets on Merrill's Real Estate desk in their CRESP area - some of the products they put together are pretty amazing.

Or try derivative structured sales in any one of the bulge brackets: effectively a 50% relationship management and 50% structuring (with derivatives in bespoke complex transactions for corporates).

The main reason for S&T is that it can be more mentally challenging than IB, has significantly more personal financial upside sooner, and has significantly fewer work hours. The downside is that there's much less job security, and it's very specialised (exit options are limited).

After doing both, I found that my personality is definitely more suited to S&T, and I'm much happier there. However, IB is a great place, and suits others really well, so it's just a personal choice for which you're more suited to.

angie said...

Thanks for all your comments. Regarding S&T, I came with the idea of doing it but was also hesitant due to the disadvantages you guys mentioned - job insecurity and automation. Both mean that the job will be increasingly competitive and tough.

The reason right now I still think I should go for it is that I find it
most interesting and think I would enjoy it a lot. Even though one won't do big picture stuff at the beginning, in the end it's all about knowing how economic and political events and trends affect the markets, and I find this very exciting. Also, I think jobs get more interesting when you stay
longer, as you get to assume more responsibility and have more degrees of freedom in how to do your job.

And I think in the end you have to do what you like despite all risks,
because you can't excel at a job you don't enjoy. All the jobs mentioned
here (IB, PE) are extremely demanding and competitive so once you meet the entry criteria I think a large part of your job performance is determined by how much your personality and style fits the job. I have seen the same at McKinsey. I have seen extremely intelligent people underperform and pretty normal people outperform and a lot of it depended on enthusiasm and personal fit.

BTW, Myles, you see to be very well informed about S&T so I would love to take up your offer for a little help in preparation for the interviews!