By "currently pursuing an MBA" do you mean you are a current student? If that is the case there is about zero chance that you can switch into banking unless you have prior experience (which I gather you don't have or you wouldn't be asking).

I think banking salaries are up in the air right now. JP Morgan, Citi and BofA never really paid at the top of the market. Goldman and Morgan certainly did, but they've had to change their model. Lehman did as well, but it's anyone's guess as to whether Barclay's will continue that trend, or whether they will fall in line with the other universal banks (this is most likely).

In the short term, say the next two or three years, banking salaries (or rather bonuses) will be depressed. I'm going to guess that total comp will be in the neighborhood of what consulting firms pay for the next few years. At some point, banking will recover (it always has) and the chase for talent will be back on again. The people that survive the current market will again be showered with riches, but it's hard to see that day from where we stand right now.

That is a tough question that I am still trying to find the answer to. The banking industry is definitely a lot different than in was when we started business school last year (hell, it's totally changed in the past three weeks). Still, I had a good summer and enjoyed the work; and people who summered at the independent brokers (R.I.P.) are getting a lot of love these days from the boutiques (Piper, Evercore, Jefferies, Harris Williams, Houlihan and about a dozen others).

I'm being a realist and taking a fresh look at everything. I'm a portfolio manager with Darden Capital Management and would definitely be interested in a larger fund (not too interested in tiny funds). I'd love to get back to California if possible. I definitely wouldn't be opposed to a decent salary and reasonable lifestyle. I'd like to go to a firm with good career advancement opportunities as well as a good reputation. Pretty typical for an MBA student, based on personal preferences.

I'm not sure which way I'm going to go yet. I hope to have a few offers to choose from. If there's a nice boutique bank office in San Francisco or Los Angeles with a pleasant culture, I'd definitely be interested. If there's a corporate finance or business development job with a top corporate firm on the West Coast I could definitely be convinced. A good consulting firm will base me out of LA or SF with travel limited mostly within western states might be a nice place to ride out the crappy economy. The challenge is that people on campus aren't really sure how much hiring the various firms and industries will do.

I think a big factor is that I'd like a job that leaves options open for 2-3 years down the road when things improve. Nobody wants to commit to something because of a bad economy only to be stuck in something they don't like when things improve. Banking and consulting both fit the bill, and a stint at some place like GE or Microsoft would allow you to bolster the old resume while riding out the storm. A lot of firms are still recruiting but I guess it remains to be seen how much hiring they will actually do. Again, I'm hopeful that things will work out alright, but I'm keeping an open mind until firms put some offers in writing.

Well, most firms take it right down to the bottom line. People are credited with the deals that they worked on during the year (completed deals matter about 10000% more than pitches that died on the vine), and the ones who worked on the most deals will be in the top bucket. Face time doesn't have much to do with it. In fact, as I've mentioned before, my experience is that things are so busy that people are generally happy for you when you don't have to stay late. This is all relative of course, because everyone works late almost all the time. If someone were to leave at 8PM every day, they would surely stand out and get a stern talking to.

There is some quality component to the ranking system as well, as you will be reviewed by those you work for as well as those who work for you (I think most firms now use a 360-degree rating system). This helps to limit the a-hole factor to an extent, but let's face it, banks are more than happy to accept personality quirks from people who bring home the bacon. I'm not saying that high performers necessarily need to be a-holes, a lot of great bankers I knew were really nice people, but being nice is not a big factor in how you are rated.

Client contact in the early years will depend a lot on the size and types of deals you are working on. Do you really think the CEO of a multi-billion dollar company wants to spend quality time working with a first-year associate when he's doing a once-in-a-lifetime deal to sell his company? It's not like your going to be advising on changes to a product line or something like that. If you're working on smaller deals, then client contact could come right away (there are lots of banks focusing on $100mm or $500mm deals that the big guys won't touch); but you'll need to spend some time learning your craft before you can show your face on the big deals.

Associates have different responsibilities than analysts. Analysts need to be able to crunch numbers and put together stuff accurately and quickly. Associates need to be able to understand and think about deals. For example, an analyst can build the model to figure out whether LBO debt can be paid down during a given period. An associate needs to be able to figure out whether the company has a realistic shot at generating projected cash flows. The analyst just needs to crunch the numbers, the associate needs to understand whether the numbers make sense, have some ideas about how far to push the numbers and perhaps have some advice on how the company can improve the numbers. That said, I have heard horror stories of MDs who treat analysts and associates as interchangeable disposable resources. Firm culture can make a huge difference.

Which brings me to my disclaimer. Most of what I say about banking pertains to the now defunct independent broker model. Bear is gone, Lehman is gone, Merrill is now under a CEO who last year wanted to kill investment banking within his own firm and last week said he wouldn't pay Wall Street salaries to bankers (great retention plan sir), Morgan may well be a dead-man-walking and Goldman is now taking deposits!?!? Hard to say exactly what the life of an associate will be like going forward. Do you guys think orientation for new associates will now include bank teller training?

Pelihu, can you give us a commentary on the i-banking career path as a top MBA graduating in this tumult?

I'll address thehizzle's questions first. The answer is that those are the things that they teach you in business school. By the second year, most analysts know all there is to know about modeling and putting together the basics of a deal - but few are promoted directly to the associate level. The reason is that they don't understand have a good enough understanding of how businesses make money. At business school, you'll learn about operations, marketing, quantitative analysis, leadership, organizational behavior, and things like that. These are the tools that will allow you to be more than an analysts at an investment bank. To give you my own experience, we only spent 3-4 classes (out of 30) in our finance class working on models, and perhaps 2 accounting classes working on the financial statements. We spent the rest of the time working on cases that examine how these aspects play together, and had additional classes to combine learning in marketing & finance or operations & accounting. I believe that these skills are why banks tend to recruit at just a few schools; many of the lower ranked schools spend a lot more time on the basics but at the top places you'll be expected to learn the basics on your own (or in a pre-term or something) and spend the real class time digging deeper.

The banking career path has changed a lot - since the end of the summer and perhaps even more so in the past few weeks. Very few offers were handed out to second year students. Earlier on, many of the middle-market banks said that they were going to be opportunistic and increase hiring to get some superstars (or was it rock stars) that who wouldn't normally consider their firms. Then, the market went stupid the last two weeks (even more stupid than before), and even the smaller firms that do not put their own balance sheets at risk started canceling interviews. In fact, several canceled here after hosting several events and releasing their closed lists. There are still a few firms coming to campus, though it remains to be seen how much hiring they will do.

The other reality is that the business of banking has changed a lot as well. There are many good reasons to believe that banking salaries will not approach the highs of recent times for many many years (increased regulation, decreased profitability, general economic slow-down, decreased competition for talent). Hedge funds and private equity shops will be under as much or more pressure in the near term, with hedge fund redemptions and the associated sell-off as perhaps the greatest threat to the financial system right now. I'm still a believer that the finance industry will turn around at some point, though it now looks like it might take 5-6 years rather than 1-2. The select few who are able to weather the storm will be in position when the economy recovers. I think the next rise in finance will be larger than any we've known - it will be on a global scale so if you want to be in finance, it wouldn't hurt to learn Chinese.

So, what to do right now if you want a career in finance. Well, those currently in school have a few choices. Some (perhaps 25% of normal) will still be heading to investment banks. Others should find jobs that jobs with great learning opportunities so they can keep their skills current and maintain ties to the industry. Things like the corporate finance department of a firm with lots of cash to do deals (say Microsoft) would be a good choice. Consulting firms with strong finance or private equity practices would be good as well (these people will have all the connections when banks come knocking in 5 years).

For those who aren't already in school (and perhaps for first year students), I think that middle market banks are a good choice. They are in position to grab a lot of market share (lots of competitors died), and I believe that as the economy delevers these firms will actually be very business over the next few years. Many companies will realize they need to raise cash to survive; credit will be expensive even if available to their only alternative will be to sell off a division or something like that. That's middle-market banking right there. One or more of these places will rise up to fill in some of the gap left by Lehman, Bear, Merrill, Wachovia and others.

We just had a meeting with the COO of Tudor Investments (also the head of Darden's Board of Trustee's), a huge hedge fund, on Thursday. He thought that there would be huge regulatory changes (especially with the election coming up) and that it would be a lot tougher in the coming years and that we were probably looking at about 5 years for a full turnaround (the people bandying about 10 years are on crack, the economy doesn't work like that). Another board member, Hank Paulson's first hire at Goldman, said about the same thing. If you like the finance, find a way to stay in the game at this point because as you build your career finance will be back, and the next time around you'll get to play in a global marketplace with opportunities like we've never seen.

If there's any recommendation I have, it would be to get to a place that does deals (or analyzes and consults on them). Don't go to some place that just bounces their own numbers around internally. If you go to a corporation, get to a place that's looking at acquisitions and things like that; don't go to a place where your main duty is to balance a budget or prepare a financial statement every quarter (don't get met started on Sarbanes Oxley). When banks start scouring for talent 5 years from now, they aren't going to care if you've saved your company a pile of money by identifying some problem; but they will be all over you if you have deal experience.

Wow - this is incredible...

Thanks for all this insight, Pelihu!

Thehizzle

pelihu,

Correct me if I am wrong, but there are other opportunities to learn modeling. Most schools' finance/IB clubs host "Training the Street" sessions to learn modeling. Additionally, case competitions with other schools (the M&A case challenge between Kellogg and Chicago is an example) provide a platform for practical financial modeling experience before starting an internship.

This information is based on my conversations with current students at various top schools.

Wonderful article. +1
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I was wondering if anyone could shine some light on how the material posted on this thread changes due to the current financial crisis?

I think the guidance on the Street is that most people in the investment banking divisions are expecting around 50% of what they got last year in bonus.

http://dealbook.blogs.nytimes.com/2008/ ... port-says/
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