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.
11 Dec 2008, 22:54
