The news on Lehman

My next question is would starting an MBA at this point be an act of futility considering that the market may not have recovered in two years, and the very possibility of the landscape of investment banking looking, at least in the interim, quite different than what we are used to seeing?

You know we have a Financial Markets thread in the B-School Life Forum....

I don't know much about banking, but with Merrill also gone does that mean it's down to 2?

Do the career changers who were looking to move into bulge bracket investment banking post-MBA, without considerable prior financial industry experience, now take a long, hard look at the ROI numbers? What happens if they're not able to get their desired post-MBA gigs? Does the investment in an MBA still pay off?

Very insightful pelihu. I notice you think that this will make it tougher to get jobs in other sectors as well such as consulting due to tougher competition. I'm curious to hear your (and everyones else) opinion on some of the less popular MBA paths. Financial services and consulting are pretty much the top two sources of employment and highest paid positions at most top MBA programs. So it makes perfect sense that if the financial sector weakens there will be many people switching over to consulting.

But what about health care, media and entertainment, real estate, manufacturing, etc. You got people who have been working in finance and consulting all their lives. Do you really see these people switching over to manufacturing or health care?

And what about b-school admissions. While I think this will eventually sort itself out, I think it a pretty safe bet that there will be less finance internships and full time positions in the next year. If you're a b-school and you care about you placement statistics I would have to think that if you traditionally select enough people so that finance makes up almost 50% of your class that you will at least scale that back a little bit. Even if you do so by 10% that a lot of open positions for other industries.

For example at Wharton financial services makes up 48% of the class. Health care, media and entertainment, public interest, manufacturing and real estate make up 12.5% of the class. If they scaled back the number of finance people by 10% and used those slots for the industries mentioned that would almost double the students at school in those fields. Now I agree as a result it recruiting within these industries will now be tougher as well due to the increased competition.

I just think the increased competition will come from an increase in people from these industries rather than an increase in people flooding form banking. I would think that with less BB firms finance people will start taking jobs at smaller boutique firms rather than switching to a manufacturing job.

I don't think this will affect admissions - I simply don't think that adcoms utilize desired job track as a metric of any significance when making admissions decisions. Certainly, they want a diverse class, but they also know that 2/3 of students wind up doing something other than what they say in their applications - it's kind of a running joke.

Regarding the jobs that students target, the theme is consistent. I think that relatively few students are locked into a particular job or industry. I think the vast majority of students will respond to the career question with something like "best available job" rather than something specific. Now, "best" can mean different things to different people, but traditionally investment banking roles have been among the most in-demand for MBA students. The profile is vastly different now than it was even just a year ago. Jobs in IB will be much tougher to get. Prime jobs in IB will be vastly tougher to get, with only GS and MS left among the independents. A new student (remember, at least 2/3 and probably more don't know what they want to do) will come in and take a look at the landscape and decide that it's not worth the effort to target banking. Believe me, people will start targeting other industries - and again these have traditionally people that have landed the most selective jobs. At a place like Wharton, given the new dynamics, you might have 100 or even 200 of the best candidates looking at other types of jobs - competition will definitely pick up.

hmm.. i think this might eventually lead an end to the MBA degree all together..

let's hope this decreases the applicant pool this year

Wouldn't it increase the applicant pool, given that additional bankers will lose their jobs and may decide to go back to school? With that said, this comes late enough that I doubt it will affect round 1 admissions.

The smart Lehman analysts would have seen this coming and started apps just as a CYA.

well maybe, but if people see no future in banking, they will want to stay in their current positions and not risk having no opportunity in an uncertain market.

Or if people are drawn by the big salaries of ibanking, they might not want to make an investment in an MBA when the market is uncertain. Consulting salaries do not come close to ibanking salaries so people may not think it will be worth transitioning to consulting.

I don't think an analyst working 100 hours per week would study for and take the GMAT and work on MBA essays "just in case" during his hour a day of free time. That seems highly unlikely to me. However, there probably are quite a few under 28 non MBA employees that are scrambling to put together apps right now. What other options do they have? The job market is terrrible. As another post said, it's to late to affect R1. But I would expect it to have a noticeable impact on R2. Of course its not like there will be 25k (size of Lehman) new applicants. Associates, VPs, MDs, etc already have MBAs so they won't be applying. There are also lots of admin staff that won't apply and quite a few back office folks that won't apply. Nonetheless, I could see 3-5k new applicants as a result of this.

On the other hand, I think there will certainly be some people that second guess their application plans. Heck, even I'm getting jitters about the ripple effect this will have on recruiting. Things are going to be tough for MBAs for a while now. If I wasn't already so committed to this process (and if I didn't hate my job so much) I would seriously reconsider applying. For evidence of this effect just look at the first post in this thread - terp06 was reconsidering applying to bschool this year because of what's happening. The Lehman guys will apply because they have no choice. But those that do have a choice will be seriously reconsidering their apps right now.

The more I read about this unfolding crisis, the more I think about two things: (1) how little sympathy I have for these banks, and (2) how it'll affect my own B-school application process.

In regards to #1, I know that the twenty-somethings and non-MBAs slaving away at their 100-hour weeks probably have little to nothing to do with policymaking and overall business practices at Lehman (or anywhere else). This all really sucks for them. But hey - the meta-story throughout this whole saga seems to be that this crisis was both foreseeable and, indeed, inevitable, given the unsustainable and exceedingly risky way these banks were lending and borrowing. I DO hope this crisis leads to a fundamental shift in banking, to something more highly regulated and, ultimately, safer for the economy.

On #2, this will surely make the application process tougher this year. More folks out of work = more B-school apps. And if I were one of the folks dying to get into consulting or banking, I would be sweating bullets right now. But I'm a non-profit guy coming from (and going back into) international development, not finance. I dunno how much this thing will really affect the sub-group of my professional peers who I'll be compared to.

The assertion that this (or any other) crisis or shock was foreseeable is complete and utter horseshit. There are two sides to every trade, and whatever level a market is at at any given point is the fair value based on available information. There's smart money all over the street, and the Tuesday Morning Quarterbacking of assigning blame in hindsight is just plain crap. If people knew trouble was coming they wouldn't have thrown good money and their firms' good names in the pile.

Let's not forget that while the big banks are the poster children of the problem, main street America was all too happy to buy homes on easy credit, max out home equity loans and lines of credit to support their own lifestyles. Don't forget, the biggest driver of the economy, through the tech boom and the LBO boom has been personal spending. Everyday people. The banks are easy targets, but people shouldn't complain that their own wealth is being used to back-stop the banks; a key reason they have personal wealth is that they rode the wave all the way up.

Calling for more regulation? Gonna have to put forth a better argument than that.

I do not think that we should be worried about Lehman employees applying for B schools.. put yourself in their shoes.. if you loose your job will you start searching for a new job or will you decide to go and pursue MBA all of a sudden, if not decided already, and invest a fortune, which might not provide the same fancy returns ,as it used to do in previous years. Also seeing their MBA co-workers going through the same hard path.. they might not have the inspiration to follow that path..

Many of you have already been discussing about different consequences, I would like to add few points with a slightly different view : The MBAs from the top 10/20 institutions will not face much problem in finding a job , however there would definately be decrease in salaries. For the rest of the colleges, it might be even tough to get a job after someone passes out of the institute.. Let me explain why.. I saw somebody mentioned " it makes perfect sense that if the financial sector weakens there will be many people switching over to consulting.But what about health care, media and entertainment, real estate, manufacturing, etc. You got people who have been working in finance and consulting all their lives "..

It is not only the competition from the students shifting from banking, but there will be less job generated in other sectors also..
1 ) As there is going to me more credit problems, companies from sectors like consulting, health care, media and entertainment, real estate, manufacturing will find it difficult to run their business.. as there will be less loan available. Specially, you can not expect growth of real estate for next couple of years..

2 ) People from banking ssector, or any other sector, will increase the competition in the job market for the fresh graduates from MBA schools.. Also, if the MBA students from class of 2009 and 2010 are not well placed, they will give competition for class of 2011. So its a high supply and low demand.. which will further decrease the salaries..

So, friends it is not only the banking sector or real estate secor going down ; as every sector is tightly tangled with other sectors, the effect is exponential..

The question is when will the economy start improving ?.. I do not know whether MBA will be able to ever provide the same amount of returns that it used to do.. but ya, I believe it will be a good idea to get out of the college , only 1 or 2 years after the economy starts improving.. because the economy will take time to absorve the backlogged jobs...

Experts have been predicting a major market correction for months now. Years, in some cases. So "foreseeable" stands. You're correct, obviously, in pointing out that consumer spending was a driving engine behind the unsustainable levels of debt - no argument there. Americans need to learn to stop spending like a bunch of teenagers with their first credit cards. But who made the money available? Who promoted the mortgages and ninja loans? Does the blame lie with the junkie or the pusher?

Just sayin', regulation is necessary to keep a free market functional.

I agree with Pelihu, you can look back at just about every major crisis and find some form of regulation that either exacerbated or directly caused the problem. Here it was the Fed's easy credit. In hindsight, 1.0% was too low to lower the Fed Funds rate. If you lower rates too far and make credit too easy, then you will end up with debt and leverage. Two of the main reasons for the current crisis.

If you think of economic growth as a gentle slope rising upward, then the past two booms were a much steeper rise and in order to get back to that level things have to fall. We are in the fall right now. Everyone screams the sky is falling, but there will be light at the end of the tunnel. Investment banking will rise again and there will be good times. Unfortunately, people tend to see only the dark side of things now.