The news on Lehman

No, it's MD level I'm referring to and you've met these people, they just may not be bankers. The truly great bankers exude confidence, they can chat with a CEO that they first meet and become best friends in 5 minutes. They are charming without being pretentious or arrogant and they also know the numbers cold. These people are the perfect bankers and what people on Wall Street refer to as Big Swinging D*** or BSDs. Smart, ambitious, and can sell. If you aren't any of these things, then you need to learn them. A person only makes it far in banking if they can sell, although most people that want to do finance probably don't realize this. You may be good at numbers, but if you can't speak to people and aren't top 5% in communication skills, then you'll never have a long term career in banking.

*Note* I am talking about bulge bracket Wall Street, and I am speaking in general terms. There are always exceptions.

News keeps getting worse. Lehman is finished.

From CNBC: "One thing seems certain: Lehman Brothers will likely cease to be an independent investment bank by the end of the weekend"

Frantic negotiations are occuring right now to sell the bank. At the end of this weekend someone else will own them. It's likely they will be split into 3 parts with one firm getting the ibank, one getting the IM business and another getting the real estate and bad debt.

The number of bulge bracket ibanking jobs available is dwindling. It use to be that the prime spot to land post MBA was one of the 5 pure play banks. There are now only 3.

I agree with the report and it's really very sad. This will be a totally different situation than with Bear Stearns. There were many on Wall Street that weren't all that sad to see Bear go. They were known to be tough to deal with (tough negotiators or just plain a-holes) and refused to help out when other firms had problems in the past. Anyone who's been on Wall Street for any amount of time has a story about how Bear was either tough or just plain unpleasant to work with.

Lehman is a different story. Lehman had (can't help but talk about them in past tense already) a reputation as a great trading partner and a great firm to do business with. They have survived several other near-death experiences and over the past 10 full years, their stock price had by far the best returns of any firm on Wall Street (better than 2x better than Goldman, the next closest). Lehman didn't have the general overall reputation of Goldman & Morgan, but was known for a positive employee culture and a sense of inclusion. Goldman is known as the hardest working and Morgan has a long-standing reputation of being extremely Waspy, but Lehman had a reputation of rewarding smart people that worked hard.

From the perspective of an MBA student, it's really a huge loss. Certainly, financials will come back at some point, and other firms will step in to fill the void. But it's a good bet that however that void gets filled, the combination of opportunity, culture, compensation, career enhancement (Lehman was a leader in all these areas) will be quite a bit inferior - meaning some prime MBA jobs will now be made up of less desirable pieces. If BofA winds up leading a deal for Lehman, it's hard to see how long it will take for jobs with the new firm to match up to those lost (perhaps never). Perhaps the result will be a lot of new boutique banks.

Things just turned really ugly on Wall Street. I think that this weekend will mark a historical shift in the banking business - probably more significant than anything in our lifetimes. Things are changing at a breakneck pace, but as it stands right now, it looks like Lehman is going to be liquidate, Merrill will Merge with BofA and AIG may or may not be able to stay alive (adding their pool of assets to the liquidation market could impact positions of all other financial institutions).

For people getting MBA's or with MBA aspirations, the job market just got a whole lot dimmer. It's hard to calculate the number of prime jobs lost at the MBA level, but it's unlikely that any other firms will be filling the void any time soon. It just feels like there has been a fundamental shift in the banking business. No doubt, something will move in to fill the void - boutiques or private equity firms perhaps - but Wall Street might take longer to recover this time around because the damage has never really been this widespread (at least not since the 1930s).

The indirect consequence is that jobs in other sectors will get tougher as well, as some top students that would have headed into investment banking start to target other sectors. Investment Banks, particularly the pure play banks, have traditionally had some of the most selective hiring standards. With dozens of candidates (perhaps hundreds at a place like Columbia or Wharton) shifting away from banking, competition at Big 3 consulting just got a whole lot tougher and the effects will trickle down to other jobs (and schools) where hiring hasn't traditionally been as selective.

The only thing we can hope for is an orderly open to the markets tomorrow. It's not completely out of the question that unwinding Lehman's $600B in assets could cause a shock to the worldwide economy with results that we cannot even imagine at this stage. Let's hope not.

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.