From the monthly archives:

August 2011

They were once blamed for feeding the frenzy of the dot.com bust. But now investment banking analysts who cover the tech sector are once again the darlings of Wall Street, as a new generation of social media startups gets ready to go public.

There’s big money to be made by investment banks advising companies like Facebook and Groupon. So investment banks are now “sparring” over specialists who know the search and social media sectors. They need skilled analysts to tell the stories of these hot companies, reports The New York Times.

“It is red-hot out there,” says Gustavo G. Dolfino, president of the WhiteRock Group, a Wall Street recruitment firm that conducts searches for analysts. Many analysts have been jumping from one bank to another, and pulling down multi-million dollar paychecks as a result.

According to industry insiders, three analysts have done particularly well lately. Douglas Anmuth was lured to JPMorgan Chase earlier this year with a pay package valued at roughly $2 million. Heather Bellini switched to Goldman Sachs for a pay package worth almost $3 million. And JPMorgan tried to lure Mark Mahaney over from Citigroup with a $3 million pay package, but he opted to stay at Citi and accept a raise.

This is a far cry from the average compensation of less than $800,000 for star analysts as of 2005, a figure that in itself has dropped from $1.45 million after the dot.com debacle. Research budgets were slashed in the wake of the tech crash and subsequent 2003 legal settlement, led by then New York attorney general Eliot Spitzer, to clip the wings of analysts who had been touting questionable stocks.

But the big story now is the Facebooks, LinkedIns and Groupons of the world. Social media stocks have soared in anticipation of IPOs. Analysts who cover booming industries or sectors ripe for takeovers tend to be most in demand. Today, those sectors happen to be oil, mining, information technology, and emerging economies.

Internet analysts are among the hottest commodities. At the height of the dot.com boom, 616 Wall Street analysts covered the sector. Today, it’s only 362, according to The Times. And only a fraction of these analysts specialize in social networking stocks.

What’s your take? Do you think the bidding war for tech analysts is just another sign of a market overheating? Or on the flip side … are you adjusting your career aspirations to follow the tech sector? Add your comments below.

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Investment banks will struggle to earn the hefty returns they once raked in trading everything from complex derivatives to resources to currencies. In fact, a permanent “structural downturn” looms over the Fixed Income, Currencies and Commodities (FICC) business at many banks, brought on by tighter regulations, nervous investors, and shrinking proprietary trading jobs, reports Reuters.

In the past, FICC desks generated between 40 to 60 percent of investment banking revenues at such banks as Credit Suisse, Deutsche Bank, UBS, HSBC, and Barclays.

But a look at 7 of the largest investment banks saw their FICC revenues drop by 33 percent in the second quarter of 2011. Credit Suisse, for example, was down roughly $8.8 billion. Goldman Sachs, down by 64 percent. Morgan Stanley, down by 36 percent, to name just a few.

And while the fixed income market will remain robust enough to serve the borrowing needs of countries and corporations, some are forecasting a lasting shrinkage in the size of the operations, and accompanying investment banking jobs.

“The business will come back, but it will be 20 to 30 percent smaller than it was. In 18 months time, investment banking headcount will be 20 percent smaller than it is now,” said Anthony Peters, a strategist at Swissinvest.

Some of the scaling back is also due to nervous clients, according to the Reuters article. The hedge funds that used investment banks to act as their prime brokers are also cutting back on their activity, due in part to the roiled markets and political gridlock in Washington and Europe.

With many investment banks winding down their proprietary trading desks due to the new Dodd-Frank legislation, it’s likely that trading activities will never return to the lofty levels we once saw.

One bright spot on the horizon: a banker involved in the fixed income market believes that prop trading in interest rate swaps is still going strong. Something to think about if you have trading aspirations.
What about you? Do you think Fixed Income, Currencies and Commodities (FICC) is an area to shy away from in your search for an investment banking job or step up the ladder? Or are there hidden opportunities? Add your comments below.

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Citigroup is looking to boost its prime finance unit by 20 percent this year as it looks to win more business from hedge fund clients, and compete more aggressively against dominant players Goldman Sachs and Morgan Stanley.

Citi is looking to fill investment banking jobs in its capital introduction, OTC, client service and futures teams, reports Reuters. It’s in response to the growing demand from hedge funds setting up businesses in the region.

“We have been getting a number of new sole mandates and we are seeing second and third mandates coming in from existing Asia managers as well,” said Hannah Goodwin, head of prime finance in Asia-Pacific for Citigroup. “That has been a growth story for us and I think that’s going to continue.”

Prime brokers provide services to hedge funds, such as clearing trades and lending money. The business advantage to a hedge fund of using a Prime Broker is that the Prime Broker provides a centralized securities clearing facility for the hedge fund, and the hedge fund’s collateral requirements are netted across all deals handled by the Prime Broker.

The hiring spree by Citigroup and other players in the region may have been spawned by the anxiety over counterparty risk created by the recent financial crisis. The crisis forced hedge funds to look for multiple prime brokers to mitigate some of that risk. Before 2008, in contrast, Goldman Sachs and Morgan Stanley had cornered about 60 percent of the market for prime brokerage. Today, their share has been cut in half, with other players such as Credit Suisse Group AG, Deutsche Bank and UBS AG muscling into the market.

Citigroup’s ability to provide a broad array of services, from custody and fund administration to trading execution and financing and potentially even distribution, is a selling point for the firm. Citigroup’s prime finance unit oversees $6.69 billion from 90 hedge fund clients, including 51 sole mandates, according to data from AsiaHedge and reported by Reuters.

Would a position in prime brokerage be part of your career plans? Would you consider relocating to Asia? Add your comments below.

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Mining Analysts Needed for London Investment Banking Jobs

August 8, 2011

If you know mining, you might be able to parlay that experience into an investment banking analyst job at one of London’s top asset managers. Bloomberg reports that giant firms such as BlackRock Inc., the world’s largest asset manager, Paulson & Co., and UBS AG are spearheading a search for London-based mining analysts, as banks, brokers and […]

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Destroy Your Investment Banking Career In One Tweet?

August 1, 2011

Okay, we’ve warned you to watch everything you post online. Now comes evidence of an organized effort by employers to search out every indiscreet tweet prior to hiring you for an investment banking job. A company in California called Social Intelligence Corp. will sift through the Internet on behalf of employers, and look for any […]

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