From the monthly archives:

November 2011

It’s one of the hottest areas for growth within investment banks, and yet the banks have to get out of the business.

That’s the good news-bad news story from Bloomberg on how just as commodities trading is adding substantially to big banks’ bottom lines, they have to divest themselves of the business. And that certainly has repercussions for the dozens of top commodities traders on the Street.

Ever since the Volcker rule, named for former U.S. Federal Reserve Chairman Paul Volcker, was included in the Dodd-Frank Act, it has placed new limits on banks taking risks with their own capital. And on October 18th, the U.S. Commodity Futures Trading Commission voted to curb trading further in 28 commodity futures, including oil and gold.

As a result, the big banks are shutting down their commodities units. Among them, JPMorgan Chase & Co. (JPM) and Bank of America Corp.

This is all taking place at a time when money is sloshing into commodities trading and generating huge revenues. Revenues generated by the 10 largest banks’ commodity units increased by almost 16 percent to a combined $5.49 billion in the first nine months, year over year, according to data gathered by Coalition, a London-based research company. Meanwhile, overall revenue at these banks shrank by 12 percent.

That money has to go somewhere, right? No surprise that commodity hedge funds attracted $7.91 billion from investors in the first 10 months, 10.2 percent more than a year ago and above the hedge-fund industry average of 2.1 percent, according to New York-based eVestment|HFN.

It also means as investment banking jobs in commodities trading disappear, the best traders will look elsewhere for opportunities. “A lot of banks are going to struggle to retain their top traders over the next few years,” said Justin Pearson, managing director of Human Capital, a London-based firm which helps to recruit commodity and energy traders.

The list of refugees is growing. Kieran McKenna, who traded oil for Credit Suisse Group AG (CSGN) and JPMorgan, started a hedge fund that will start taking money from outside investors in December, called Mastic Investment Advisory AG. Former JPMorgan trader Damien Bombell has started a hedge fund to invest in metals, grains and energy. To name a few.

Do you think the forced exodus of top commodities traders will put further downward pressure on investment bank earnings and hiring in 2012? Add your comments below.

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The turmoil caused by the financial crisis and the headcount reductions among big banks appears to be forcing investment bankers to wear many hats.

Capital raising and merger and acquisition deals are becoming tougher to execute, but with fewer teams of specialists around to help, the workload is increasingly being shouldered by old-style “all-rounders”, reports Reuters.

“We need to not be so aggressively defined by our job titles in the current environment,” said one head of equity capital markets (ECM) quoted in the article. “In this market every initial public offering that we were working on is (also) a merger and acquisition (M&A), or a private capital opportunity, so I am very much encouraging the guys that work with me to think like that.”

Many banks now require their investment bankers to multi-task, much like the all-round corporate financiers popular up until the 1980s. UBS, for example, has reportedly pulled staff covering banks and insurers into one group. Banks are also looking at how bankers covering different countries and different sectors such as industrials or technology can perhaps be combined. A so called “deeper bench” of more versatile bankers means others can join in if a particular client calls for more service.

From the point of view of investment bankers, some are using the current turmoil and lull in deal-making to explore areas outside their previously more narrow area of specialization. A debt banker, for instance, says he plans to meet with equity investors and sovereign wealth funds to lay the groundwork for hybrid deals that could possibly be of interest to these clients.

Other bankers are spending time reading up on new regulations to become more familiar with the changing landscape of investment banking and new opportunities.

What’s your opinion? Do you think we are, or will see a return to more of a generalist model for senior level investment banking jobs? Add your comments below.

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If you’ve ever wondered how or why grads who didn’t major in business or economics land investment banking jobs, then Marina Keegan’s recent post for DealBook sheds some light.

Keegan is a senior at Yale majoring in English. She writes of how some 25 percent of Yale’s undergraduate class ends up working in finance, even though many of these students major in liberal arts or engineering or other non-business subjects. The numbers are even higher at Harvard and Stanford. What’s more, many of these students enter as freshmen with a decidedly anti-business attitude. So what accounts for the turnaround?

Careful, systematic courtship by the big financial firms. As Keegen puts it, they have it down to a science. “Each fall, our country’s top-tier banks and consulting firms cram New Haven’s best hotels with the best and brightest to lure them with a series of superlatives: the greatest job, the most money, the easiest application, the fanciest popcorn.”

It isn’t just the lure of high salaries, either. Rather, it’s because few college seniors have much of an idea how to get a job, or what their first job out of college should be. Representatives of the big financial institutions understand this. They invite students to special information sessions. They make students feel special, desired and important. Rather than stress the chance to get rich (which is less cool these days), they market the opportunity to work for a bank or hedge fund as perfect preparation for what they eventually really want to do some day, which is save the world.

Keegen says she heard that over and over again when speaking to her classmates. They are told working at JPMorgan or Bain or Morgan Stanley was the best way to prepare oneself for a future doing public good.

Keegen herself isn’t buying it. And she mentions a group of Stanford students who are starting a national student organization called Stop the Brain Drain committed to empowering “more young people to solve America’s greatest challenges” by combating Wall Street recruitment.

What do you think? Did you enter investment banking as something to do “for a few years” to gain the experience and training, before moving onto something else? Or was a career in finance your dream? Add your comments below.

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From Boonies to Investment Banking Leader

November 7, 2011

How does someone born in the tiny town of Fort Smith in the Northwest Territories of Canada (population 2,400) manage to land a job overseeing the world’s leading investment banks and financial institutions? That’s a career path worth studying, and an inspiration to just about anyone who dreams of an investment banking career and reaching […]

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