From the monthly archives:

October 2012

As reported on, Goldman Sachs is dramatically overhauling the way it hires new recruits, often fresh from top U.S. universities and colleges. In the past, at many of the top investment banks, recruits were offered a two year contract, and when that contract was up, the young staffers were generally expected to head to another firm, or back to school. Few opportunities existed to move up in the investment bank compared to the number of analysts working on these short term contracts.

New Policy Reflected Changed Culture?

Goldman indicated that the firm is simply responding to changes in the world around it. Many business schools now require significantly more experience than two years for graduate programs, limiting access for Goldman analysts. The firm likely wants to have its brand prominently represented by strong analysts in business schools across the U.S. and Europe, and therefore, potentially longer terms prior to the MBA could be advantageous.

In addition, Goldman found that top hedge funds and private equity firms were poaching top candidates before their two year term was up. The analysts on term contracts viewed their position with Goldman as a limited term, and weren’t hesitant to jump ship when permanent opportunities arose. The company believes that a more permanent arrangement will be beneficial in retaining star talent.

While these are certainly positive changes, it’s unlikely that there will be a major shift in firm culture towards the workload put upon young analysts. Long hours, grueling assignments and sometimes menial tasks will continue to be a feature of the job as juniors learn to cut their teeth on the street.

Savings Limited for the Firm

The firm does not expect to save significant money by making the switch from contract workers to full time employees. Terminations come with additional costs in terms of severance pay and while the firm expects to end the practice of a two year completion bonus, there would still be monetary incentives for high performers.

The Downside for Analysts

Unfortunately this is not all good news for analysts at Goldman Sachs. In the past, it was possible for average analysts to skate through to the end of their two year term with a fixed date set for their termination. Under the new arrangement, no such date exists, and therefore, analysts could be terminated long before the two years is up.

Additionally, analysts will be facing greater competition to stay on with the firm, with more analysts believing they have a shot at a truly permanent role. While this competition may allow Goldman to select better candidates for promotion, it will be more difficult to advance in the ranks as a junior member of the team.

What this Means for Job Seekers

As a leading investment bank, Goldman Sachs’ policies and practices are often echoed throughout Wall Street. Accordingly, the two year stint as an analyst may be on its way to becoming a relic of the past, much to the relief of many students looking to enter the field.

While moving into an employee arrangement may be an improvement over contract work, those looking to move into the investment banking field should not be fooled by this development. The hours will remain long, the work hard, and the reward, well to some, will be worth it. The initial analyst positions will always be a proving ground for young talent, a stage to showcase their skill and dedication to the firm. The form of legal employment arrangement won’t change that century old practice on the street!

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Investment banks around the world are feeling the effects of a sluggish Eurozone and a delayed American recovery. This is especially true in the mergers and acquisitions segment of the industry. Reuters UK is reporting that company officials are predicting deal growth of only 12 percent in 2013, which is down sharply from the 22 percent increase forecast by the same group only a year ago. The investment banking reality has truly shifted over the past few years as businesses take fewer risks, and as a result, pursue fewer large scale acquisitions.

The Nature of Investment Banking Deals Continues to Shift

With uncertainty in Europe and the lingering after effects of the debt crisis cited as key reasons, the nature of deals being managed by investment banks is significantly shifting. In the past, much of the work was in brokering mergers or buying up suppliers and competitors. Today, as companies reduce risk, transactions are focused on deleveraging, returning excess capital to shareholders and divestitures. Unfortunately for investment bankers, most of these activities pay significantly lower fees than the high profile acquisitions of the past. As a result, firms are rebalancing their teams, focusing on select profitable areas and reducing staff and overhead in segments that are not producing. Nomura is one such investment bank that has recently looked at shuffling the deck to find greater efficiencies and focus amongst their teams.

Asset Sales an Area for Growth

One area that is gaining attention from most firms is asset sales and divestitures. According to the Reuters article, when surveyed, the majority of firms in Europe, the Middle East and Africa are currently consider the shedding of non-core assets as their key merger and acquisition goal for the coming year. The majority of the buyers for these assets are predicted to be in the United States and Asia.

Corporate Bond Market Remains Strong

With historically low government and corporate bond yields today, especially in the long end of the curve, many corporations are looking to shuffling their existing debt portfolio and extend maturities or refinance older higher cost debt. This has become a key activity for many investment bankers; however the fees again don’t stack up well against the big merger and acquisition paydays. That said, the volume of corporate debt issued may be a life saver for some struggling firms, with some estimating that this year the industry may see the 2009 record of $1.5 trillion of bond issuance shattered.

What Does this Mean for Investment Banking Job Seekers?

The investment banking job market continues to be one of limited opportunities and fierce competition. Many firms are currently cutting staff, especially in areas where demand is struggling, such as mergers and acquisitions Limited opportunities are appearing in some of the growing areas such as fixed income origination and trading, but the number of candidates vying for limited openings makes getting a foot in the door difficult. Those with years of experience in niche markets or a strong track record of results must be opportunistic in seizing positions when they become available.

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With ever declining investment banking revenues, financial institutions in most Western markets continue to reduce their deal teams. For some institutions, this has meant a shift back towards the roots of banking, and others, simply a refocusing of their investment banking activities.

One of the latest shakeups has occurred at Barclays PLC, one of the banks with a large investment banking presence in the past, where it announced that it would be cutting costs on its deal desk ahead of new regulations for the sector. According to the Globe and Mail, Barclays PLC will look to merge trading and distribution teams from fixed income, commodities and currencies into one business line, labelled the Markets division.

Shift May Save Money, Also Increases Flexibility

While these moves seems to be related mostly to reducing overall costs, it seems that other banks are looking to consolidate their investment banking activities into one team, rather than separate desks for a variety of activities. With the current volatility seen in markets worldwide, it is advantageous to shift resources from, for example, the currently struggling IPO desk to the booming investment grade corporate bond desk. Unifying resources under one investment banking platform helps to accomplish this.

New Reality Slow to Sink in for Largest Banks

While business realities have continued to worsen over the past few years, banks have been slow to react for the most part. Reuters recently reported that several European banks, including UBS, Credit Suisse, Deutsche Bank, RBS and BNP Paribas have all cut hundreds of jobs in order to meet return on equity hurdles within their investment banking divisions.

The reality goes beyond just declining activity, but a change in both client demand and technology. Simon Maughan, an Olivetree Securities analyst, told Reuters for their report that investment banks may need to cut up to 40 percent of their staff in order to correct overcapacity caused by efficiencies in technology and a focus on best execution rather than advice.

Organizations Need to Approach the Situation Delicately

Rushing out to restructure an investment banking team by announcing a large strategic review may have unintended consequences for banks. Such an announcement could send top staff scrambling for employment opportunities elsewhere, which could compound revenue problems as clients shuffle out the door with their trusted contacts. In the same Reuters article, John Purcell, a London headhunter, indicated that rash activity could lead to “…death by a thousand cuts.”

Outlook Continues to be Weak for Job Seekers

The investment banking career outlook, especially in relation to the European institutions mentioned herein, continues to be bleak. With limited opportunities, dismissed bankers are competing fiercely for whatever openings become available due to attrition, leaving little opportunity for those outside the sector to gain a foothold. For those with several years of quality investment banking experience, opportunities may exist in select niches that are performing well, such as corporate debt, or in markets with better economic outlooks, like China or Southeast Asia. In traditional markets such as Europe or the United States, and especially in segments such as the IPO business, opportunities are simply scarce and heavily contested. Real changes in the economic outlook will be required for this reality changes for job seekers.

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Investment Banking Prospects Impacted by Hong Kong IPO Market

October 22, 2012

This year has been tough for Asian investment banks, with a massive drop in initial public offerings (IPOs) in comparison to the rapid growth seen over the last several years. The Wall Street Journal reported that Hong Kong saw $5.76 billion in new IPOs through the first nine months of 2012, which is a 80 […]

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Is Asia the Last Best Hope For Investment Bankers?

October 15, 2012

Anyone that follows the investment banking industry, particularly those that are attempting to procure employment in this prestigious field, know one thing and that is 2012 has been a dreadful year for investment banks in terms of revenue of and profits. And when the top and bottom lines are hurting, investment banks have to answer […]

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Investment Banking Industry Sees Global Job Cuts

October 11, 2012

Employees in the investment banking industry are reeling after a number of serious cuts announced by several key firms worldwide. Starting with some major reductions by Deutsche Bank which were announced in July of this year, several other banks have scaled back and restructured their operations from markets as geographically and economically diverse as Qatar […]

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Investment Banking Employment Trends – First Half 2012

October 8, 2012

The recession was tough on a number of professions, and the investment banking industry was no different, seeing a year over year employment growth rate trough of over 7 percent in the summer of 2009.  But, how has the recovery treated investment banking professionals?  In short, not so well. The industry did see some growth […]

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