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Investment Banking: Losing its Luster?

2

Replies to: Investment Banking: Losing its Luster?

  • cbreezecbreeze Registered User Posts: 4,762 Senior Member
  • shawbridgeshawbridge Registered User Posts: 5,686 Senior Member
    There is a structural change that I don't think anybody has mentioned that will affect investment banking's lucrativeness as a career path. The Volcker rule (part of Dodd-Frank) forces i-banks to dial down their proprietary trading arms, which is where a lot of profit was made. They had extraordinary market information about the big trades of their clients and could, although they never would do such a thing, front-run the trades of their clients.

    If I'm right about the above, it his implications for profitability and wages. Without the prop trading, life won't be the bonanza that it sometimes was. When M&A transactions are down, income will go down. They can still lend money (especially JPM and BofA) and create derivatives etc., a big part of where they made their money is gone -- some of it to hedge funds. So, it is still a great place to learn about some aspects of business, but it is less likely to provide the huge payoffs of yesteryear.
  • Commodore15Commodore15 Registered User Posts: 117 Junior Member
    My sense is that the longer-term career path is less lucrative than in the past. It's an up-or-out world with a funnel of new analyst coming in each year to push out those ahead - only a few make it to partner - maybe 1 in 20? HT/PE will only absorb a few of the ex-IBers as they also hire ex-execs/consultants/etc.

    Unlike law or medicine, which have their own issues, IB seems like a much more short-term career choice.

    It's definitely less lucrative than it was before, when most in fact saw it as far too lucrative. Still, the compensation is very good given the current state of employment.

    Within a firm, it's true that only a very small percentage of analysts eventually make it to partner. However, it's quite common for analysts at bulge brackets to peel off after their two years to become partners at boutiques, which are numerous. HF/PE are also much larger industries than people think; PE seems exclusive because so many people have a "megafund or bust" philosophy so they only ever talk about 5 to 10 firms, and HF's are everywhere. For a lot of people, the path to PE/HF is the only reason for pursuing IB. PE firms have been known to hire from top management consulting firms, but IB still has far stronger placement into PE. By no means do I intend to suggest that there is any sort of pipeline from IB to PE, but these people really do still have fantastic options available to them after their analyst training. I personally think that one is better off by leaving IB after their analyst program for PE/HF/VC, however, because the upward trajectory within a single firm is very stunted. It's tough enough to become an associate, and the kind of compensation that most are looking for isn't really available until the junior managing director level.
  • LakeCloudsLakeClouds Registered User Posts: 584 Member
    Interesting article on Goldman Sachs - smallest group of new partners since their IPO in 1999. Only 35 new partners on an annual basis - definitely up or out with the emphasis on out.


    Goldman Picks 70 Partners - WSJ.com
  • CollectivSynergyCollectivSynergy Registered User Posts: 982 Member
    The financial sector has morphed into a casino built on skimming sums small (HFT's) and large (Enron, Madoff, Stanford) from investors of all sizes. To announce an interest in banking in this era should be socially reprehensible, something said under one's breathe, with fear of being labelled a pariah. Certainly our best and brightest should be attracted to other creative endeavors, as they were only a generation ago, rather than to skim, steal, and squander

    I'm not a banker, but I find this statement nauseating. You can make any industry or profession sound evil by citing the worst examples. The company that constructed my home, for example, built the foundation weak near an underground waterway (so it floods at even a slight amount of rain). There are millions of homes that are like this or built with other structural deficiencies. Should construction workers, architects, and foremen live in fear of being labeled pariahs?
  • cbreezecbreeze Registered User Posts: 4,762 Senior Member
    More firms are exiting the investment banking business. Thousands of jobs are being cut every year and the industry as a whole is shrinking.

    Wall Street?s Bulge Bracket May Shrink to 5 Firms, McKinsey Says - Bloomberg
  • Polo08816Polo08816 Registered User Posts: 916 Member
    Its true that investment banking loose their attraction . According the opinion of business week and financial times that investment baking are not much preferred mployers for MBA students. But at the same time many MBA students regard investment banking as Job which shows them a way to instant financial stability and helps them to quickly payoff student loans. So it would be wrong to to say that investment banking is loosing luster Investment banking mergers and acquisitions is still very much preferred by the MBAs.

    Please explain how recent layoffs equates to financial stability and quick payoff.

    Logic would tell you that if you work in a volatile sector, stability is not present.

    I really wonder why anyone would want to pursue this line of work. What's the appeal of working 60+ hours a week in an extremely high cost of living area?

    Basically, how is that better than a government employee making 100-150k/year in a low cost metro area (if in Philly, that's equal to 200-300k/year in NYC), stacking two government retirements, and being able to retire before age 50?
  • cbreezecbreeze Registered User Posts: 4,762 Senior Member
    Basically, how is that better than a government employee making 100-150k/year in a low cost metro area (if in Philly, that's equal to 200-300k/year in NYC), stacking two government retirements, and being able to retire before age 50?

    I know you are in the military. But please explain how many (or what level) gov't employees in Philly are paid $100-150K a year and can stack 2 retirements and be able to retire before age 50. Our best friend went to West Point, became a lawyer, retired as a colonel after 30 years at age 50 at 75% of base pay. He taught at NIH for 15 more years and is retiring this year at age 65. I don't think he makes anything near $150K/year.
  • Polo08816Polo08816 Registered User Posts: 916 Member
    The key is being a Reservist and not Active Duty.

    Salary Table 2012-PHL_LEO

    A GS-14 or GS-15 in Philly will make approximately 100-150k/year depending on Step. FLEO careers allow to you retire at 25 years of service. In a larger FLEO agency, the only reason you don't make GS-14 or GS-15 is if you are completely incompetent and refuse to move when given an opportunity of a promotion.

    As for your reserve commitment, if you were smart and enlisted (and then commissioned later on) when you were approximately 18, you could punch out at right before 50 with approximately 30 years of service. Although you would be eligible to retire at age 38. The 100-150k/year figure doesn't even include the > $15k/year you would receive as a drilling reservist. I receive approximately $15k/year as a 1LT; it starts to really shoot up once you make CPT and above.

    Even if you were not ambitious and only achieved rank that any person with a heart beat would have made, then your combined retirement would still be > 120k/year at age 50.
  • cbreezecbreeze Registered User Posts: 4,762 Senior Member
    A GS-14 or GS-15 in Philly will make approximately 100-150k/year depending on Step. FLEO careers

    Are you saying these are law officers?
  • Polo08816Polo08816 Registered User Posts: 916 Member
    Not necessarily. That's just one example of how it is possible.

    Many federal agencies are moving to a "Pay Band" system instead of the GS pay scale. It allows more flexibility and higher ceilings. However, promotions are less guaranteed under the system. It's the effect of a drive for "pay for performance".

    For example, without the LEAP pay that FLEOs would get, a GS-9 at the NSA would be making peanuts compared to what the same person would make at a defense contractor that does the same work at the same site. The "Pay Band" system was designed to allow those agencies to better compete with the private sector.


    The problem I see with most literature regarding "expected salaries for career field/position" is that they never take into account opportunity costs.

    Investment banking with 60+ hours a week represents a huge opportunity cost. You are giving up a lot of diversification and putting all your eggs in one basket in hopes that you excel over the person standing next to you who is equally talented and motivated.
  • morrismmmorrismm Registered User Posts: 3,563 Senior Member
    "Basically, how is that better than a government employee making 100-150k/year in a low cost metro area (if in Philly, that's equal to 200-300k..."

    Well, although Philly is a great city, it is not NYC. And although some government jobs are better than others, maybe the IB and S&T jobs are just more exciting and risky and a whole lot less boring.

    There is more to a job than the wages.
  • Polo08816Polo08816 Registered User Posts: 916 Member
    Well, although Philly is a great city, it is not NYC. And although some government jobs are better than others, maybe the IB and S&T jobs are just more exciting and risky and a whole lot less boring.

    There is more to a job than the wages.

    Philly and other less populated metro areas aren't NYC; that's why they are more attractive. I grew up 35 mins away from NYC.

    Many government jobs are boring and mundane, but those aren't the ones I would ever settle for. IB and S&T is less exciting, less risky, and a whole lot more boring that what I do (and want to continue to do or pursue in the future).

    Being an Asian male and serving in a capacity/branch such as an Infantry platoon leader is risky. Serving in a region (South Jersey) where Asians are under-represented in a branch (Infantry) where, again, Asians are under-represented and excelling is unusual. Competing and succeeding in being selected over your peers for coveted specialty assignments such as Scout Sniper Platoon Leader is uncommon. Being recognized by your elected officials such as your Congressman to the point where they call your cell phone once in a while to see how your civilian career and military career are progressing as if they are eyeing (and betting on) you for a political future is rare.

    I can assure you that my appetite for risk is far greater than the typical IB and S&T candidate. I'm willing to bet my life on the quality of the people around me, my own competence, experience, and skill. Can they?

    The last thing I ever want to be in life is a conformist. I see so many of my Asian peers follow in the foot-steps of some type of generic life template. Many go to med school and others end up working on Wall Street (for a few years), and while they may have achieved great personal and economic success in their endeavors, that's all they've done. They simply didn't have a greater purpose - their lives are passively boring.

    I want to be a trailblazer. I want to go where no others have gone before. Maybe I'm that @sshole with a chip on my shoulder and I'm out to prove something. So be it.

    Now to bring the discussion back after being slightly off tangent, yes, a career is more than simply wages. But if you're being paid better to do something you ACTUALLY love and don't view as some type of grind, then you found what most people never will.

    * As a side note, I'm currently a software engineer at a defense contractor. I went to a public school and majored in Computer Science. I joined the ARNG during that time and that allowed me to graduate with zero debt without even using my federal educational benefits. I'm doing better financially than all my peers from high school that ended up going to big-name schools and working on Wall Street. Debt and cost of living just destroys them even if they can find a well paying job in the financial sector.
  • Polo08816Polo08816 Registered User Posts: 916 Member
    Wall Street executives fret about talent drain - Yahoo! News
    "There is a massive talent drain in our business," said a senior Wall Street executive, who declined to be identified.

    "Banks are not getting top-level talent out of universities anymore, so in 10 to 15 years, there could be a big problem when it comes to leadership at the senior level of these firms," Boehmner said. "They're seeing big gaps in talent."
  • morrismmmorrismm Registered User Posts: 3,563 Senior Member
    Well that is not what is going on at my D1's firm. But it is anecdotal info.
This discussion has been closed.