“What should we put our money in?”
“Is this the end of Wall Street?”
“Which bank is going to fail next?”
The talk of rumor-mongers who obsess over every last development?
Paranoid message board chatter?
Too much refreshing of the Drudge Report each day?
These are all snippets of conversation from 4 friends in finance, discussing the world at large this past weekend while “on vacation” (I tried to make them turn off CNBC, but it didn’t work).
So if you’re asking the same questions, don’t feel ignorant – not even the insiders have the answers.
But I have been receiving many smaller questions lately – questions I might be able to answer.
1. Is This the End of Investment Banking?
No. Companies always need to raise money, companies are always looking to buy, and companies are always looking to sell. As long as that demand exists, the industry will continue to exist.
It will look different than it does today and than it did a year ago – specifically, there will be fewer big banks and more boutiques – but it will go on.
2. Will Bonuses Ever Return to 2006-2007 Levels?
Not in the near future. They may return after we’ve recovered and hit our next bubble; we’ve already been through junk bonds, tech IPO’s and mortgages, so who knows what’s next.
Bonuses will fall again next year, though they’ll probably remain above 2001-2003 levels (if only slightly).
3. How Will Goldman and Morgan Be Affected?
In case you missed it, Goldman Sachs and Morgan Stanley are both “bank holding companies” now.
All that means is that they’ll become smaller versions of Citi, JP Morgan and Bank of America.
Sure, they’ve been affected by the crisis just as everyone else has been, but I don’t see any drastic changes in store for banking specifically (trading, of course, is entirely different and will be far more regulated).
4. Ok, But What about Goldman and Morgan Bonuses?
Most banks pay Analysts about the same bonuses each year; last year and the year before, the top commercial banks paid around the same as the top standalone investment banks.
Bonuses at Goldman and Morgan will be down, as will bonuses everywhere else – not because they’re now “bank holding companies,” but because the economy is far worse than it was last year.
5. What About the Middle Market and Boutique Firms?
These are actually 2 different questions, but in general there will be more small, advisory-focused boutiques as talent leaves the largest firms.
Middle-market banks with little exposure to the crisis may survive, but I foresee some consolidation even in that market.
6. What About Bank of America and Merrill? (And Citi / Wachovia and…)?
Needless to say, people are going to lose their jobs. It’s hard to say how many specifically in investment banking will go, but you can bet they’re not going to keep everyone.
However, the (somewhat) good news for you is that other areas will probably be hit harder than banking.
7. What Are My Chances of Getting In…?
Lower than they were before, regardless of your stats or previous experience. If you want to improve them, take a look at my previous writing on recruiting in a tough market.
Or maybe just take a year off and become a ski bum.
8. Is There Anything in Finance that’s “Safe” Right Now?
First off, in life there’s rarely anything that’s “safe.” So the notion of “job security” in any field is a farce, and in finance it’s even more of a joke – even when times are good.
Banks? Forget about it. Hedge funds? Plenty of them have blown up as well, though you don’t hear about it as much because most are not well-known to the public. Insurance companies? Nope.
One area that is safer is private equity. Sure, they may not be doing a lot of deals lately, but they’re not going to go bankrupt when everyone withdraws their deposits, either. Once they have their assets under management, the capital is theirs to manage.
9. How Bad Will It Get?
Who knows. Back when Bear Stearns failed, we thought that was bad – now it looks like a minor hiccup.
However, given that there are no major, independent investment banks left, I don’t think it can get too much worse.
Sure, companies invested heavily in mortgage-backed securities will continue to fail, and we could have another few WaMu-style disasters, but I would be astonished if, say, Bank of America had to be bailed out.
Side note: I would not keep more than $100,000 in any bank right now, because you just never know… not to be depressing or anything.
10. What Can I Do to Get In?
What I’ve been telling you to do all along:
Sure, things are pretty bleak currently, but I know that firms both large and small are still hiring.
Because I’ve spoken with many mock interview clients recently who have been interviewing at these places.
Adapt – don’t give up.