With a topic near and dear to our hearts: Brick Breaker.  I guess since Leveraged Sellout featured it I should have expected some questions - I just didn’t think it would take this long.

1. I just tried Brick Breaker on my friend’s Blackberry the other day but hated it and could not get past the first level. Am I doomed to never get into investment banking?

It’s ok if you don’t like Brick Breaker, but how could you not even get past the first level?  The beginning levels are pretty easy.

If you can’t even get past level 1, you’ll have no luck working all weekend.

2. Having perused your site, I would find our Singapore client to be most fitting.  I look forward to your response.

What does this mean?  I get inquiries like this all the time that make no sense.

3. Can you put up rankings of all the different groups within banks?  I want to see the most prestigious groups everywhere.

I stay away from “ranking” places as much as possible because things change very quickly and because you should be more concerned with getting in wherever you can as opposed to only focusing on a few groups - especially in this market.

4. What would you invest in right now?  Do you have any tips?

Didn’t you read Damn, It Feels Good to Be a Banker?  We don’t have any “hot stock tips.”

I don’t invest in the stock market at all because I can generate higher returns elsewhere.

Resumes

5. What is the worst thing you’ve ever seen on a resume?

The worst resumes I see are from college kids who somehow have 3-4 pages describing their “careers.”

I’ve had VP and MD-level customers before and with 10+ years of experience their resumes are not this long - so why is yours?

6. I’m about to get an interview, but they want to see my resume first.  I’m nervous because I haven’t had any finance experience - should I write on my resume that I can work hard and am very enthusiastic?

No, this is a really bad idea.  Remember that “Show, don’t tell” rule you learned in elementary school?  The same applies to resumes.

More resume mistakes to avoid.

7. I’ve had 2 banking summer internships before, but in my most recent one I did hardly any modeling and didn’t do much real work.  Should I leave out the most recent one so I don’t get questions on it in interviews?

If you’ve had a summer internship, you need to list it - you’ll get lots of questions on what you did during the summer otherwise.  I would keep it in but make it clear upfront that it was more of a qualitative role.

Background Checks

8. I had a part-time gig a few years back where I got in an argument with the manager once. Will that show up in my background check?

Unlikely, unless you listed him as a reference… most of the time they just verify that you worked somewhere over a specified time period.

9. My GPA has changed by 0.2 between when I interviewed and now.  Am I going to get in trouble during my background check?

Unlikely.  They understand grades change somewhat between when you interview and when you start, and 0.2 is within the “acceptable” range.

Networking

10. I’ve been getting a poor response from alumni I’ve contacted - what should I do?

Assuming you are not saying anything foolish in your emails, you should try to expand beyond alumni and think outside the box to come up with other contacts in the industry… leave no stone unturned when it comes to networking, even if it seems completely random.

11. I have a finance job, but I don’t know how long it will last - I’m thinking of going to New York to do some networking, do you have any tips?

You can go if you want, but I would consider other regions as well… NY has been particularly hard-hit since it’s the center of everything finance-related.  Make sure you have enough meetings lined up to make it worth your time (i.e. not just 1 or 2) and look beyond the larger banks.

12. I am not getting a response from one of my contacts anymore after several emails - what should I do?

I would call him if you have the number - that tends to get peoples’ attention more than email, which is easily ignored.  Failing that, I would make a note to reach out to him every few weeks and check anyway - persistence plays a huge role in networking.

13. I have an information session coming up for a large bank.  How can I do my best to stand out?

Try to speak with as many people as you can and be yourself.  Focus your questions on them rather than talking about yourself and avoid too much mention of work or anything finance-related… they hear more than enough about those topics all day.  Also don’t get drunk or abandon your common sense.

14. I have a list of boutiques I want to interview at, what is the best way to contact them if I have no relationship?

Cold-calling is the way to go, forget about email.  Emails get ignored, whereas phone calls are more difficult to ignore and help you connect personally with whomever you’re trying to reach.

“The era of big government is over.”

The promise, of course, turned out to be untrue: although Clinton moved to the center on welfare reform, among other issues, he later proposed hundreds of billions in additional federal spending.

With the results of the 2008 US election, many in the finance community have been asking a similar question lately:

Is the era of big bonuses over?

Before hitting the “panic” button, we need to break this question down so we can analyze it rather than running around with our heads cut off.

There are 3 major factors that could affect bonuses in coming years: the market, federal regulation, and tax law.

The Market

The market has, by far, the biggest impact on bonuses and business in general.  Investment banking salaries fell these past 2 years because of the market; they’ll fall again next year due to the market.

When bonuses dropped to almost nothing in 2001-2003, it had nothing to do with tax rates or regulations and everything to do with the lack of deal activity and the recession.  A 5% tax increase won’t kill bonuses, but a 25% drop in M&A activity will murder bonuses without mercy.

You could argue that increased taxes and regulations will hurt the market and therefore indirectly hit bonuses.  But it’s difficult to quantify this effect, and it’s even harder to know how much longer such changes would prolong the recession.

Regardless of who had won the election, there would be no silver bullet solution to a market downturn: the only cure is time.  And taxes can’t go too much lower than the levels they’re at now - so massive tax cuts are not a viable strategy.

Federal Regulation

Once the US federal government controls all the banks in the country, they’ll limit bank executives to a measly $400,000 per year, right?

Surprisingly, both candidates had promised increased regulation in some form.

Artificially capping pay at banks is one extreme of the federal regulation equation, but it’s not unthinkable. After all, if Lehman really went bankrupt, where did they get that $2.5 billion bonus payment from?

Since Obama has not yet announced his plan for federal regulation of banks, we can’t say specifically how regulation would have differed under either administration.

However, from statements both candidates made and from the public backlash to the financial crisis, we can surmise that regulation would have increased regardless of who had won the election.

Tax Law

When it comes to finance, there are 3 relevant tax policies to look at: the corporate tax rate, the personal income tax rate and the capital gains tax rate.

I recommend reviewing this comparison of both candidates’ tax plans.  Yes, I realize it is from a conservative institution and therefore the conclusions are not “fair and balanced,” so just pay attention to the objective parts where they discuss the features of each plan in detail.

Corporate Tax Rates

In the US most companies pay a 35% or 40% corporate tax rate. McCain wanted to reduce it to 25%, while Obama claimed that the effective tax rate was far lower and that a reduction would therefore be unnecessary.

It doesn’t matter who was correct because there’s no way a corporate tax cut would have become law with the financial crisis and the accompanying public outcry for more oversight, not less.

In all likelihood, Obama will keep corporate tax rates the same and banks will continue paying the standard tax rate on their earnings.

Personal Income Tax Rates

So now we get to the famous “Over $250,000 per year” issue - and I do think that this one will become law. As a result, anyone in finance above the entry-level will soon be making 5% less after-taxes.

Of course, this won’t affect most readers since Analysts never make more than $250K per year.

Some Investment Banking Associates and Private Equity/Hedge Fund Associates at the largest firms will be affected, though pay in general will be down over the next few years - so the poor market might make some of them exempt from the tax increase.

Update: As you might have seen in the comments below, one reader points out that Obama’s proposed removal of the payroll cap in FICA (Social Security & Medicare) tax will affect anyone making over $97,500.

Effectively, anyone making over $97,500 will have to pay 6.2% tax on anything over that, which will impact pay more substantially than the increase in income taxes (for most people).

So the situation is worse than what I initially thought, though even this will still be outweighed by the poor market and potential capital gains tax increases. 

Capital Gains Tax Rates

Near the end of his campaign, Obama settled on a 5% capital gains tax increase, which would raise the rate from 15% to 20%.

This will marginally affect bankers and anyone else on the sell-side, but it will have far more of an impact on anyone in the private equity or hedge fund world.

But the more frightening prospect is that carried interest (the returns PE firms get from their investments) might be treated as ordinary income - at close to a 40% tax rate - rather than the 15% or 20% rate.

This one may not be at the top of Obama’s agenda right now, but if it does become law, it will be the single most significant tax change.

However, even if it does happen it won’t affect too many people at the Associate level in Private Equity - they rarely get to invest their own money alongside the Partners anyway.

So Who Will Be Affected?

We’ve already seen that hardly anyone at the entry-level will be affected by possible changes to the tax law.

If, however, buy-side firms start getting taxed at much higher rates that could negatively affect hiring practices and bonuses and therefore indirectly impact everyone.

Anyone more senior will be hit by the tax increases, though not dramatically in most cases (ok, I suppose 5% of $5 million is somewhat dramatic).

Increased regulation, of course, will impact almost anyone in finance - but again, most of it will be felt at the top rather than the bottom.

And the market will have the biggest effect of all - and it’s the one factor beyond the control of anyone in Washington.  Sure, higher taxes may lengthen the recession, but even if taxes were cut dramatically it would still take years to recover from the mess we’re in.

And Outside the US?

Although I’ve lived and worked abroad before, I’m certainly not an expert on the political and economic systems of other countries.

But if I had to guess, I would say many of them are likely to follow in the footsteps of the US, at least in terms of increased regulation and government intervention.

We’ve already seen developing economies (see: China) and more mature countries alike (see: the UK) introduce regulation and intervene in their respective economies in recent weeks.

And that means lower bonuses at international firms, though the market downturn will still have more of an impact than regulation or tax increases.

So, What About Those Bonuses?

Now that you’ve learned all sorts of tax trivia, let’s return to our original question:

Is the era of big bonuses over?

Yes, it is.

But not because it was a Democratic victory specifically.

Regardless of who had won, we would have seen more regulation and restrictions on what banks can do. True, with Obama you’ll now be losing more in taxes - but I don’t think you’d be saving much more had McCain won.

Extreme tax cuts would not have made it through a Democratic Congress, and no one would have miraculously cured the market’s woes.  

Every market is cyclical, and in a few years bonuses will return to higher levels as the economy recovers.

But will they ever reach $90,000 for 1st-Year Analysts as they did in 2007?

No, I don’t think so.  Not anytime soon, anyway.

Will people still make millions of dollars per year in finance?

Yes, but their ranks will be reduced.

Will everyone still chase after finance jobs with the hope of making millions?

Sure, but fewer people will do so now and even fewer will actually get there.

Good luck.