When Things Get Bad In Investment Banks: Expense Czars
“You know you’re in trouble when your firm actually appoints an ‘Expense Czar’. But that’s what Citi has done. 61 year-old Carl Levinson, a 35-year company man, will take on the new role which will no doubt focus on paper clips, loo rolls, and soap (as well as the small things).”
-“Top Firm Appoints ‘Expense Czar’ ”
Reading this story about Citi appointing an “expense czar,” I was reminded of one of most frequently asked questions (I should really start a FAQ section…) – “Are we going into a recession? Should I even bother getting into banking right now if the market is going to be terrible?”
Make no mistake, things are getting worse. I don’t know if I’d say they’re quite “bad” yet except for maybe Citi or Merrill, both of which appear to be auctioning themselves off even more to Middle Eastern investors (China looks like it may be reconsidering its investments).
Signs Of Impending Collapse In Investment Banks
The foreign investor headlines are the ones that make the news, but when the receipt for that $35 dinner you expensed gets rejected, you really know things are getting bad.
Tighten Your Belt
Tightening of expenses is just one way to know when things go bad. When your bank is making a killing and bringing in millions of dollars an hour on deals, no one really cares that you went over the $30 limit on dinner by a few dollars. Or that you counted multiple people multiple times to justify spending $500 on dinner for yourself that one night (models and bottles, models and bottles).
But when business slows down, people respond by cutting costs. In a bad market environment it’s almost impossible to win new business, so the only way to maintain profits is through expense reduction. Saving $500 when you’re losing $25 billion all those writedowns seems irrational, but hey, every little bit helps, right?
Legend has it that back in 2002-2003 analysts could only expense $15 for dinner each night. Can you imagine that? That’s when things get really bad.
The day our $30 is reduced to $15 is the day I quit.
Fire All Those People Too
Beyond stricter expensing policies, there are other signs that business is slowing down. One is the lack of recruiting or reduction in the number of new analysts set to be hired. Friends interviewing at banks this past fall said they were turned down because many banks had “filled their quota via summer interns who had accepted offers.”
You’d never fill a quota via with investment banking summer interns alone when business is good; this is simply unheard of. But when all your deals dry up and the senior people are applying for jobs at Lazard or Goldman, there’s no need to recruit new people to plow through PowerPoint or Excel.
So Should I Still Become An Investment Banker?
The short answer is yes. If you want to get into finance and are still an undergraduate, or even if you’re already working in another industry, you have few options aside from investment banking. It’s the standard entry point into finance. Of course, in bad times it will be more difficult to break in and those investment banking salaries will be down, but what else are you going to do? Take a long vacation?
The longer answer is that it’s difficult to time any market, whether it’s the stock market or the job market. If you think a stock is fundamentally a good buy, you should buy it and build up your position over time. Similarly, if you really want to enter a particular field, you should do so as soon as possible and add to your knowledge and experience over time.
Who knows? The market could recover more quickly than expected. Or it could stay be bad. In either case, though, you gain nothing by remaining on the sidelines. Perfect your investment banking resume, ace your superday interviews, and you’ll find a job.
How To Get In When Firms Are Appointing Expense Czars
Can you still get investment banking jobs now even when things have gone bad? Yes, but it will be more difficult than the previous few years when banks went on hiring sprees. Your best bet is to think smaller, spread your net wide and not aim solely for bulge brackets, especially the ones that have had severe problems/earnings misses (and UBS LA may be on the brink of collapse…)
This is especially the case if you haven’t had a previous banking internship, in which case you have a low shot at the top names. As I mentioned above, many of these banks now fill their full-time investment banking analyst classes almost entirely with summer interns.
Even more so than usual, your chances of getting in will depend on networking with alumni and any other industry connections you have. Even if you don’t up exactly where you want, you can always transition over later after you have a year or more of experience and hiring picks up again.
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