Damn, It Does NOT Feel Good To Be A Banker: Investment Banking Apocalypse (The 2008 Financial Crisis)
For those who weren’t paying attention over the weekend, top government officials in China and the US reached an agreement whereby China has agreed to acquire all outstanding stock of the United States at $1.00 per share, with an implied valuation of $1 trillion.
Although the US GDP is close to $14 trillion on paper, analysts have said that extreme exposure to subprime mortgages and a failing financial system pushed its value down to only $500 billion. China made a last-minute rescue, acquiring the country at a 100% premium.
(This is a joke, but I wouldn’t be surprised to see a headline like this soon.)
Ok, so in case you were on vacation, Lehman and Merrill both failed over the weekend, and the US financial system continues its descent into bankruptcy as banks and hedge funds spiral into a bottomless abyss.
So what can you do about it?
The Effects Of The Apocalypse
The collapse of 2 bulge bracket banks will have a big effect on you, but probably not in the way you’re thinking. Most commentary has focused on how the absence of 2 huge banks will reduce job openings and summer internship opportunities.
While this is true, the larger problem is that you’ll now be competing with everyone who will be laid off from Lehman and Merrill (and BoA, of course) – thousands of newly unemployed bankers in the system, also looking for work.
What The Unemployed Will Do
From what we’ve seen earlier this year, my guess is that a good portion of the unemployed – especially at the junior levels – will simply forget about finance altogether and just “move into industry.”
But the truth is a lot of them will also stick around and go for positions at middle-market and boutique firms.
Especially at the VP-level and up, anyone working at one of the failed banks is in a “limbo” where it’s too late to make a career switch altogether, but where it’s tough to find anything within banking – unless they get really lucky.
Bottom-line, though, is that you will be competing with a sizable pool of newly unemployed bankers.
Wait, But Won’t The Boutiques Get Bigger And Take Over?
No, I don’t think so.
I’ve seen some questions around whether the smaller banks will grow and take over the spots once occupied by Merrill, Lehman and Bear.
I think this is unlikely for 2 reasons:
- Deal-making is slow. It’s tough to grow a major business in a terrible market, and investment banking revenue is down over 50% from last year.
- This crisis proved that the pure-play investment banking model doesn’t work so well. So I doubt that these boutiques have any ambition to grow and replace the failed bulge brackets.
What You Should Do
So, what should you do in the face of apocalypse?
Sadly, there’s not a whole lot you can do – a broken financial system in the world’s largest economy is a big problem and one that’s well beyond your control.
Earlier I wrote an article on how to boost your recruiting chances in a tough market, and I would reiterate that advice here.
By now, if you’re seriously looking at bulge bracket banks (well, the ones that are left…) and have no previous finance experience, you’re basically crazy. Focus all your time and energy on smaller places.
However, even that strategy is problematic because everyone knows about it – so you have to consider some alternatives.
I think one of the best options is going abroad to find work – especially in the Asia Pacific region.
Yeah, everyone says you should start out in New York, but these days you’re more likely to run into laid off bankers jumping out windows than you are to run into a job.
One of the questions I’ve been getting lately goes something like this:
“Hi, I want to make a lot of money, not work a lot, have no risk and be able to do whatever I want all the time. How can I get into investment banking?”
I hate to shatter your dreams, but nothing’s perfect – every profession has a downside. Just refer to the graph below for the downside of working in finance:
Source: Bureau of Labor Statistics
It’s incredibly cyclical – and therefore far riskier than other industries. Over 100,000 will probably lose their jobs in this downturn.
So if you can’t get exactly what you’re looking for, you have two choices: either wait it out or compromise.
And with the state of the economy and all the news over the weekend, compromise is the better option.
Update: It’s not all doom-and-gloom just yet, guys. Looks like Credit Suisse and Moelis & Co. are both “on the prowl for bankers” – which just goes to prove what I wrote above about opportunities still existing at smaller firms and outside the US, especially in the AsiaPac region.
Update 2: Looks like Barclays is buying Lehman’s investment banking and capital markets divisions, saving between 9,000 and 10,000 jobs – so it’s not the end of the world quite yet.
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