Sunday, June 28, 2009

CFN School Champions

The CFN Network this month invited several Consortium students to act as "school champions." They'll be the eyes and ears for CFN on campus. During the year, they will provide feedback, ideas, insight and trends on what's going on in finance and in opportunities from their respective b-schools.

What companies are recruiting eagerly on campus? What are career strategies of students in this environment? What sectors of finance (banking, investing, trading, asset mgt., etc.) are students most interested in these days? How can alumni and experienced professionals best help students? How are students juggling the tough demands of coursework and recruiting? School champions will help answer these kinds of questions and more.

We'll learn more about how b-schools are "teaching" the financial crisis or restructuring finance courses to include the events of the past year or focus more on risk management. We may learn more about how schools approach the study of finance differently and how schools are preparing students for opportunities in financial institutions.

We'll see where, say, a bank recruited aggressively at one campus, but avoided another. Or where a firm is on campus, but making only a token effort to recruit. Or where one school introduces new courses that study how to strengthen the financial system or measure the impact of planned regulatory changes. We'll watch trends across all campuses to see where students are leaning, seeing opportunities or getting offers.

On campus, the school champions will also promote CFN events, projects and membership. During the year, we'll share valuable information, ideas, and tidbits from one campus with another and with CFN members.

Tracy Williams

Wednesday, June 24, 2009

Diversity: BE's 40 Best

Black Enterprise magazine this week announced its top 40 best companies for diversity. Of the 40, 11 were financial institutions or insurance companies. In a financial crisis and severe recession, companies that continue to promote diversity initiatives as rigorously and eagerly as ever ought to be applauded for keeping them a priority.

Especially financial institutions. They have not only had to fight for survival, but are in the middle of an expected long, arduous recovery period to clean up the rubble. Financial institutions have to focus on restructuring, getting new capital, deleveraging, making themselves lean and efficient, managing massive reduction in staff, and dealing with TARP and new regulation.

Yet some have managed to keep diversity near the top of the agenda. Give them a hand. They realize best that diversity programs are effective when they aren't cyclical, when they thrive in tough times. And they realize constituent groups (employees, customers and shareholders) expect consistency and continuity in diversity. Not a part-time effort or in periodic fluctuations.

BE's list is not a ranking of the 40, but an announcement of members of a club that met its criteria even in a downturn. (See http://

Citigroup and Bank of America, two large banks in the middle of the turmoil and in financial headlines daily, still managed to make the list. Citi, whose co-head of investment banking includes Ray McGuire, was cited for having under-represented groups on its board of directors and in senior management. BofA was recognized for its diverse employee base and diverse group of suppliers. (Both, by the way, are important, long-time Consortium sponsors.)

BE evaluated companies based on four criteria: senior management, board of directors, suppliers, and employees.

Other notable financial institutions that made the list include the embattled mortgage agencies Fannie Mae and Freddie Mac. American Express--with Kenneth Cheneault still its CEO--was recognized for senior management and board of directors.

Regional banks Comerica and Northern Trust are on the list. Insurance companies included Aflac, Aetna and State Farm. TIAA-Cref, headed by Roger Ferguson, also made the list.

BE said its used a quantitative, objective analysis to determine its "club" with heavier weights for senior management and employees.

Tracy Williams

Sunday, June 21, 2009

Financial Regulation: What's Next?

In 88 pages, the Obama Administration last week unveiled its plans to revamp financial regulation--to remold the U.S. financial system, so to speak. The plan tweaks the system; it doesn't rebuild it anew. It targets the obvious problems, but doesn't present a radical, different structure. So what does all this mean to finance professionals in the short- and long-term?

If and when new regulation is executed or enacted, finance professionals may not see revolutionary changes in the way financial business is conducted. They could see, nonetheless, subtle changes in how financial business is conducted, how transactions to get done, what activities will be limited, or how long it takes for new products to be distributed to the public.

Changes might occur in a variety of ways:

1. The Federal Reserve--with its more visible role and greater powers--will continue to seek to recruit top talent--not just in the short-term, but for long careers. In the current environment, it is taking advantage of available, displaced talent and doing an admirable job to convince that talent how rewarding a longer-term career with it can be. Its recruiting strategies will be for the long haul.

The same applies to the FDIC, which has been at the main table of crisis-related issues and making its views known about top management at banks and whose powers, too, have been strengthened in the proposals.

2. Because regulators in this environment have been able to attract talent, there will be more who will have career paths that transition them back and forth between public and private sectors--from, say, the OCC, SEC or Fed to Wall Street and back. And they will do so with little stigma and lots of significant know-how and contacts.

3. Financial institutions will continue to beef up in areas of compliance, legal, and systems. With new requirements, as the Fed, OCC and FDIC (as well as the SEC and CFTC) watch as closely as ever, institutions will need to ensure they are adequately staffed.

Compliance doesn't necessarily mean hiring more lawyers and accountants, but also requires more systems and analytics to value and account for financial assets and ensure sufficient capital is set aside for the same--no easy task for institutions with tens of billions in trading assets, loans, mortgages, derivatives, and other securities.

More than ever before, institutions will seek to hire experienced people who had senior roles at regulatory agencies to help them interpret the rules and institute proper procedures.

4. Financial innovation won't disappear, but will slow down. New products, whether for institutions or consumers, will be reviewed and assessed more carefully than ever--similar to time-consuming FDA scrutiny of new drugs. Some financial products may never make out of the laboratory. They will be analyzed extensively for profitability, capital support, regulatory approval, public blessing (possibly), and potential to cause devastating losses.

In the past, competitive pressures forced institutions to get products out promptly, especially because in finance, profit margins are highest in a product's early stage. Now no institution wants to be the one that spawns the next generation of CDO-like products that could cause havoc in the global system.

5. "Clearinghouses" will become more important and more visible. The proposals encourage the formation of third-party institutions to act as settlement or processing agents in derivatives transations. The role of processing and settlement of securities and derivatives transactions--especially for new products, always unsung and unglamorous, won't be taken for granted.

6. Any institution that interfaces with consumers (whether selling products or orginating mortgages or doing basic transactions) will need to staff up to manage the requirements from the new Consumer Financial Protection Agency.

Many large institutions already have basic infrastructure in place to handle new requirements, so they can't complain about how onerous they will be. There will be new staff. And there will be incremental costs to comply (with possibly negligible impact on shareholders). However, the new staff and new costs will be nowhere near the losses they all incurred because of mishaps in the risk management or regulatory oversight over the past few years.

Tracy Williams

Thursday, June 11, 2009

Summer Reading Lists

Anxiety still clouds the finance world. Few will say they have time to focus on the recently published tales that try to explain the causes of the crisis or dramatize the behind-the-scenes sequences of the implosion of Bear Stearns, Lehman, and AIG. But a handful of titles are making their way up best-selling lists or are being discussed or whispered about.

Consider adding them to your summer reading list. Or at least be familiar with them. That might make a difference in network circles, in the last round of an interview, or in impressing a senior colleague. They all help you understand how it was possible a collapse of mortgage markets led to a near depression in the economy.

Some might say it's too early to assess what happened. Others might contend it's best to tell (and sell) the stories when they are fresh. Most of the accounts are readable--free of arcane jargon, worthy of praise in their efforts to explain the alphabet soup of mortgages, derivatives and securitization (ABS, ABCP, CDO, CDS, etc.).

The best of the lot is House of Cards (by ex-banker William Cohan), which presents a riveting tale of Bear Stearns' history and its sudden downfall. Lack of capital and liquidity issues explain its demise. But Cohan will convince you that selfishness, greed, and short-sightedness among its top leaders in its last years (led by Jimmy Cayne) is just as much the blame.

The book chronicles well the day-to-day problems Bear had in funding itself in its last days, as a literal run-on-the-bank sacked it. Yet Cohan shocks you with tales of petty bickering and undercutting among senior managers. Building a well-capitalized, durable (and diverse) firm was less an objective; a mad, ugly scramble each year to grab multi-million-dollar bonuses was the primary, unspoken goal.

Fool's Gold (by journalist Gillian Tett) focuses on the evolution and astounding growth of credit-default-swaps (CDS), spurred by the inovation from a JPMorgan team in the early 1990's. CDS, she hints, might have ultimately led to the crisis. Tett goes inside to tell how CDS derivatives were nurtured, expanded, and then exploded.
Oddly, the book avoids the technical aspects of CDS (very little about settlement processes and mark-to-market accounting or how dealers make money trading them). And it strains to explain how CDS could be a direct cause of the current crisis.
Nonetheless, it tells a spellbinding story of the people who gathered to brainstorm and had a dream of financial innovation and credit derivatives.
The House of Dimon (by Patricia Crisafulli), a third book, is informative, but reads like a press release from the subject's publicist. A biography of JPMorgan Chase CEO Jamie Dimon. Sometimes it reads like a b-school case.

His up-and-down-and-up story about his climb to CEO has been told often. The book re-tells the story with more detail about his early years and his role as Sandy Weill's protege'/sidekick. You see how career decisions he made right after b-school influence how he got to the top of JPMorgan today. You see how his experiences at Commercial Credit and Primerica prepared him to be the shrewd businessman who happens to run a bank.
The book at times is unbalanced. The author is careful not to be too critical of Dimon's known brash style or any past failings, and she didn't give sufficient time to his detractors or other insiders.

These are all first drafts of history. Now we await to see how the same events will be described in b-school finance texts.

  • Tracy Williams

Tuesday, June 2, 2009

New MBA Students' Interest in Finance

We all know how tumultuous last year was. The economy nose-dived, and popular, highly regarded firms such as Lehman, Bear, AIG, and Merrill collapsed or disappeared. We dare to utter the bad words of finance: derivatives, securitization, sub-prime mortgages, and leverage. And then we wondered if the new crop of MBA students would flee from careers in finance or approach them with less rigor and passion as their elders did in previous years.

However, new Consortium MBA students at this year's 43rd Annual Orientation Program in Charlotte (above) still expressed a broad range of interests in financial services. Of the 300-plus new students, 81 indicated an interest in finance or in a specific sector of finance. That hardly differs from the trends in previous years, where those with similar interests often ranged from 70-90.

That there was not a significant decline in those considering finance could be attributed to the following:

1. New students are confident and optimistic there will be an economic recovery and are hopeful there will be opportunities across the board.

2. Many students were already in financial services, but now want to pursue a specialty. (A student who might have worked in commercial banking may now be interested in private equity. Or one who worked as a financial broker wants to pursue investment management.)

3. Some students were involved in unrelated careers, but want finance to help polish or round out their backgrounds.

4. Some had strong backgrounds in math and engineering and are inevitably attracted to the quantitative challenges of finance--without regard to financial upheaval around them.

5. Some want invaluable experience in finance in the first stages of a career. They want finance as a foundation before moving into other careers 5-10 years later (in, for example, real estate, entrepreneurship, or technology).

6. Those already in finance might have decided that the best time to return to school is when opportunities are scarce and the market is down.

The 81 said they would likely pursue careers across a wide range of opportunities: investment banking, commercial banking, real estate, corporate finance, venture capital, private equity, sales & trading, private wealth management, and asset management.

The number also doesn't account for those who while in business school decide they want to pursue finance after starting with a different interest.

Were there trends from other years? Fewer might be considering some of the roles in generalist investment-banking or in equity research. Few expressed interested in sales & trading or "exotics" trading. More appeared to be interested in wealth- and asset-management positions.

Among Consortium schools, some, as expected, had large numbers with finance interests: NYU, Carnegie Mellon, Virginia, Michigan, and Dartmouth, schools that usually attract many who may have an eye on banking, trading, or investing.

Some smaller schools had more than expected: Emory, e.g. New Consortium school Yale had a large number--more than might have been expected, because of its broad core curriculum and novel approach to management study and because of its public-policy heritage.

The actual numbers, by school, are shown below. In sum, the expected large drop didn't happen. What we should watch for is whether students will divert to other careers if opportunities for internships next summer dwindle more than they did this year.
Tracy Williams

No. of First-Year Consortium Students with Interests in Financial Services:








Carnegie Mellon-6