Wednesday, June 30, 2010

Next Up: Class of '12

A brand new class of Consortium students has just taken the stage at business schools across the country--including new Consortium school Cornell. Over 300 attended the Orientation Program in Orlando in early June.

It's their turn to make their marks, explore what schools have to offer, endure core courses, and dive into the tough, frantic world of recruiting. Two years later, we promise, they'll emerge comfortably proclaiming that these will have been two extraordinary years: case work, study groups, all-nighters, corporate presentations, technical interviews, career strategizing, finance problem sets, business policy, operations research, investment analysis, internship offers, networks, new friends and the spring-break trip to China, Russia, South America or Africa.

In the current class, about 80-100 have indicated they have some interest in finance. Within finance, their interests cover a broad span--from community banking to venture capital. This crop of potential bankers, advisors, brokers, analysts, traders and financiers, remember, started applying to business school just as the financial system was on the brink of collapse. Many were in the middle of the fracas--at banks, brokerage firms, trading firms and mutual funds. While the world of finance was in the middle of uncertainty, chaos and frenzy, they were making tough decisions to go to business school.

The events of past two years have not discouraged students from considering finance. The 80-100 number is typical of any Consortium year. Many come from financial institutions and want to return to finance, but perhaps in a different role, at a smaller organization, and with more responsibility. Many might have come from banks, but want to return to financial management at a corporation. Some have little experience in finance, but have the interests, aptitude and guts to try banking, trading, or investment research.

While the numbers have hardly changed, what students are thinking of doing within finance appears to be evolving over the past few years. As always, opportunities, experiences and compensation influence what people want to do (and perhaps in that order nowadays, unlike 5-10 years ago).

An unscientific sampling of this year's first-year students suggest large numbers of them are interested in investment management and private banking. That is likely due to the growing number of opportunities among the big-name firms and the efforts by the same firms to promote these areas of finance.

Investment banking is not as popular as was in five years ago, but there are always still more than a few with their sights on Morgan Stanley or Consortium sponsors Goldman Sachs and Bank of America. That several Consortium students gained prestigious internships at top banks this summer is an encouraging sign to the class that follows. That fact might encourage more first-year students to pursue it once they get to campus.

Venture capital and private equity appear to be as popular as ever among first-year students. That might reflect a growing entrepreneurial interest and also efforts on their part to specialize in certain industries or attain the ultimate investment-management experience. Opportunities in these areas are fleeting and often hard to find. Yet these firms hire MBA's and value their skills and experiences.

One surprise among this year's group is a continued interest in real estate--after the industry's problems the past few years. This, however, might reflect students' long-term views of the market and their efforts to do what they really want to do.

It's not a shock that fewer students have indicated they are interested in trading. Many have done their homework and know the erratic tendencies of trading firms, big banks and hedge funds in hiring MBA's. They hire them, but sometimes without rhyme, reason or logic. Many quant-oriented Consortium students like trading and are interested, but are realistic about opportunities in the realm.

As in previous years, students interested in finance tend to be concentrated in certain Consortium schools--NYU, Dartmouth, Yale, Michigan, Carnegie Mellon, and Virginia. Cornell was new this year and contributed a large list of Consortium students interested in finance. New Consortium arrivals next year, UCLA and UC-Berkeley, will no doubt influence the aggregate interests of the Consortium first-year class.

Many Consortium first-year students still get a chance to explore their interests a few times before they start classes, as some are invited to late-summer "boot camps," sponsored by big banks or invited to participate in other pre-business-school programs. By the time school starts, they will have polished their strategies. They need to (and have been advised to), because once school starts, the b-school pace becomes an incessant whirlwind.

Uncertainty still engulfs the marketplace. Yet it's ponderous concern about the pace of the recovery (and the return of the glory days of deals, transactions, investor returns and clients) that keep people wondering. Not concern about the viability of a financial system, as the way things were two years ago, when this group was gathering application forms.

Nonetheless, it's always the first-year class that helps boost moods and gets everybody hopeful and spirited about the years ahead.

Tracy Williams

Thursday, June 17, 2010


From trading room to trading room, from bank to bank, these must be anxious times. And not necessarily because of market volatility or aggressive algorithmic trading that can spur 1,000-point dives in the Dow. Banks await the outcome of financial reform and are especially attuned to how the expected "Volcker Rule" will roll out.

The Volcker Rule is simple. The details, the implications, and the impact on financial institutions will be substantial. Right now, there are variations of the rule--a House version and a Senate version with countless other drafts, revisions, and finetuning to follow.

The Volcker Rule--espoused by former Federal Reserve chairman Paul Volcker--intends to forbid banks from engaging in "proprietary trading" and from investing in hedge funds or private-equity activity. More explicitly, deposit-taking banks that rely on Federal guarantees of deposits or have access to Federal Reserve funding will be prohibited from participating in these activities.

What does this mean? What real impact will it have on the industry, top banks, regional banks, top bankers and traders, and for talent to come--MBA's in finance?

The rule is essentially a turnback to days toward Glass Steagall laws, which didn't allow commercial banks to be involved in equity trading, stock underwriting, brokerage, private equity, and more. During the 1990's, those laws slowly disappeared.

A liberal version of Glass Steagall, known for awhile as "Section-20," allowed commercial banks to engage in these activities, but at modest levels, with limitations, and in entities separated from the commercial-banking operation. Back then, J.P. Morgan, a commercial bank, could be a prominent, but limited participant in equities and mergers & acquisitions. Shortly afterward, Glass Steagall was repealed. Today, J.P.Morgan is JPMorgan Chase, a big commercial bank and arguably an even bigger investment bank.

Commercial banks--under the parentage of bank holding companies--are permitted to engage in these activities or buy other institutions, firms, or outfits that are involved in them. During the financial crisis and now in its aftermath, many claimed the repeal of Glass Steagall exacerbated financial turmoil and contributed to substantial losses at banks around the country.

That's arguable from both sides. The debate continues, but now we are at the point where (a) the Volcker Rule is on the table and some version of it will likely become law, (b) big banks might still be fighting it, but know they must prepare for its implementation, and (c) in some way or another, it will change the structure, the business, the profits and returns and maybe even the behavior and culture at some banks. For some banks, within whatever version is passed, they'll find a convenient (legal) way to continue doing business the old way by wearing different masks.
Goldman Sachs and Morgan Stanley, two major investment banks that became bank holding companies in the middle of the crisis if only to ensure their long-term survival, will be affected. So will JPMorgan, Citigroup, Wells Fargo, and Bank of America--historically commercial banks that evolved to become major investment banks and trading houses, as well.

The essence of the rule is basic; the details are complex, still vague, still being hashed out. How would proprietary trading be defined? Proprietary trading is normally defined as a bank trading for its own account or trading like hedge funds. Not all proprietary trading (or principal trading, as it is sometimes known) is for the firm's account. Some "prop-trading" is done as an accommodation for clients. Does the Volcker Rule (or should it) isolate this activity? If it does, how will regulators be assured that an equity trade, a block trade, a purchase of a basket of stocks, etc. was done on solely behalf of clients?

How would a brokerage operation, which is separate from prop-trading, exist without being able to sell client positions to a prop-trading desk? How would it be possible to manage an investment-banking underwriting function without a prop-trading unit to hold, manage and distribute unsold offerings? What about the blending and blurring of financial products--the corporate loan that looks like a corporate bond that is convertible into some form of equity, all of which is traded in markets?

Now all of a sudden, what sounded basic now sounds difficult and arcane, unless the rule is accompanied by voluminous detail. Would banks still be permitted to engage in profitable currency trading, fixed-income trading, and interest-rate-swap derivatives, activities that ballooned historicially within commercial-banking operations and that might not constitute prop-trading under the new rule.

Some versions of the rule suggest banks could spin off prop-trading activity. Does that mean it could be spun off into an entity that shares that same parent as the commercial bank? (If so, many banks already manage their organizations this way.) Or does it mean the activity has to reside beyond and outside the bank holding company--where profits and losses are remote and distant?

If banks will not be allowed to invest in hedge funds, will they be permitted to invest in the management companies of hedge funds--which some do today? They manage a hedge-fund business without investing directly into the fund.

Would a Goldman Sachs or Morgan Stanley be daring enough to continue as bank holding companies, but forego FDIC insurance on deposits or access to the Federal Reserve for emergency borrowings? That would make economic sense only if it values having a large deposit base as much as it values keeping all prop-trading intact. But without insurance, the deposit base could dwindle.

More likely, these two bulge-bracket firms are more likely weighing giving up their just-obtained bank licenses and return to being pure securities firms regulated by the SEC. No doubt armies of analysts within those firms are outlining options, pros and cons and doing so based on economics, reputation and a long-term view of how they see themselves.

For all big banks (and to a lesser extent, regional banks), if the rule becomes law, they will undergo a restructuring, revamping, and de-consolidating of the prohibited businesses. They will do this in a mechanical way. Anxiety, however, will prevail, as they see precious profits from these activities flee.

Overall it may mean:

1. Some banks will be more inclined to focus on the historical basics: deposit-taking, corporate lending, payments, retail banking, custody and trust, securities processing, and some corporate finance and advisory. Banks without a major trading presence won't be looking to expand as such.

2. Investors will miss the occasional spike in profits from explosive trading activity. Over time, they might be inclined to respect and value less-volatile, more predictable revenue streams.

3. Financial innovation could be stifled. It will continue to exist (new products, new services, new ways of doing old things). Narrowing the scope of what banks can do, however, could narrow the realm upon which they create new financial instruments to trade, distribute, and sell.

4. If banks are permitted to manage proprietary activity in hands-off affiliates, but still under the same parent, then the impact is less than if they must sell these activities, exhibit no control over them, or not be able to benefit from returns on investing in these activities.

5. Talent might disperse. Top banks, hedge funds, and private-equity firms compete in a scrum for top talent. The Dartmouth-Tuck MBA who once considered a cherished spot in equity derivatives at Citigroup might opt to do the same at Citadel, try her hand at Blackstone, or pursue opportunities at boutique trading houses or at growing high-frequency trading outfits. Big banks might not be able to lure experienced talent from funds and could be less inclined to develop or retain those in capital markets--unless those banks become securities firms.

In the meantime, what can MBA's do--students and those with experience and continued interest in finance?

1. Follow what's going on, if only to be in tune with the continuing reformation or reinvention of financial institutions.

2. Understand the rule's basics for now; don't get too bogged down in the complexities unless you have impassioned view.

3. Understand how the rule might cause financial institutions to restructure or revamp themselves or even re-orient their approaches to clients and business. Decide how and where you fit in this new environment.

4. And most of all, be perceptive of opportunities, because often in finance, when the rules change, when there is rampant rearranging or restructuring, opportunities (new positions for people with old talents and skills) come to the surface.

Tracy Williams

Thursday, June 10, 2010

Summertime, Summer Internships

Several years ago, for MBA's in finance, the summer internship was, well, a 10-week cocktail party. Back then (the 1990s? the 1980s?), financial institutions (the big banks, the smaller boutiques, the funds, the asset managers, the venture-capital firms, etc.) spent the summer wooing first-year students, wining and dining them, and presenting them one fabulous time after another--all to make sure they could clinch the hiring of a talented crop.

Times have changed. Today partly because of the post-crisis environment, financial institutions have an upper hand. They, too, are careful how they spend summertime money and they learned at some point that MBA interns can contribute and participate in deals, projects, and research.

Most important, now more than ever, they use the internship program to facilitate full-time hiring. If they could hire all full-time MBA's from the summer-internship class, they would--even if it means hiring nobody from the second-year class during the school term.

Because they pick most of the full-time class from the internship class, they are also keen to make sure they choose strong, competent, well-rounded associates. Hence, unlike in years past, MBA interns spend much of the summer proving themselves in order to win a coveted full-time offer by September.

Of course, some wooing and wining and dining still goes on. They certainly don't want to turn off talented MBA's, discouraging them and sending them fleeing to competitors, hedge funds, or smaller start-ups.

At the same time, nonetheless, they want to make sure they get the full-time offers correct. So while interns are burying their heads in financial models, acquisition projects, debt-restructurings, portfolio analysis, asset allocations, equity valuation, client-meeting preparation or project analysis, they in turn will be evaluating, ranking, rating, and dissecting the talent before them. They want to ensure the finance and accounting MBA's absorbed in large doses during the year can be applied properly and swiftly in real transactions and business activity. They want to reaffirm technical competence.

That may sound daunting, but the numbers aren't. More than half the interns at some major banks will be extended full-time offers. And during good times when there is a growing need for associates, they don't mind extending 100-percent offers.

Consortium first-years in finance will be starting internships all over the country over the next week. In numbers that are slight improvements from a year ago, they are setting out to make their marks at UBS, Deutsche Bank, JPMorgan, Goldman Sachs, Barclays Capital, and many more--heading to New York, San Francisco, Chicago, Charlotte, and Atlanta.

Even if the numbers work in their favor and if the hardest part is getting the internship offer in the first place, interns (including Consortium MBA's) can get the most from the experience if they remember a few things:

1. First, have a good time and meet new people, contacts, and students from other schools, but take care to get the offer. Network, socialize, venture out to Connecticut for a cookout with senior bankers, and become buddies with others, but take care to get the offer--even if you find you don't like the firm or conclude that banking is not for you.

2. Show mastery of the technical skills you learned in school and demonstrate enthusiasm and strong work ethic.

3. Do right by yourself. It's okay to conclude in the end the firm, the role, and the work are not for you. But continue to work hard and try to secure the offer to use as leverage when you look elsewhere during the second year.

4. Observe that institution's culture for yourself and decide if it's a match for you. You'll hear a lot about what others say. Draw your own conclusions and ask mentors, colleagues and other (Consortium) alumni to be candid about work atmosphere, fair opportunities, development, long-term prospects, and respect for work-life balance.

5. Don't worry or get involved in office politics. You don't want to be defined by it, and ten weeks will elapse so quickly you won't care about it when you are back in school.

6. Take the opportunity to learn. Compare the theory from school to the application on the trading desk, in financial models, or in corporate strategy. Observe markets, deal teams, activities, deal flow, transaction dynamics, decision-making, and the way a business group gets things done.

7. Improve skills in client relationships (although many interns won't see clients much), business development, product innovation, and business generation. These skills are sometimes brushed over in business school, but can be invaluable in the real-world setting.

8. Yes, check out diversity. Observe the firm's progress. Check to see if the firm is walking the walk, talking the talk it claimed to have been doing when you saw its representatives on campus. Check to see if the firm is promoting diversity by checking the box or genuinely encourages it with passion and purpose.

9. Make the most of the summer. But try hard to get that offer, so you can return to school with relief, less pressure and momentum as you embark on second year. And if you don't, push ahead if you know you learned much and did your best.

Tracy Williams

Thursday, June 3, 2010

The MBA and the CFA, Part II: The Debate

They are not easy decisions for finance professionals--deciding to get an MBA, pursue the CFA, or do both. Nobody disagrees with the benefits of the MBA or the CFA. There are the knowledge and discipline, the tools and models, the theory and information, and the exposures, experiences, and contacts.

Yet assessing the value of pursuing both is a tough, agonizing decision--even when many say having both "separates you from the pack" or "gets you in the door" or when a growing number of investment funds and asset managers are requiring MBA and/or CFA credentials.

The time involved in preparing and studying (while holding a demanding full-time position) and the money invested are factors that weigh heavily on anybody who--with an MBA--has thought of getting the CFA. Even after they decide they have the money and can manage the time, candidates must assess whether the designation will help propel a finance career. Can it be the impetus to help professionals reach the level of partner, principal, managing director, portfolio manager, or senior trader? Can it even give them a thrust to get the important entry-level position?

Consortium Finance Network members this past week engaged in hearty, lively debate about the pros and cons of the CFA after the MBA. Everybody weighed in--including recent Consortium graduates, long-time finance professionals, candidates studying for exams, and those who have passed all three Levels.

Often in such debates, there is no right or wrong, no winner or loser. There are, however, viewpoints, shared experiences, informed advice, and encouragement for anyone who is in the throes of deciding what to do. There are recounts of bad experiences and overwhelming moments, but also thrills of having mastered a discipline or learned something new.

This debate, however, had a special wrinkle: Does the combination of MBA and CFA give those in under-represented groups (minorities and women) a boost in getting offers from top investment firms and in accelerating their careers in finance?

In the end, intelligent, respectful debate is healthy. Students and younger MBA's get to hear well-reasoned arguments from all sides, especially from experienced people who grappled with these issues and career decisions over 10, 15, or 20 years ago. They get to take it all in and make right decisions for themselves.

The debate over what best prepares women and people of color for careers in finance will continue and will be enhanced by others' experiences. But there are a few things CFN members or other experienced professionals in this debate agree on.

1. While views of the benefits of the MBA and CFA in the long term vary, almost all agree that with both you amass enormous amounts of knowledge in corporate finance, accounting, economics, investment analysis, portfolio management and capital markets. You do learn something. And knowledge is always useful and helpful in the short and long term.

2. The MBA/CFA designations are no guarantee of employment at full potential (the best possible job or career, given your preparation and education)--especially in current times. The MBA/CFA draws attention and gives you a unique brand. But there are countless others with the same credentials, vying for similar spots.

3. Although the MBA/CFA is no guarantee for securing the ideal position, in an environment where employers have the upper hand, they may still choose to require it--because they can or because they need to filter through hundreds of candidates.

4. In finance, other exams or certifications may be necessary, even if you have the MBA or CFA. If you sell or trade securities, provide investment or merger advice, or manage investment professionals, you will need to take FINRA series exams. Having the MBA and/or CFA, however, will likely make you better equipped to take these exams.

5. An MBA and/or CFA doesn't necessarily make the playing field level for minorities and women, as much as everybody wishes or hopes. Why? Because, as CFN members debated this week, securing top-notch positions in top firms still requires relationships, networks, contacts, luck, and getting prospective hiring managers comfortable with who you are.

6. Despite a general upturn in markets and hiring over the past year in finance, it is still a tough marketplace for all, especially for those in under-represented groups.

The irony is that while many agonize and debate the value of extra credentials, many focus on extra credentials to get attention and squash any doubts hiring firms may have about technical skills and knowledge. And many understand that credentials, plus relationships, networks, contacts and luck, will be what gets people closer to the ideal finance role they covet.

7. The current discussion is fruitful to all, but the debates will continue as long as there are financial institutions, MBA degrees, and finance certifications (including CFA, CFP, and CPA).

The CFA Institute has acknowledged that its mission is not to take a side, although it can outline the pros, cons, factors to consider, and preparation and it can introduce candidates to experienced CFA's who can advise them in decisions.

Its primary objective is to ensure people are well-informed about the content, costs, time and requirements of CFA Levels, and it certainly wants to do a better job in educating and increasing the numbers of those from under-represented groups.

Tracy Williams