CFN: Inbox Follow-up

The Consortium Finance Network has encountered or addressed several issues, topics and opportunities over the past two years. There have been events, webinars, conference calls, e-mail exchanges, blog postings, discussions, and guidebooks. Some topics deserve follow-up: What are next steps? What are implications of events or discussions from the past year? What is the aftermath of an issue, problem, or question CFN may have tried to manage? In other words, where is Part 2, 3 or 4?


Microfinance: Growing Pains


CFN hosted two webinars on microfinance in 2010 to introduce members and participants to the sector and to possible opportunities. The first webinar offered a primer and history. The second was a case study of a successful, growing microfinance project in the Philippines. (See links below to blog summaries of the webinars).


Since then, there has been widespread reporting of scandals and problems in selected areas in microfinance around the globe. Reports indicate activities where micro-lenders have over-charged on loans and where borrowers have defaulted in greater numbers than expected. Some have blamed the problems on new industry participants who seek to maximize profits before achieving developmental objectives. Some argue that microfinance reaches development goals best when non-profit institutions are the predominant lenders.


The isolated problems will not likely deter efforts from some established institutions who have seen progress and success. But there may be calls to regulate or oversee certain activities to protect borrowers or discourage those who participate solely to maximize financial interests. The current issues likely mean the global microfinance model needs some tweaking.

http://www.consortiumfinancenetwork.blogspot.com/2010/01/microfinance-101-basics-issues.html

http://www.consortiumfinancenetwork.blogspot.com/2010/02/microfinance-ii-on-ground-in.html

Volcker Rule: Step Two


CFN blogged about the impact of a possible Volcker Rule in mid-2010: http://www.consortiumfinancenetwork.blogspot.com/2010/06/volckerized.html.


This is the rule that would prohibit banks from engaging in proprietary trading and would likely have significant impact on the profits, balance sheets, and roles of many familiar institutions (JPMorgan Chase, Citi, and Bank of Amercia; but also, Goldman Sachs and Morgan Stanley, now bank holding companies).


Banks will need to revamp their trading desks, refocus trading to client-driven activities exclusively, and risk losing talented traders and entire trading desks to hedge funds and trading and dealing firms.


Since then, the rule has now become law. But the roll-out will be slow. The law gives regulators ample time to rewrite rules and present new definitions of proprietary and client-driven trading. And as expected, regulators (or whoever will be the designated group to draft specific rules) have been deliberate and cautious. Banks now have time to (a) continue some forms of prop-trading until rules change, (b) wind down some activities without having to endure sell-offs, and (c) restructure trading departments in a way they can retain talent.

The CFA: To Pursue or Not to Pursue

CFN presided over lively debates over the value of the CFA--especially for MBAs in finance, who have already been exposed to many elements of the CFA (corporate finance, investment analysis, accounting, security analysis, etc.) in business school. To help CFN members, Consortium alumni and other MBAs decide for themselves what is right, CFN hosted a webinar on the pros, cons, costs, value and time of the CFA in Oct., 2010: http://www.consortiumfinancenetwork.blogspot.com/2010/10/cfa-where-it-makes-sense.html.

All sides of the argument have validity. In the end, it is a personal decision. Many Consortium students in finance (not necessarily influenced by the viewpoints or the webinar) continue to pursue the first levels of the CFA. Some current students have pursued Levels 1 and 2 with no intention of pursuing Level 3 or the complete designation. This group won't be able to add the full CFA onto a resume', but will be able to get what they want from the effort: polished knowledge in certain finance topics and a slightly enhanced resume' without the costs and time required to get through Level 3 and further.

Mentoring: Keeping the Relationship Alive

CFN the past two years has encouraged, embraced and facilitated mentor relationships between Consortium students and alumni. Mentorships open doors for students. Mentors guide students, boost morale, introduce them to other important contacts and even tutor them to get ready for technical interviews.

(See http://www.consortiumfinancenetwork.blogspot.com/2010/08/mentoring-still-critical-still.html.)

Thriving, long-term relationships, however, are few, scarce. Many mentor relationships start with energy and ambitions, but drift afterward. Students get busy, preoccupied with what needs to get done that day, and may not always see the value of long-term relationships. Mentors get busy, too, or may not have the interest to do what's necessary to keep the relationship alive. CFN has tried to address these phenomena and has often assessed the role the Consortium and CFN can play to keep mentor relationships going.

The long-term value of a student or young professional in having one or more mentor relationships is critical for Consortium members and makes all efforts to help students and mentors strengthen their ties worthwhile.

Delicate Balance: Long Hours at Work

One of CFN's most popular discussions or blog postings addressed the long, near-tortuous hours involved in certain jobs in finance: http://www.consortiumfinancenetwork.blogspot.com/2010/01/delicate-balance-long-hours-and.html.

MBAs in finance know the story. The hours are unending, the schedule is unpredictable. Senior managers are demanding, often unrealistic. Weekends are seized by more work, new projects, new demands and Sunday afternoons in the office. The pace is physically draining; emotions peak and ebb. Sometimes it's debilitating.

MBAs dig deep to figure out how to cope. Most scrutinize and weigh the advantages (compensation, responsibility and finance experience) with the costs (time away from family and friends and physical and emotional costs).

The crisis of 2007-08, nonetheless, led to much soul searching for just about anybody who survived the events. It encouraged people to address the delicate work-life balance more carefully--especially if the end result from all the hours was the collapse of an employer, a job loss, or a dip in compensation.

For many, the costs exceeded the advantages, and they fled to other sectors or fields that at least permit a handsome, tolerable balance. Others didn't have a say and were victims of staff reductions. Many were in transition, and while in transition had the opportunity to decide (away from the pressures and not influenced by lucrative compensation) objectively if they wanted to return to a similar environment.

Some Consortium MBAs know the score, bear down and manage the grueling pace as well as possible--especially if they feel the experience will lead to a greater goal.

Other Consortium MBAs--in a new, post-crisis era--have courageously stepped up to put work-life balance as a top priority and have pursued opportunities that permit such. That means a few have actually rejected high-paying New York finance jobs for satisfying positions (with slightly less compensation) in other regions. And they feel good about it.

Which Way to Go? Investment Banking or Private Banking

CFN in Sept., 2009, offered advice to many Consortium students and other MBA alumni in transition on how to decide between investment banking and private banking, when presented with opportunities. The two areas offer different career paths, although activities and functions overlap in some ways. Many agree, too, that the cultures of the two differ.

Most MBAs in finance have skills and aptitude to go in either direction. But they struggle to decide which way to go. Some simply go where there is opportunity. Some of CFN's advice is summarized in http://www.consortiumfinancenetwork.blogspot.com/2009/09/which-way-investment-or-private-banking.html

MBAs often"feel guilty" when they forego opportunities related to the relative high-paying world of investment banking. In recent years, many Consortium MBAs have comfortably decided to go the private-banking route. Part of the reason is due to the more professional, organized approach to recruiting MBAs in recent years. Private-banking units, which used to recruit MBAs on a one-off basis or in an unstructured way, now seek out MBAs in the aggressive, focused way investment banks do.

Another reason is that MBAs like the greater client responsibility that comes with many entry-level roles in private-banking. The so-called "apprenticeship" period is shorter. They get to have bottom-line accountability as soon as they are ready. Some who have opted for private banking know what they are talking about; they are former investment bankers.

Tracy Williams

Did Goldman Overpay for Its Facebook Stake?

It's the spring final exam in an advanced corporate-finance class on the campus at Darden. Or Tuck. Or Stern, Texas, or Emory. The professor distributes the exam. The students wince and are befuddled, because the exam has only a few questions with several parts. There are no numbers, equations, spreadsheets, models, or formulas. Just questions that require thought, analysis and maybe follow-up. How would you handle them below?


1. What is the true value of Facebook? How would you value it? What is its value today? Is the true value above or below the reported $50 billion?

What would be its value in two years? In five years?


2. Did Goldman Sachs overpay for its recent $450 million stake? How did Goldman reach its implied $50 billion value--from expectations about cash flow and earnings? From comparing Facebook to current market values of Google and Microsoft? From examining the acquisition values of other Internet companies in recent years (if there were any of note)?

Or from its willingness to pay a premium above a real value in order to gain an inside track to the heart of the company?

3. What really is the primary purpose of Goldman's investment?

If it were a ploy to race to the front of bankers' efforts to win the mandate to lead Facebook's possible IPO and become its primary investment bank, is the investment worth the risk for Goldman?


4. Why was Goldman willing to tread close to legal boundaries governing investments in private companies by setting up a separate special-purpose vehicle to permit some of its private clients to invest as much as $1 billion or more in total in Facebook?

5. Why would its affiliate Goldman Sachs Capital Partners, a private-equity fund managed by a different Goldman unit, reject the opportunity to invest in Facebook? Why would the view of the value and opportunity in Facebook differ in two different parts of the same firm?

Are there potential conflicts when one side of an investment bank says yes and another says no to the same investment opportunity?

6. What impact would the recent $50 billion valuation of Facebook have on the current implied values of other private social-network sites such as Linkedin and Twitter?
7. What are reasons Facebook agreed to accept new cash capital (new funds)? Was there a short-term cash need?
Did it require funding to support long-term assets, investments or possible acquisitions? Is it adding to infrastructure to be able to accommodate over 1 billion in users?

Perhaps most important (and perhaps beyond the purview of a finance exam): With a growing number of investors at the board table, is the vision of Facebook fashioned by its CEO Mark Zuckerberg at risk of being undermined in a way that makes him and his fellow visionaries uncomfortable?

The "exam" above probably couldn't be tackled in two hours. That wouldn't be fair to students. It might entail an entire course on its own in a semester. In many instances, there are no right or wrong answers. There likely isn't even a right or wrong value of the firm at this point. It would be better if the professor from Darden (or Marshall, Tepper, or Haas) presided over a lively, probing discussion of the "value of the firm" instead of requiring students to compute an exact figure--although the real world of finance forces investors, traders and market-watchers to determine a precise number every moment markets are open.
There are challenges in determining that precise figure. The first is the lack of data and the lack of reliable financial information about past and expected performance--given the current infrastructure, funding needs and expected growth.

The second is the complexity of valuing new organizations, especially Internet companies with little earnings record, with novel business models and with a reliance on clicks and eyeballs to generate advertising revenue. Is "value" achieved from expectations of cash flow five years from now? Is "value" achieved from the aggregation of hundreds of millions users? Or will "value" be achieved if and when the company is acquired by another firm and integrated into a larger, complementary business (Google? Microsoft? Viacom?)?

The third challenge might be the pitfalls of valuing "hot" companies based on a swoon of widespread popularity and buzz and the possibility that the hot fad will dim or be canceled out by next year's new model, fad or Internet wonder. (Whatever happened to buzz and popularity of MySpace.com?)

Goldman and team, of course, had access to real data. More data have been seeping out in recent days, as Goldman prepares its offering of investments in Facebook for its client base (via the special-purpose vehicle).

By now, many who watch Facebook's every step are aware the company now has over 500 million "members" or "accounts," generates over $2 billion in revenues and probably has annual earnings in the $200-$500 million range (depending on who's estimating, who's modeling, or whose accounting methods). While Facebook's market value is being reported at or near $50 billion, its "book value" is probably significantly lower--perhaps much less than $2 billion, if anywhere near that.
With plans to continue accelerating momentum, grow and create more uses for users (more reasons for people to spend more time on the site), Facebook probably needs Goldman's cash investment (including the $1 billion-plus from private clients). The infrastructure needs to be supported; new servers must be added, and employees must be paid, as the current flow of revenues might not always keep up with expansion (at least for now).

So why would Goldman and team pay over 100x current earnings for its stake?
If the valuation has an implied growth rate, is this growth realistic? Does the implied growth rate require Facebook to reach over 2 billion accounts in five years? Does it imply the company will successfully expand into countries where it hasn't penetrated yet (Japan, China)? Does it imply the company will continue to unveil new purposes for Facebook and will summarily resolve all issues or concerns related to privacy?

In Goldman-like fashion, as it sought a new long-term client, it determined it needed to do whatever possible (by taking reasonable risks, not absurd risks) to be the first big bank inside and to do so by being all things at once--investor, financial adviser, broker, strategic adviser, and (and when those times come) lender, private-client adviser, block trader and underwriter. If that is its goal (and not neccessarily doubling its $450 million investment), then the investment will likely be worth the risks and will reap long-term rewards more than what a potential over-priced investment could.

There are non-financial risks, nonetheless: (a) the risks that it will encounter legal issues from a new interpretation of the rules that govern the maximum number of investors in a private enterprise; (b) the risks of perception that one unit of Goldman rejected an investment opportunity that another embraced; (c) the risks of perception that Goldman is facilitating lucrative, home-run investment opportunities for the "super rich," those who qualify to invest in the $1 billion SPV fund. In Goldman fashion, these kinds of risks were probably vetted thoroughly, if not resolved.

Meanwhile, Zuckerberg and team, however, must now contend with how to stay true, steadfast and stubborn to the original vision. Will the Facebook we see in 3-5 years reflect what its creators envision today? Will it be a product shaped by the intents and objectives of institutional investors seeking a 15% return on equity every quarter? Will Google, Microsoft, and/or Goldman be calling the shots? (Or will Facebook be calling Google's shots?)
Or will the next new thing have come along and the world flees to that?
Tracy Williams

CFN Schedules Industry Event

Save the date! February 24 in New York City.

The Consortium Finance Network will present its 2011 industry symposium and networking event at Citi in New York next month, Feb. 24 at 5:30-8 pm.

This year's event will focus on updates, outlook and perspectives in finance and financial services. It will outline and discuss opportunities after the financial crisis and on the industry's road to recovery.

CFN encourages CFN members, Consortium alumni and others to attend the reception, to participate in the discussion and meet others.

A short panel discussion will address specific topics on financial reform, trends in banking and finance, diversity agenda across the industry, and specific opportunities in certain sectors (investment and corporate banking, trading, investment management, private banking, and other financial services).

Join CFN and the other sponsors, Citi and Management Leadership for Tomorrow (MLT), for the evening. Invitations and more details will follow.

On Campus: What's Up? What's New?

Business schools in these times are always reinventing themselves. They change, morph, and transform to keep up with the times. They revamp courses and curriculum and innovate by sometimes changing the experience 180 degrees. They assess a past crisis and project what's to come. They are sensitive to and try to be responsive to their multiple stakeholders--faculty, students, university leaders and corporations.


And for the most part, it's all for the good. You see steady changes, adaptations and an obsession with making themselves continually relevant on campus--even at or especially at Consortium schools. Take a look at what has been going on on campus the past month or so. Note what students, dean and professors are working on, doing, analyzing, forecasting, or studying--whether it's financial reform, regulation, leadership, accounting principles, or entrepreneurship. Or whether it's the business setting in the Midwest, in China, in India, or Indonesia.


At Yale, second-year Consortium finance student Corey Harrison is currently featured on the school's website in a video discussing progress on the school's transforming approach to teaching business. Yale SOM students don't necessarily study the conventional core courses of marketing, accounting and finance. They study under an integrated curriculum that focuses on the primary stakeholders and participants in business activity--e.g., the customer, the company, the market, the competitor, the investor, and the employee. To hear Harrison's impressions on his Yale experience, go to http://www.mba.yale.edu/.



Washington University's Olin School sponsors "talent summits" for students and alumni around the country. They are specially planned networking sessions, opportunities for students and alumni to learn and update each other on affairs off campus and activities on campus, in the marketplace, in certain companies and in institutions everywhere. A special attraction? Corporate recruiters are invited. January is a big month for its "summits," which are scheduled for the 6th, 11th and 13th in New York, San Francisco, and Chicago, respectively.

Many remember Shirley Sherrod, who made news in 2010 when she was fired from U.S. Agriculture Department post for remarks taken out of context in a speech she made. Emory's Goizueta Business School invited her to speak at a forum on diversity in management last fall. The event was co-sponsored by the American Institute for Managing Diversity (http://www.aimd.org/) and allowed students, professors and others at Emory to discuss diversity topics in corporations.

Even as the holidays approached last month, dozens of students from Virginia's Darden School made the annual Week-on-Wall-Street trek to New York (Dec. 13-17) for sessions with top banks, firms and funds. Other schools, including Dartmouth and Michigan, sponsor similar experiences, typically earlier in the fall.

The week of meetings, conferences, networking, informational interviews and a few evening receptions provide fast-track preparation for internships and the latest in Wall Street careers, roles, and jobs. Students also hustle to make contacts that will help during the January interview process or at least help them earn spots on A-list interview sheets.

Darden students, including a few Consortium students, visited JPMorgan, Credit Suisse, Wells Fargo, Stifel Nicolaus, and Nomura.

Many MBA students continue to have interest in private equity, although some feel the doors of many top firms are impenetrable. Many firms don't have formal recruiting and first-year programs; they, however, hire MBAs to fill critical first-year associate posts, often through alumni referrals. In November, Dartmouth's Tuck School invited Carlyle Group's David Marchick, a managing director, to speak to students who want to pursue private-equity careers and to report on opportunities in the area.

Marchick discussed recent trends, including globalization, emerging markets, and the impact of financial reform.

At NYU's Stern, 40 professors contributed to a new book describing a new Wall Street after the crisis, after financial-reform legislation, and with new regulation to come. The book, "Regulating Wall Street," (http://www.wiley.com/) follows a similar collaboration Stern professors published in 2009 related to the causes of the financial crisis.

Many of the professors argue there are flaws in the Dodd-Frank Act, enough to warrant concern that such flaws might trigger another crisis. Many, in fact, protest that the Act is not strong enough.

Fortunately the book isn't a laborious list of complaints. The professors provide solutions and explain them. They also address common concerns such as lingering systemic risks in finance, the shadow banking system, the too-big-to-fail concept, and the flaws of Government guarantees of bank liabilities.

At Michigan's Ross School (and perhaps at Consortium schools everywhere), second-year students speak of fascination and enlightenment in their second-year courses after a tough year of first-year, core-course treading. As they see the finish line, they get to take courses in innovation, leadership, entrepreneurship, and change or explore in depth particular interests in real estate, venture capital, and start-up funding. Many second-year students will acknowledge that the second-year experience (including also opportunities to study abroad) makes business worth the two-year sacrifice.

If it's January at Carnegie Mellon's Tepper School, it's the season for "Meet and Greet." Tepper supports and encourages sessions planned around the world where current students talk to prospective students and interested alumni about their Tepper experiences. This month, the informal social sessions are planned for Venezuela, Baltimore and Colorado. Sessions have been or are being planned for India, Peru and New York. Students discuss experiences, courses, professors, and career planning in an informal, unstructured setting--without deans, recruiters or senior professors peering in.

It may be winter break or the calmer days after a tumultuous 2008-09. On the campus of many Consortium schools, however, nobody's sitting still.

Tracy Williams

Yearend 2010: Time to Make That Move?

We head toward yearend. For almost everybody, that means a welcome break and the upcoming holidays. For many in finance, it means something else: yearend reviews, budgets, evaluations, appraisals, last-moment client meetings, deal closings, balance-sheet and P&L assessments, forecasts for next year, and, yes, speculation about bonus payouts.

For many, yearend is hectic, busy, frantic, and exhausting. Approach most people in finance in December, and they will hint (a) they need a break and will get it in January and (b) they don't want to add anything more to an already suffocating schedule.

Yearend is also a time for finance professionals, MBA students, and MBA alumni (including those affiliated with the Consortium) to reflect and ponder what's next. Where do they want to go from here? What does next year bring? Is it time to make a move? Is it the right moment to approach managers about how they feel about career paths, expected promotions and compensation? Is it time to devise personal strategies to follow through in the upcoming year?

Consortium students, alumni and others in finance are contemplating a lot these days. They sort through opportunities and options, and they struggle to figure out whether we are really over the hump headed toward an economic and markets recovery.

What's on the minds of many this yearend?

Consortium Students

1. Some continue to assess whether investment-banking, trading or investment management is still what they want. A few have even decided to take a different path or turn down lucrative offers to accept similar positions in finance in industrial companies or in business strategy, where there are opportunities to get promoted fairly, work-life balance, and hands-on experience in operations. They have learned and decided they can do corporate finance or M&A at places like GE, Pepsi, or Eli Lily.

They are making the tough decisions to bypass what they may have gone to business school to attain, yet they are comfortable and excited about veering off the original track.

2. On the other hand, some are deciding go head-strong into investment banking, private banking, and investment research or management. That was a primary reason for going to business school, and they are hopeful and confident that the opportunities, deal flow, and rewarding experiences will continue.

Consortium students will be joining firms like Goldman Sachs, JPMorgan, Citigroup, Deutsche and Barclays in the year to come. They know, too, they will benefit from spending the next few years in a grueling, in-depth apprenticeship in corporate finance or investment analysis.

Many prefer to pursue private equity or venture capital and have tried. To get there, however, has been hard and puzzling, because those firms recruit erratically or informally. Students realize it takes contacts to get inside for the few spots that open up. Not surprisingly, some haven't given up.

3. Some Consortium students went to business school with one objective in mind, but discovered another more interesting path once they got there. Hence, they've decided to try something new and different. For example, a few have decided to pursue opportunities in energy, community banking or microfinance. One wants to return to his hometown one day and help boost the family business. And they are enlivened by decisions.

4. Many Consortium students have an exceptional opportunity to study abroad or work as interns in another country during the spring. They cherish the experience and discover when they graduate they want to start out or eventually work in a foreign country. Consortium students last year worked or studied in Peru, South Africa, Tanzania, China and many other countries. One recent graduate decided to accept a banking position, where he is in training in Singapore and will work full-time in Ghana.

5. A few students returned to their second year with meaningful summer internships, but now know they won't return or are no longer interested. Internships served a different purpose. It helped them decide what they don't want to do.

Those second-year students are now back at the starting point drafting a new, better post-grad strategy. Time is of the essence, as they try to find a good offer before they graduate, before they no longer have access to their school's career-advisory resources. And they are trying to avoid a panic situation. But improvements in markets and the economy, they aren't panicking yet.

6. Today's Consortium students lived and worked through the crisis and gladly returned to school. While times are slightly better and opportunities slowly open up, memories of the crisis, the collapse of markets and the aura of a debilitating downturn still linger. Thus, many students are making decisions that would insulate them from another big collapse or downturn, even if the likelihood is low.

They may choose to avoid certain banking jobs, knowing that hints of a downturn will spur managers to lay off new associates. They consider areas where they can focus on learning a new role and gaining maximum experience without having to worry who's the next to go.

Consortium Alumni and Others

1. Consortium alumni today, more than ever, know the value of being ready--being ready for the next opportunity, the next door that opens. Alumni today keep their resumes' up to date, join networking groups, update their skills and are watchful of ugly trends or signs of things not going their way. Long gone are the days when alumni joined a major financial institution two weeks after business school and settled into what might be a 25-year career.

2. Many MBA alumni have wrestled with the difficult decision of whether to add another credential, degree, or certification. To add it requires time and money. They are asking themselves whether they need it to set themselves apart, to add something notable to the resume' or to amass more knowledge in a certain field.

One Consortium alumnus added an MS in quantitative finance this year, and it likely made a difference as a explored roles in start-up finance and private equity. Many others are considering the CFA, and it's not unusual for many Consortium students and alumni to have studied for and passed Level 1. Yet others say an MBA is sufficient and more learning or credentialing should occur in actual experience.

3. Like some students, some alumni have decided to leave traditional banking or positions in finance. They are re-examining their careers and exploring less-conventional fields or less-confining career paths. They still want to use their finance skills. Many say they want one more chance to pursue something that they can be passionate about, regardless of compensation--something about which they would enjoy waking up and doing.

They appreciate the exposure, the experience and the live transactions and client contact in a current role, but they are ready for something more interesting, more dynamic.

4. Alumni, no matter where they are on a finance career path, make tough decisions about family, priorities, values and reality. Alumni in recent years have endured crises, industry upheavals, dot-com crashes, and market turmoil. They have reason to remind themselves of what comes first or what might interfere with their values or priorities.

5. Consortium alumni appreciate and are happy with the contacts, knowledge, skills and confidence that comes with the MBA and are always inclined to put it to work.

7. Alumni are constantly assessing what it takes to move to the next level, get promoted, get noticed and make meaningful contributions. Having come from top-notch schools with rigorous preparation, they tend to set high standards for themselves and push themselves to the next step.

Or they see the success stories of alumni a few years ahead of them and decide they want to follow behind. Hence, they often ask mentors and each other questions about what does it take to advance, how much preparation is necessary, whom to know, or what learning or experience is required.

It's 2010, about to be 2011; students and alumni are asking these questions and reassessing where they are, where they want to be, where they deserve to be, and whether it's time to make a move in some way.

Tracy Williams

What's Around the Corner in 2011?

Will 2010 be memorable in finance circles? There was no major institutional collapse, no memorable moment, or no defining memory. There were financial reform and confirmed regulation, but they had been contemplated the year before. There were no notable financial-institution mergers.



There were occasional scares from European debt markets and the struggle for certain European countries to get their finances in order. There were, as there are always these days, ripple effects all over the globe. There were continual worry about another recession, unemployment trends that never got better, and non-stop chatter about China.

There are worries in municipal markets, as people fret about the deficits and debt among states and local governments. There are faint signs of a revival among those in private equity and venture capital.


The year didn't bring threats to the financial system, an imminent collapse in capitalism, or a demise in hundred-year-old institutions. For many, that was a good thing, signs of times getting better.


As 2011 looms, what can we expect? Or what do we hope for? Where do Consortium students and MBAs wish to be? What career paths do younger finance professionals yearn to plan? Will 2011 bring more of the same--long debates over tax structures, disagreements over whether the recession is over, and little progress in unemployment trends?

What might happen in 2011?


1. Banks are still coming to grips with financial reform and regulation. But the rules of the road are not clear or well-defined. They will adapt institutionally and structurally. But they worry reform and regulation will narrow profit margins and reduce returns on equity. They will, therefore, look for novel, clever ways to boost profitability (new businesses, higher prices to customers, expansion abroad, etc.). The efforts to do so, however, won't be easy.

Restructuring or re-situating themselves while trying to maintain profitability might be enough challenge for big banks--enough to keep them focused inward, instead of outwardly eyeing possible acquisitions. Some might look to acquire smaller institutions if it means getting a quick boost in revenues and if it can be done without exorbitant costs.


2. Everybody is hopeful for continued economic recovery. But everybody--markets, job-seekers, businesses, consumers--has grown fatigued waiting for a sustained upturn, not the quarterly teasers or hints they observed in 2010 or a recovery empowered by government stimulus. Hurdles still exist; perhaps 2011's second half will be the start of the real thing and for the long term.


3. Business-school students in 2011 will have been through rough waters from crisis times. Students will go through school with a different, more realistic mindset. They will still ponder or dream of careers in consulting and investment banking. But they will be more open-minded, will consider broad options, and will be interested in exploring something different. It may no longer be just about the money. Having a life, making a difference, making a contribution and trying something new will count for something, too.

B-schools, including the Consortium 17, continue to attract young professionals as students, and they try hard to convince enrollees that the two years away from job markets will make them better off in the long term--especially those who are in career transition.

4. Banks, financial institutions, and funds will still attract the hardcore finance types into corporate finance, trading and markets. Those who enjoy and are entranced by financial models, quantitative analysis, firm valuation, mergers and acquisitions, and the vagaries and phenomena of capital markets will still head toward banks and funds to be bankers, traders, researchers, investors, and analysts.


5. Presidential politics will gear up in full swing by mid-2011. Market watchers, economists, businesses and traders will look to see which direction political winds might blow in 2012. Will there be more reform and regulation? Will a lackluster recovery justify more stimulus or government intervention? Will new advisers in Obama's economics circle step up and have a voice? Will a Republican majority in Congress overwhelm those who might have novel ways to spur employment?

6. Municipal-bond markets are fluttering; the year to come could be a pivotal one for municipalities struggling to make ends meet and avoid accumulating more debt. And no one has a catch-all solution to how states and cities will grapple with deficits while still trying to support social programs, pensions, schools and universities. A collapse or a default by one large state could have a detrimental ripple effect across other debt markets.


7. European debt markets have sputtered, too, the past year. Every few weeks a country slips into a precarious fiscal state and dominates the news (Greece, Spain, Ireland and others in 2010). And so in 2011, we'll continue to hear discussion, fuss and debate about the value and meaningfulness of the Euro and a European Union.

8. Derivatives trading and derivatives clearance will be better defined, even if it's done among private-sector participants (exchanges, banks, funds, etc.). Financial reform tried to kick-start efforts; more derivatives activity (at least basic, simple trading) will migrate to exchanges, but progress will be slow and deliberate because private-sector participants don't want to risk losing profits or reducing profit margins from trading amond the top dealers. And they must decide who will or should do what and how.

What about the expansion of carbon trading and the market's efforts to put a real price on pollutants and emissions? That, too, will be slow, deliberate, almost a crawl, in part because Congress and Presidential politics never seem to get around to providing the jolt this specialized market requires.


9. Private-equity firms, venture-capital firms and financial sponsors will dare to be aggressive or adventuresome in 2011. They came out of hiding in 2010. With too much capital not doing much at all, many of these firms will decide it's time to put that money to work and take meaningful, measured risks.
As 2011 looms, nobody is predicting surges and booms; nobody is hinting a doom and collapse. A cautious confidence is on the horizon.
Tracy Williams

Where Do We Go From Here?

The times are peculiar. Here we are, two years beyond the collapse of Lehman Brothers and the near collapse of the financial system of the fall of 2008. The system--thanks in part to bailouts and quick marriages of top firms--picked itself up, and a slow recovery ensued.


Yet we haven't returned to the euphoria of pre-2007, where deals proliferated, trading indices surged steadily and bankers could be choosy about what they wanted to work on and which clients they wanted to work with. Two years after the tumultuous fall, 2008, everybody acknowledges the end of the crisis. But few will admit times are booming in finance (or in certain sectors of the economy). And if there are faint signs of a sharp upturn or a flurry of new deals, transactions, and upward-moving markets, everybody treads carefully, as if to always prepare for the worst.


MBA recruiters in finance continue to knock on the doors of business schools, make elaborate, impressive presentations to first-year students. They try to lure students and impress them. But they recruit and hire with caution--with a steady peek at markets and business in the year ahead to assure themselves they won't stockpile their banking teams with associates only to be forced to downsize shortly afterward.


Still, post-crisis, there are deals to be done, investments to be analyzed, portfolios to managed, clients to be wooed, and business objectives to be met. New bankers, associates, and analysts are necessary to get it all done. Nonetheless, in the back of the minds of senior management at banks, insurance companies, investment firms, and funds is a lingering question: Has the tide turned for sure? The dark memories of 2008 continue to haunt.


Because of financial reform (including recent legislation and Basel III guidance), banks are treading most carefully. They must restructure vast parts of their businesses and are deeply entrenched in strategy sessions figuring out how to do it--how to conduct business, do trades, and make investments with a constrained balance sheet, with increased capital requirements and with rules that don't permit them to trade for their own accounts.


They must respond to questions: What do we do with our proprietary-trading desks? What do we with businesses that invest in new ventures and hedge funds? How do we make loans, underwrite securities, or trade derivatives when new rules that limit how much we can do or what we can do? And who will do it? How many are necessary to do it? For new MBA graduates or more junior finance professionals, what career paths will there be? And how do we attract top talent into a profession besieged by much uncertainty?


Meanwhile, financial institutions are pressured to show stable profits, revenue growth and business expansion. They ask: In the new environment, where will revenue growth come from? From a renewed focus on retail activities? From international expansion? From new products? From investing in businesses and products to boost market share?
Some have begun to take those first steps. JPMorgan announced expansion in international sectors earlier this year. Other big banks (including BoA-Merrill, JPMorgan and Credit Suisse) have begun to emphasize corporate banking more. Just about everybody wants to grow their private-banking and investment-management groups.

Because they must graple with these tough, strategic questions, financial institutions become hesitant about hiring too swiftly and too much. They are careful about making lateral hires, adding experienced talent or opening their doors to large numbers of new MBA graduates until they are sure the business opportunity is there or the returns on capital are sufficiently achievable. And until some of them figure out how to weave through the regulatory requirements.


Some are being forced to shed parts of their businesses (proprietary trading, hedge-fund-like activities, etc.). But even that's not easy, as they tenderly extract the parts (assets, people, systems, software, etc.) and then sell them or spin them off. That will take time, while they figure how to do it and to whom to sell. Some must decide what they want to be and do (Be a regulated bank? Be a pure brokerage outfit? Be a prop-trading fund?). That, too, will take time, as they weigh input from various stakeholders (shareholders, employees, the board, senior managers, etc.).


And some have decided that the best strategy is to become what they once were: a commercial bank with basic deposit and lending businesses, a brokerage firm without trading or banking units, an investment bank with no brokerage and lending units, an insurance company with no ties to banking and brokerage, etc.

Many, too, must patch up their reputations post-crisis and determine how to present themselves to the mass market--to consumers, to corporate clients, to trading counterparties, to regulators, and to the media and politicians. That hasn't been easy, because 2008's near collapse can is tied to--among many factors--behavior and activities from some financial institutions.

Financial institutions, too, continue to try to figure out the compensation puzzle--how to pay people handsomely, how to attract smart people to the profession, but how to do it in a way that will not irk shareholders and the public or draw gnawing attention from the media. How do they assure themselves they can show up at top business schools and attract eager, motivated students to join their institutions? What can they do to ensure that top mid-level talent (the deal-doers, the traders, the investors, the salespeople, the researchers, the operations experts) will not flee for other options?

With so much to figure out, so much soul-searching and so much trying to visualize what they want, can and need to be, they proceed or plod with caution. So instead of hiring 100 new MBA associates as they might have done in 2005, they settle for 50 or 75. Instead of bring aboard 20 new experts or professionals to take on a new product, new venture or new client base, they show restraint and start out with just 5 or 10--just in case the new business doesn't take off or regulation and balance-sheet constraints force them to grow slowly.

Most will contend current times are better than crisis times--that financial institutions are hiring, not reducing staff significantly; that they are doing business, not tending to emergencies or trying to save themselves, and that they are generating profits and satisfactory returns, not hunkered down to pare down losses. Nevertheless, there is still a feeling we're on the hump, just not yet far over it.
Tracy Williams