BE's Who's Who on Wall Street, 2011

Chris Williams of Williams Capital

After financial turmoil in 2008-09, Black Enterprise magazine decided to wait a year or two before presenting its occasional list of the most powerful blacks on Wall Street. It figured it needed to watch the shake-out in the industry and observe the impact on African-Americans.

In its latest issue (http://www.blackenterprise.com/), it decided now is a good time to update its list, although Wall Street, banking and trading have experienced many bumps and bruises in 2011.  It failed to answer conclusively whether African-Americans took unfair, backward steps in diversity progress among top banks, brokers and financial institutions.  Everybody took hits during 2009-10, all groups and genders, including African-Americans in entry and middle-level roles. We all saw the industry reduce staff by the thousands during the crisis.And we saw how some on their own fled the industry to avoid stress and uncertainty or to explore other opportunities with less strain.

With signs of an upturn in 2010 and with institutions recommitting themselves to older diversity initiatives, it's not yet clear whether blacks are returning to Wall Street in the same numbers as before. Banks are reaching out to hire African-Americans interested in banking and finance, but like many in the population, blacks may not be raising their hands as they did in the 1990s and early 2000s. Many don't want to confront anxiety, possible layoffs, and going to work not sure where the industry is headed in the next year. Many on the inside confront that now, as we head into bonus and appraisal season.

In its latest list, however, Black Enterprise observed that many senior African-Americans in the industry continue in senior roles.  The latest list includes familiar names, people who have been top players in investment banking, investment management, and private equity for the past 10-15 years; some more than 20 years.

Many on the list include top executives of familiar black-owned firms:  Chris Williams (above) of Williams Capital, John Rogers of Ariel Investments, Bernard Beal of M.R. Beal, Tracy Maitland of Advent Capital, Donald Rice of Rice Financial, James Reynolds of Loop Capital, and Calvin Grigsby of Grisby Associates.

The list also includes known investment bankers, managing directors or senior advisers at top banks--those prominent in mergers and acquisitions, corporate finance, municipal finance or corporate advisory: Raymond McGuire at Citi, Rodney Miller at JPMorgan, Carla Harris and Melissa James at Morgan Stanley, and William Lewis at Lazard.

It includes an impressive number who have made their marks in private equity:  Ronald Blaylock, founder at GenNx360 Capital, Terry Jones of Syncom Venture Partners, Raymond Whiteman of Carlyle, and Adebayo Ogunlesi at Global Infrastructure (a GE venture).

Most of the above have had long careers on Wall Street (more than 20 years); many started at major banks and moved on to start their own firms after gaining experience, contact and access to capital. 

The BE list includes a couple who made their names elsewhere, but turned to Wall Street in the latter parts of their careers:  Robert Johnson of BET fame and fortune is on the list for having started a middle-market private-equity firm.  Vernon Jordan, best known for his roles at the National Urban League and as a Clinton presidential insider, is a senior managing director at Lazard.

The list, for some reason, excludes Roger Ferguson, CEO of TIAA-CREF, the large retirement fund with over $480 billion in assets. Ferguson is also a former governor at the Federal Reserve.  And it excludes Kenneth Chenault, CEO of American Express, arguably more powerful than all 75 on the current list. Black Enterprise couldn't have forgotten him, since it has featured him often on covers and in articles over the past two decades. 

Black Enterprise's list shows where there might be gaps on Wall Street, segments of financial services where blacks have virtually no role, are negligible in numbers or have not been able to penetrate at all--even if they have desire and interest. The list, for example, doesn't include many blacks who are sufficiently senior to be included in equity research, industry analysts who present their financial views of companies publicly and whose opinions about specific companies or macroeconomic trends can move markets in minutes.

Notably, the list doesn't include many African-Americans who are senior traders at prominent hedge funds or high-frequency trading firms or who are partners at Silicon Valley venture capital firms. That might not be an accident. Market-influencing hedge funds, high-frequency trading firms and ground-breaking venture firms are private. They operate in hush-hush environments. They tend to hire among small circles in tight networks and are indifferent to the benefits of diversity. Young African-Americans learn about these firms at business school, in exploring opportunities in finance, and from networks.But they have tough times when they knock on those doors--at least in junior positions.

Black Enterprise's list, once again, shows there are indeed many blacks--even post-crisis--who aspire to careers on Wall Street, who want to trade, invest, do research, manage portfolios, advise companies and finance start-ups, who want to help companies and municipalities fund operations, and who want to consider starting their own boutiques and shops when they are ready.

Tracy Williams

Here They Come, the Volcker Rules

Like it or not, the Volcker rules are coming. Ready or not, banks confront the new reality. Banks reported a gush of trading-related revenues in the 2000s. Going forward, they will not be permitted to engage in proprietary trading in the way they have done successfully the past decade.

Banks, including old commercial banks and investment banks that turned into bank holding companies,  maintained trading units and ran them like internal hedge funds. They were allowed to use capital to support trading in most any instrument they felt they had expertise in or perceived profit opportunities. They  traded equities, held positions long or short, traded equity derivatives, and traded equity-linked swaps. Big banks, like JPMorgan, Citi, or Goldman Sachs, reported profits, had substantial roles in all markets, and attracted talent. Small community banks shied away.

They could execute "black blox" trades, high-frequency algorithms, or deal in"exotics." Analysts described Goldman as a trading firm or hedge fund disguised as an investment bank. Morgan Stanley, for many years, operated a closed-doors proprietary trading group, featuring traders with doctorates with complex ideas about exotic trades and statistical arbitrage.

Banks organized and managed desks in bonds, structured notes, mortgages, foreign currencies, convertible bonds, options, and high-yield debt.  They traded in every imaginable derivative--from currency swaps to credit-default swaps and asset-backed indices. They took positions, took risks in market trends, and bet in the long term or short term.

And none of this trading was required to accommodate customers, although selling to or buying from investors who were clients was a significant part of the business.

Dodd-Frank and other bank regulation around the globe are curtailing prop-trading at commercial banks, at bank holding-companies, and at any financial institution that has a deposit-taking business in its vicinity.  For months, banks have been re-engineering their operations to comply with expected rules changes. More important, they are scrambling to figure out how they will replace profits from trading with other revenue sources to generate similar returns on equity. The clock is ticking.

Or perhaps they will learn to settle for lower returns on equity, but more stable performance from quarter to quarter.

Banks knew the rules were coming, ever since the frantic aftermath of 2008-09 when former Federal Reserve chairman Paul Volcker proposed the abolition of prop-trading at banks. He, as well as politicians, regulators and the public at large, reasoned prop-trading contributed to or exacerbated the crisis. A year after the passing of Dodd-Frank legislation, banks are hustling to offset expected loss revenues, make sense of the rules, and figure out what they can and cannot do.

The rules permit client-flow trading. Banks won't be forced to shut down their trading operations.  They can maintain trading positions if they exist to accommodate a client wishing to buy or sell securities or derivatives. That's not as easy as it sounds.

The rules that explain client-related flow trading are difficult to interpret and even harder to comply with:  If a bank purchases equities from a client and hold them for a week, is that client-related trading? If a bank purchases corporate bonds in anticipation of clients wanting to buy them, is that client-related trading? If a bank purchases securities and re-sells them for an above-normal profit within a day, is that client-related trading?

Banks are huddling among themselves to understand what the rules will permit or prohibit. Banks also are puzzled to determine what is an infraction. The rules, for example, let regulators infer that prop-trading exists if banks report excess trading revenues or volatile trading revenues, even if it appears all trading is tied to a client request.

Trades for hedging purposes will be permitted. Yet hedges are hard to interpret. When is a hedge really a hedge? What if equity positions are hedged 100 percent one day, but market movement causes the same position to be hedged 90 percent the next week? The rules are subject to interpretation. But no bank wants to be subject to a penalty or subpoena. Some banks will not want to absorb unusual legal costs to interpret every aspect of the rules. 

Some major banks (such as JPMorgan, Bank of America, and Morgan Stanley)--especially those with significant institutional and hedge-fund clients--will dig in, continue to maintain trading desks for client flows, and learn with difficulty to live within the rules.  They anticipate declining trading revenues, but hope other client business (e.g., equity IPOs, M&A mandates or cash-management services) will offset the declines.

Other banks--especially those that weren't major traders or those with negligible success in prop-trading--will abandon trading altogether.

The big banks that stick it must invest in systems and hire compliance people to monitor trading activity to make sure they obey rules. They prefer to invest in other revenue-generating projects, but if they choose to retain trading desks, they will learn to live with constraints, limits, and compliance costs.

Banks don't broadcast all the repercussions of limited trading, but there are other implications. Some analysts rationalize the disappearance of prop-trading revenues could push ROEs, customarily above 15%, down to 10% and below, even in the best of times, unless they find offsets or new products and services.

Bank trading arms attracted smart, talented traders, researchers, and black-box theorists. This group will now seek to work for hedge funds, private-equity firms, and broker/dealers.  Cynics argue that's fine, since the same group might have contributed to the exotic products that led to the crisis.


Bank trading units have long been centers of innovation, new ideas, and new products.  Hedge funds and private-equity firms spawn ideas, too. But the Goldmans and Morgan Stanleys with global networks, securities distribution arms, research groups, market intelligence, investing clients and capital often acted as incubators for new products or ways of trading. Lower profitability will discourage them from devoting resources to new products or trading ideas.

Again, cynics, regulators and many in the general public say that's fine. New trading products and ideas should be, they say, developed slowly, and their risks and impact on markets analyzed and studied in depth.


Bank trading units may scale down their market-making and dealing roles. Banks had capital and resources to act as market-makers across multiple products. They provided vast amounts of liquidity in derivatives, bonds, and currencies.  Will liquidity be jeopardized if banks de-emphasize trading? Will banks be less willing to assist institutional clients in hedging strategies or if it wants to avoid penalties lest regulators misinterpret the position?

Tough questions for big banks, but with solutions that might make them uncomfortable for a while.

 Tracy Williams
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For more on the Volcker Rules, see also CFN post of June-2010:
http://consortiumfinancenetwork.blogspot.com/2010/06/volckerized.html

The MBA: Remaining Relevant in 2011

It's nothing new that top graduate business schools across the country stretch themselves to keep up with the times, remain relevant, and enhance the quality of a student's two-year stint in school. Over the past two decades, they have responded to financial crises, evolving corporate needs, questions of ethics, and a global economy. They've even responded to the cries of students who want lavish facilities and daily comfort on campus to justify steep tuition costs.

Once there was a time when a student could leave b-school and sidestep courses related to Asia or Europe business, emerging markets, regulation, ethics and technology. Students today can't avoid these topics and typically don't want to.

Insider-trading scandals from the 1980s and 1990s and accounting and financial fraud at Enron and other companies spurred schools to address ethics in business.  The Internet explosion of the 1990s and 2000s encouraged schools to examine technology and online business models. The financial crisis of 2008-09 has encouraged schools to cover topics in regulation, derivatives, financial reform and "asset bubbles." Emerging economies from India to China and Brazil meant schools needed to become international in scope, experience and research.


Business schools today are more accommodating to students with multiple interests or more more specialized interests.  For a long time, top schools have encouraged or permitted students to pursue joint MBA and JD degrees. Others today pursue joint degrees in business and any one of the following: public policy, public administration, international studies, and communications.

Similarly, they have encouraged (and required) students to focus or concentrate on a specific area of interest:  real estate, energy, industrial management, operations, entrepreneurship, non-profit sector or finance.  Students don't just take core courses and a broad array of general business topics in pursuit of a "generalist" MBA degree. They can pursue in more depth what they are interested in or what they think is relevant and important.

If students are interested in the MBA and green technology, the MBA and developing economies, or the MBA and the music industry, b-schools today at least try to find a way to accommodate them.

In its annual assessment of MBA education, the Economist reports  (http://www.economist.com/node/21532269) that some schools are exploring all kinds of ideas of MBA concentration, not just the familiar sectors of  marketing and finance. Some schools are responding to business trends or corporate needs. Others are responding to students' interests and a sluggish economy. Many are willing to be creative, as long as they can maintain high quality and attract exceptional students.

The Economist suggests how it makes sense for a school like Washington University with respected schools of business and medicine to offer a special program in, say, "medical-sector management," comprising students and faculty from both schools and with specific disciplines in health-care management and related issues.

Long-time Consortium supporter Joe Fox tells the magazine that ideas such as that are welcome, but are not easy to implement.  Fox, the director of Washington-Olin's MBA program and a Consortium board member for many years, agrees a joint medical-business-school program is attractive and relevant. He contends, however, that while such joint efforts make sense on paper or in concept, they are difficult approve and implement, because they involve cooperation from many--faculty, deans and others. (Washington University's Olin is one of the original Consortium schools.)

Students, too, must decide whether the special programs (including joint degrees or special concentrations) will require more time and, as a result, more expenses.  Will the special program or the joint degree mean three or four years in school (instead of two)? Will there be a sufficient return on this investment, especially in current uncertain times, even if the student has the passion, time and energy to pursue a special program?

Most students, of course, will ask (and are asking) whether there will be meaningful opportunities after they have completed a course of study--any course of study, whether it's a traditional MBA, joint degrees or a MBA with a unique concentration. Will there be opportunities to do what they want to do within the realm of their interests and studies?

MBA corporate recruiters typically don't require joint degrees or special concentrations. But candidates who have pursued unique degree programs can stand out from the large pool of students. They show expertise in a specific area, perhaps ingenuity and a way to contribute right away in an entry-level job. The finance MBA graduate with specialty in, say, "medical-sector management" would be attractive to the health-care finance unit of an investment bank or consulting firm, if not to those who manage hospitals and medical centers.

Business schools keep adapting, as if that's the way it will always be. And the way it should be.

Tracy Williams

UCLA Anderson: Going It Alone?

UCLA's Anderson business school is exploring going it alone. No, it won't completely separate itself from the rest of the university. It wouldn't be an outright secession. It won't relinquish the UCLA name. It has decided there might be greater benefits in becoming a self-funding, stand-alone institution at UCLA. In the process, it is studying how it can rely less on the "parent" university or the state for financial support. In turn, it will request the right to determine tuition and fees, set academic standards, and hire and pay what they wish for top faculty talent.

Anderson, a Consortium school, has decided that if it can control its finances, preside over all fund-raising and decide what value to put in the cost of an MBA degree, it will attract even greater numbers of high-quality students and improve the MBA experience at UCLA.  There is intrinsic value in being affiliated with the greater UCLA, and it is willing to pay a "tax" for that. It would also pay for other services the parent provides (administration, infrastructure, etc.). But it figures that Anderson would be an even better business school, offering exceptional experiences and resources, if it decides to go it alone.

For prospective students and for alumni who experienced and benefited from Anderson, is this the proper course of action? Will there be notches of improvement in the school, but with substantial increases in tuition? Will alumni, supporters and other benefactors be more willing to become large donors?

Moreover, is there a risk in making itself inaccessible to some portions of the population interested in attending a top business school?

This isn't the first time a business school untangled itself from the rest of the university. Virginia's Darden, also a high-quality, public business school, has done something slightly similar. UCLA-Anderson is studying Darden's blueprint and claims to be somewhat self-sufficient already. It says it doesn't rely on state funding as much as many would think.

What will going alone mean for future students and applicants? While this move may permit it to hire the best professors it can find or launch unique, innovative programs of study, will Anderson price out bright prospects (including those from under-represented groups) who won't be able to rationalize "private school" tuition?

The move is still under review. No doubt it is contemplating these questions and studying all implications and more:

1.  Will other first-rate public business schools follow the same? Will it set tuition and fees based on cost and value of a UCLA MBA, or will they (as many schools do) set it by matching rates at other well-known top private schools? Will a San Diego resident be required to pay the same to attend UCLA for an MBA as that at Cornell's Johnson school or Dartmouth's Tuck school?

Will it be able to provide scholarships and financial aid to select students just as much as it has done before? Or will it argue that self-sufficiency permits it to raise more funds earmarked for scholarships and financial aid?

2.  Being somewhat detached and having authority to set its own agenda (including curriculum, expansion, and forays into online learning), will there be tension with the rest of the university?

3.  Will there be inconsistencies with the rest of the university in how it manages itself? Many business schools, including Anderson, exist with appropriate levels of autonomy already, although all business schools must answer, in some way, to a university president and board of trustees. Will conflicts of interest arise because one graduate school within the university operates in a vastly different manner from others?

3.  Will there be impediments or barriers for students interested in joint programs or degrees (MBA and JD, or MBA and MPA/MPH)? Will business-school students still be able to cross-enroll smoothly in other courses in other parts of the university (international relations, law, communications, engineering, e.g.)?

4.  What happens at the business school, if the school's vision becomes too ambitious (too expensive) such that there funding shortfalls? Must the "parent" university promise to step in to ensure the school is always healthy enough to remain self-sufficient? Or will the parent permit it to sustain and prove itself financially viable (and even fail)--alone?

5.  After UCLA, who would be next? Would other top public business schools hop on board and attempt to do the same? UC-Berkeley (Haas), Indiana (Kelley), Wisconsin-Madison, Texas-McCombs, all Consortium schools?

5.  Does this in any way jeopardize its relationship with the Consortium and other diversity pipeline programs? UCLA-Anderson is one of the newest schools in the Consortium, having joined within the past three years (along with Cornell and Yale).

The last item, in fact, might be the easiest to address. Most, if not all, top-tier business schools are proving a commitment to diversity and ensuring their school rolls include people of all colors, backgrounds and countries. A more independent Anderson will likely strive just as hard to be a better and more desirable Anderson. It knows to be better and more desirable, it must also be attractive and accessible to women and those from under-represented groups.

Tracy Williams

"What Have You Done for Me Lately?"

Remember days of yore--when an MBA in finance accepted an offer from an investment bank, commercial bank, brokerage house, trading firm or insurance company in the spring of second year and thereafter embarked on a long career with one firm, one employer?  Shortly after arriving at the firm, the MBA started a training program or entry position--with the expectations of earning promotions every few years and with sights on becoming a senior manager (at the same firm) at the apex of a productive, memorable career.

In those days, you had the luxury of failing or slipping up in performance (a few times, not often), as long as you showed drive, loyalty, commitment and some promise. Now and then, you could fail to win a deal, could lose a major client, or could report a decline in revenues. You were reprimanded slightly, gently coached, and learned from experience. You were confident you would get a second chance, and you envisioned a career lasting, oh, 15, 20 or more years.

What happened to those days? Times changed. The environment changed.  Competition among financial institutions grew fierce. Regulation loosened some of the rules and guidelines. Commercial banks infringed on the turfs of investment banks. Insurance companies, boutique firms, and hedge funds butted heads among themselves and with bankers. Shareholders, boards of directors and investors, accustomed to 10-15% returns, suddenly sought 20-25% returns, even with dwindling opportunities. They demanded revenue increases, soaring earnings and steady upticks in share prices.

And they demanded it from quarter to quarter every year. From the chairman of the firm to the sector managing director to the vice president in a client unit or on a trading desk all the way to the newly hired MBA only a few months out of Stern, Darden, Haas, or Tuck, the mantra became:  "What have you done for me lately?"

How can and how do MBAs, including those from Consortium schools, confront such daily pressures? How should they and how can they handle a culture where you are only as good as the last deal you've done, the last client you brought to the firm, the last trade you put on the books or the last investment you analyzed and endorsed?

The topsy-turvy environment of 2011 makes matters worse. While financial institutions of all kinds scramble to win business, keep clients and cut costs to remain profitable, uncertainty about markets, global issues in Europe, and a start-stop recovery in the U.S. heightens the pressure. Banks, in particular, still sit in frustrating meetings brainstorming on how to make money with Dodd-Frank and Basel III regulation whipping them from behind. In the midst of all this uncertainty and week-to-week chaos, somebody is always peering over everybody's shoulder to ask: What have you done lately to justify your existence here?

Will this be the norm going forward?  Will this be common practice to manage professional talent? Will bankers, traders, researchers, salespersons and managers be evaluated from quarter to quarter based on their current contributions to earnings (and not based on a long-term value to the firm)? Will employees at financial institutions approach each work day as one to confront threats, hardships and enormous pressures to perform and achieve?

Or when market stability turns, along with some certainty of a sustained recovery, will financial institutions settle down and nurture long-term career paths for those who truly want to be around for a long time? There is risk in not doing so.

In unsettled markets and high-pressure situations (where compensation is too uncertain to offset daily anxiety and turmoil), talented professionals seek solace elsewhere. If the environment is unsatisfying and too threatening, they move on. They flee to smaller firms or more specialized outfits. They contemplate going on their own, setting up their own shops, boutiques or funds. Many bring their clients, strategies, and colleagues with them.

Others shop around for more comfortable roles or environments. If they go to work plastered with  constant rumors of lay-offs or spin-offs of business units they work in or if they are subject to harsh demands to meet extraordinary business targets, they reach out to peer firms. They go where expectations are reasonable and where pressures are tolerable (or compensated for). They go across the street to the "other bank."

Younger professionals and newly minted MBAs may not have networks or contacts to pursue other opportunities yet. Many also want to stay put, because they want to spend the first few years learning and getting experience--in doing deals, in negotiating with clients, in tackling financial models, in managing people and in making tough business decisions.

Yet in an environment where some will tap them on shoulders and ask what have they done lately, it helps to have a survival plan. What can they do?

1.  Keep, maintain and update a personal scorecard of accomplishments, achievements, deals, business wins, and successful projects. Be ready to present and explain it at any time, because, yes, in these times, your value to the firm is always under review.

As others assess your value (whether formally in appraisal meetings or informally in chatter during a coffee break), you want the review to be fair, objective, and up to date.

2.  Understand what your weaknesses are and how they are perceived by others. Develop a short- and long-term plan to address them, and be ready to share the plan with supervisors and mentors. As others evaluate you, they may overlook what might be regarded as a glaring weakness, if they know you have plan to improve.

3.  Always assess "what you bring to the table."  Make sure to the table, you bring something important, useful, possibly money-generating, or valued highly in the short- and long-term. That may be access to clients, people and contacts. It may be specialized knowledge, new ideas, or an astounding understanding of financial models, markets, products, or regulation. For many recent MBA graduates, it may also be an intense, consistent work ethic, a willingness to get the job done no matter the obstacles (and of course during all hours of the night or weekend).

There is no fail-safe response to the question:  What have you done for me lately? Sometimes a 20% increase in revenues won't do. Or winning the mandate from a new client to do a big, headline-garnering deal won't create a buzz among senior managers. Or creating a new product that clients will swarm toward may still be insufficient for those who ask these types of value questions.

But it still helps to be prepared and be ready to present your case.

Tracy Williams

Market Volatility: Can You Stand It?

Summer, 2011, has marked a rambunctious time of swirls and volatility in equity markets. It feels like 2008 all over again. Can you stomach it?

No, you can't stand it. Nor can you explain it, follow it, track it, quantify it or tolerate it.  A day when equity markets slide 2, 3 or 4 percent is followed by days when they surge, soar or promise that a new bull market is around the corner. And then comes the nose-dive again, another day when selling begets more selling, which contributes to panic and wonder. It churns the inside.

Can the old finance texts explain it? Can market watchers and pundits project it? Many think they do.  Do hedge funds and high-frequency traders profit from it? Certainly they try. Are hedge funds and high-frequency traders responsible for it? They certainly contribute to it. Do technical trend-followers try to quantify it or forecast it? Yes, when they unveil graphs, present variance analyses, or analyze "VIX" (market-volatility) indices.

Often over the past two months, it has felt like 2008-09, like 1999-2001 when technical stocks bounced around and then burst, like 1998 when the collapse off Long-Term Capital caused a month or two of panic, or even like the long-ago days after crash of 1987.

Everybody has a reason to explain volatility. Many say they can see it coming. Not many, however, agree on the specific causes. Others quietly try to make money from it. Others are squeamish, and yet others bolt.

The suspected causes are as broad as the number of market participants. The most common blame is uncertainty. Markets are engulfed in too many unknowns about where the economy is heading and how companies will fare in uncertain conditions. Amid widespread uncertainty, market participants separately try to determine what economic trend is dominant. And the outcome might be violent swings in market values.

Others blame high-frequency traders, the large segment of traders who buy and sell thousands (millions?) of shares electronically in time frames measured by seconds. They don't value companies, project cash flows, or analyze the long-term fortunes of companies. They use technology prowess to get in and get out, faster than all other participants--including mom and pop on Main Street.

Among themselves, they race to see who can respond and act on market signals most quickly. They buy in certain markets and geographies and sell in others. They buy options in one market, sell equities in another.  To them, a decline in profitability at a manufacturer because of an increase in costs of raw materials doesn't matter. They look for signals, trends, and momentum. And often they replicate the activity or trading patterns of their peers and competitors (a phenomenon now known as "crowded trades"). If one is selling, others do, too, and an equity market dives 2 percent without reason.

Panic among retail investors contributes to volatility. They call their financial consultants to order them to sell because they can't bear the fluctuations. How often have we heard when seasoned investors give up on stock investing and send instructions in sell all equity holdings immediately, so they can sleep better at night? 

Why wouldn't a succession of hundred-point declines in markets cause even the most experienced investor to give up? Who wouldn't feel the urge to sell and reduce all risks when portfolios in 2008 plunged by 20-plus percent?

One segment blames short-sellers. Short-sellers do exist. Not necessarily those who sell equities short as a hedge for a long-term portfolio of stocks, but those funds and traders whose primary purpose is to investigate and analyze the bad fortunes of companies and profit from a possible decline in their stock values. Some say short-sellers spur doomsday moods by broadcasting the vulnerabilities or downturns of companies, which lead to sell-offs. Meanwhile, they quietly profit from such declines after establishing short positions.

The continual effort to guess at or measure what government entities or regulators are thinking or will say, do, enact, or support (or what they won't do) contributes to wild swings in markets. All the guessing leads to conflicting views about whether to buy or sell.

In the past decade or so, leveraged hedge funds will swear they don't contribute to volatility. But whn they must sell assets to reduce borrowings, they often must sell the most liquid assets (Treasuries and exchange-traded equities) to raise cash. As a result, they contribute to sell-offs in markets.

Traders, investment managers and economists now agree there exists something called world-wide contagion:  What happens in Greece has impact on markets in Chicago and New York. What happens in Tokyo influences activity in the U.S.--for many reasons. Economies and markets are intertwined. Companies have global operations and sell in global markets. Investors and traders have diversified portfolios with exposures around the globe. When they buy or sell equities and sniff out opportunities or fear downturns, they have their eyeballs on emerging markets, as much as they watch trends in the U.S. and Europe.

What is the long-term impact of all this market madness? How will we learn to handle market turbulence, occasional market panic, and unrelenting uncertainty?

Business leaders and bankers fear volatility leads to lack of trust and confidence in capital markets. Investors shy away, preferring to invest in money-market funds or Treasuries, feeling disadvantaged or uncomfortable with equity portfolios. Others seek shelter in fixed-income investments and commodities (and, yes, even gold). Sophisticated investors look to "alternative assets":  hedge funds and private equity.

Others wait it out. They return when measured or observed volatility (from, say, "VIX" indices and the like) decline to tolerable, bearable levels.  They jump back in when market swings can be rationalized, explained or when market indices follow a pattern.

And often in the long term, memories tend to be short. When confidence and a degree of certainty are reintroduced, market participants (investors, traders, researchers and mom and pop) somehow tend to forget treacherous days and once again set off to chase opportunity and profits.

Tracy Williams

Is I-Banking Still Hot?

Does investment banking still have the same attraction? Do MBA students still swarm toward investment-banking roles? Do many have dreams of joining a top firm, hitting the ground running doing deals and anticipating big year-end bonuses?

After the industry turmoil and a series of setbacks and embarrassments, is investment banking still a hot area?

There have been upheaval, backlash and calls for reform since Lehman Brothers and Bear Stearns disappeared from the scene. Yet since 2008, trends suggest (a) i-banking is still attractive to many MBA students in finance at top schools and (b) the industry has evolved, but not yet gone through the major overhaul and transformation many predicted or hoped for.

Despite public pleas for changes in how banks conduct business and pay bankers and despite sluggish economic recovery and stomach-churning markets, deals are getting done. Companies are going public, issuing long-term debt, or acquiring other companies. Not necessarily at levels from 2006-07, but there is activity, enough so for banks to continue recruiting and for MBAs to pursue careers.

In this year's entering class of Consortium MBAs, at least 90 new students (about a third) have indicated an interest in finance--a number that is about the same or slightly higher from previous years. Of the 90, as many as 30 (about 10 percent of all Consortium students) have expressed a specific interest in investment banking, corporate banking or corporate finance. The actual number interested in i-banking could be higher, as many students will indicate a general interest in financial services, but have not yet acknowledged an interest in banking.

(Ten students say they are interested in investment managent, and a handful express specific interests in media finance, private equity, venture capital or real estate.)

Most students understand they will probably revise plans as they proceed through a grinding recruiting process. Banks, as they did before, put prospects through rounds of interviews, including tough technical sessions. Some students don't survive the process. Some change their minds, while others switch to other industries. Some become even more charged with enthusiasm about i-banking.

Interest in i-banking, therefore, has not disappeared. The actual number that will be recruited and hired in 2012 has yet to be determined, especially as banks struggle to make sense of this summer of volatility and uncertainty. Those who are committed and will pursue banking will encounter an evolving industry, but one that reflects familiar traditions and practices.

Over the past three years, the players and leading firms have changed.  The sudden departure of Lehman and Bear Stearns and the absoprtion of Merrill Lynch by Bank of America left gaping holes in the "bulge bracket" lists. Goldman Sachs, JPMorgan, and Morgan Stanley continue to jockey for the top spots in equity and bond finance and merger activity.  However, foreign banks, especially international banks with large investment-banking operations, have shoved themselves into the big picture:  UBS, Deutsche, RBC, and of course Barclays, which bought the U.S. operations of Lehman.

Firms like Jefferies and Lazard Freres, once comfortable in their own mid-tier niches, took advantage of industry shake-out and expanded their reach and business. Jefferies is a more diversified, comprehensive bank than it was a decade ago. Some regionals--mostly the i-banking units of commercial banks--have also stepped up where they could.

Smaller "boutique" firms have picked up pieces and grabbed business that bulge-bracket firms once kept among themselves.  Bulge brackets are now "bank holding companies," subject to banking oversight by the Federal Reserve an often weighed down--in their eyes--by onerous capital requirements and ominous regulation.

As with all banks, bulge brackets must address a laundry list of issues since TARP rolled out in 2008.  Dodd-Frank regulation will force them re-engineer their businesses. They can no longer rely on surges in trading revenues to offset the cyclicality of i-banking. While big banks tend to internal restructuring and worry about declining returns, boutiques have slipped in and swiped a few lucrative deals away from them.

Boutiques absorbed experienced bankers who were dismissed by bulge brackets let go or were demoralized by the crisis. The new bankers brought clients, deals, relationships and junior staff with them. Boutiques, meanwhile, have remained steadfast in being experts in special areas (M&A, media finance, technology finance, restructuring, capital-raising, or strategic advisory).

They didn't venture to foreign lands or create hard-to-manage bureaucracies and processes. And they seldom need to scratch their heads managing conflicts of interests, "tail" risks, or burdensome capital requirements. They just do deals.

And they've done more than their share over the past year. Centerview and Qatalyst, boutique banks, had primary advisory roles in the recently announced Google-Motorola merger. Sandler O'Neill, adamant about remaining small, is one of the top banks for financial institutions. Moelis, Evercore, Allen & Co., Greenhill, Keefe Bruyette, and Perella Weingberg are all respected, if not envied, players.

Some challenges and issues continue to stifle firms these days, big and small--enough to frustrate senior managers and deal-doers who wish they could focus on clients and deals and enough to discourage some MBAs from pursuing a career.

The turtle-crawl economic recovery has a direct bearing on i-banking activity. Corporations are reluctant to grow their busineses or consider acquisitions. They hesitate to issue new capital (debt or equity) to invest in new business or innovative products.  They let cash reserves sit around because they are engulfed in uncertainty. In the end, investment banks can't convince corporate CFOs or CEOs to take their advice or proceed with financings that at least make sense in Excel spreadsheets. Deals ready to go to market are suddenly shelved.

Thus, fees and revenues from mergers, acquisitions, underwritings, lending, and new products fluctuate unpredictably, while senior bankers figure out how to endure uncertainty and MBAs ponder whether they should pursue a dream.

Pending regulation and reform are looming challenges. Banks try to interpret new rules and anticipate what they will be once regulators write them up more formally. Then they huddle in backrooms to reorganize their business to make them operate profitably with the new restrictions. The 25% return on equity some bulge brackets could count on in the glory days of the mid-2000s or late 1990s might become an unreasonable target. Disgruntled shareholders may need to become accustomed to, at best, 15% returns under new models.

Risk management at all banks has gotten much attention. Banks have increased risk staff and force deal-doers to assess, probe, analyze, and measure the worst-case risks in doing a deal or bring in a new client. Risk-vs.-reward exercises are more prominent than ever.

Derivatives once attracted Ph.d. graduates and quant jocks and spawned floods of profits over the past decade or so. Going forward, regulation will force most of them to be traded on exchanges and through designated dealers. Investment banks aren't sure what the new profit dynamics will be or whether it will be worth the effort to encourage quant jocks to create new forms of them. Quant jocks aren't sure they will be welcome or will flee to hedge funds. I-bankers haven't yet figured out what they should say to clients on a consistent basis.

Work-life balance in the industry was supposed to have improved, if only to attract graduates who fear that lower bonus payouts in the future won't make it worth spending 12-14-hour days in the office, six days a week. Anecdotes suggest work-life balance is often discussed and mulled over, but when deals must be done, it's back to back-breaking, suffocating hours in the office.

The current environment with uncertainfy, regulation, and dwindling profitability will add more pressure to bankers to find new clients, win more mandates and get more deals done.  Expectations by management and the public have risen the past three years. Competition from other banks is just as fierce, and clients are demanding more from banks. The pressure has not waned.

Yet the attraction to i-banking is still apparent. Despite the nervous environment, Consortium numbers suggest new students still want a shot at doing deals, helping clients borrow money or go public, or advising them on how to expand and grow.

The adrenaline from participating in a headline-grabbing transaction or a billion-dollar bond issue still exists. The satisfaction of deriving and negotiating the fair value of a targeted firm is still there. The thrill in traveling all over the country or globe to meet new clients in new industries continues.  Of course, compensation--even if it has become as volatile as markets--is generally still attractive.

One tradition has not changed. I-bank recruiting and the campaign to win a spot on a bank's interview list start the first week MBAs get to campus. Those who have ambitions of securing a spot in 2012 must get going now.

Tracy Williams