Financial Technology: New Opportunities?

Axial is but one example of a new financial-technology firm

Not everybody with the buzz of an idea is seeking to start a company that will disrupt the world via social media.  Many are running new businesses by exploiting new technology---using technology to do old tricks, so to speak.  New businesses are using technology, for example, to assemble, analyze and interpret data or to deliver product to consumers in novel ways.

In finance for over a decade, some companies have sprouted from scratch and used technology in clever ways to provide new services, new analytics, or new ways of doing financial transactions or providing financial analysis, advice, or processing.  And we aren't necessarily talking about technology being used to ignite explosive high-frequency, black-box trading in equity markets.

Some of these financial-technology start-ups have come and gone or been acquired by large established institutions. Some have thrived.  And others were launched in the last few years and have just begun to take off with a critical mass of clients or customer activity.

In New York last month, a few new companies made presentations at a business-school networking function to explain to investors, bankers, and industry participants what hole they wish to plug in the industry and how technology does it.  Their ideas are off and running, the business model in place, and revenues trickling in and growing steadily.

Axial  is one example.  Years after getting his MBA from Stanford and working in private equity, Peter Lehrman started the company a few years ago because he thought there was a better way to help middle-market companies and entrepreneurs seek financing from banks and investors or seek M&A advice from investment banks and advisory firms.  The firm established an electronic network to connect companies with investors, advisers, banks, investment banks, and other financial institutions.

Lehrman calls his Axial network a "Linkedin" for mid-size companies and for the banks that seek to do business with them.  Members of the growing network purchase subscriptions (which explains its revenue model), get access companies in the network and exchange relevant data and information.  Companies can find the right match with a bank or private-equity investor.  Financial institutions can find the right match in seeking a company client.  They all get to become better acquainted with each other.

Today, there are about 15,000 members of the Axial network, including over 200 small companies and entrepreneurs. Axial, founded in 2010, is based in New York.

Is there a quicker, better way of taking voluminous amounts of financial data and prepare reports for investors and clients?  Is there a faster way for financial institutions to comb through hundreds (or thousands?) of pages of transactions and business data and prepare summary reports for regulators, investors or board members?

Narrative Science, a four-year-old company based in Chicago, says it has a solution. It has a patented artificial-intelligence platform (called "Quill") that digests and analyzes data and presents a summary in the form of written reports.  The platform provides many services, depending on a client's need.  Equity research analysts or financial consultants use it to prepare investment-portfolio reports or market updates. The company claims the platform doesn't just spit out verbiage, but provides insight, analysis, and trend forecasts. 

Reports can be formatted in the way clients prefer. They can also be as long, short, detailed or simple as desirable.  The company now has about 50 clients, most of whom are financial institutions.

Leigh Drogen decided to start his company, Estimize, when he saw an opportunity to aggregate vast amounts of information from equity research analysts who provide earnings forecasts for thousands of companies.  From quarter to quarter, equity analysts provide earnings estimates based on their own research.  They often update their forecasts during the quarter, right up until the company makes a formal earnings announcement.

Investors who rely on earnings forecasts and updates have had to aggregate by themselves the views, opinions and forecasts from dozens of analysts.  For example, investors with a stake in Microsoft stock will want to know how analysts assess the company and project its earnings and stock price. They might attempt to compile the numbers of many analysts. 

Estimize uses technology to do it faster and more easily.  It aggregates the projections and earnings estimates for about 900 companies, compiling information from over 3,500 analysts who send information to the firm. The firm presents a summary of the analysts' forecasts. In describing his firm, founder Drogen says it has an "orthogonal" (independent) approach to providing earnings estimates for companies and explained that the firm is "Wikipedia"-like in providing information to clients. 

Estimize also provides estimates or projections of macroeconomic factors (e.g., interest rates, economic growth), based also on aggregates from research analysts.

Hedge funds and fund investors comprise most of its client base now.  The company, three years old, has 10 employees and is based in New York and San Diego.

David Klein was once an MBA student at Wharton who borrowed money to fund his business-school education.  At some point after graduation, he decided there was a more efficient way for students to borrow.  He started his company, CommonBond, to transform the student-loan market especially after dysfunctions in this marketplace in recent years. Klein says the company is trying to "fix the broker student-loan market."

CommonBond created an electronic network to match students directly with lenders.  Klein claims this direct match-up helps lower interest costs to students.  Like an electronic stock market, the network allows market participants to link online.  The company also has a social mission by encouraging a "community" of lenders and borrowers:  Lenders follow the progress of students, and students form community networks among themselves and keep lenders informed about their school experiences. Lenders become more engaged in their investments.

In its first phase, CommonBond is only providing loans (from a current fund of about $100 million) to MBA students.  It will expand in its next phases to law and medical students.  Until now, most loans it has arranged via the network have been refinancings of other students' loans at competitive rates.

The company employs 13, but plans to expand to 22 by this summer.

Chaith Kondragunta's company AnalytixInsight is four years old.  He has an MBA from Carnegie Melon and is now CEO of the company he helped found four years ago.  The company uses technology to prepare research-analysis reports on 40,000 equity stocks around the world.  It labels its service Capital Cube and produces written analyses, based on data, statistics, and macro-trends.

For example, its technology gathers significant amount of data and financial information (including data available from company annual reports, 10-K's, etc.), assembles and analyzes the data for trends, computes relevant financial ratios, and then prepares a written financial analysis with useful conclusions and recommendations with minimal input from a human analyst.

Individual investors, brokerage firms, and some media firms have subscribed to the service. The company has offices in New York, Toronto and India. 

This group of five is just a few, a coast-to-coast sample. Many other financial-technology firms exist, covering special niches in the industry. And more will continue to be founded, as someone somewhere will determine that with technology advances there's a better, quicker, more efficient way to trade securities, research stock, raise equity, issue debt, share market information, prepare investment reports or provide strategic advice to companies.

Tracy Williams

See also:

CFN:  Knocking Down Doors in Venture Capital, 2012
CFN:  Venture Capital: Diversity Update, 2011
CFN:  High-frequency trading: What's next? 2012
CFN:  Dark days at Knight Capital, 2012
CFN:  Bitcoins:  Embrace or Beware? 2014

What Will 2014 Bring?

Equity markets: More of the same in 2014?

If the year 2013 ended with moods, markets and sentiments on an upswing, what's on deck for 2014?

What will happen in the upcoming year? What is the agenda for banks, investment managers, hedge funds and an assortment of institutions in financial services?

Let's first sort through equity markets. Last year, we saw blockbuster returns--over 25%, depending on the index you follow. There were the usual dips, dives and concerns, but by autumn, equity markets continued to edge upward. Anybody's diversified portfolio of stocks performed well. The upbeat markets reflected perceptions by many (traders, investors, bankers, et. al.) that we had climbed out of the financial crisis, that the economy had finally reversed course, and that we could confidently move on.

But market returns above 20%, for some portfolio managers and investment gurus are nothing to rave about. They become headaches, causes for concern.  Are we headed toward another bubble, another 1987, 1998, or 2008? A debilitating nose-dive after periods of euphoria has happened before (more than once), so it can (or must?) happen again. How should we interpret recent discouraging data about net job increases across the country? What will the Fed do (or not do)?

For many in finance, 2013's soaring returns are a warning signal that we should be cautious about an impending bubble burst or should at least dissect market trends or economic behavior that portends a market slump.  Market prognosticators who see doom on the horizon are not necessarily nay-saying pessimists. After everybody was struck by knock-out blows of the last crisis, market participants just want to be prepared for the next time.

From now until about midyear, traders and research analysts will observe every move of new Federal Reserve Chair Janet Yellen, even if many have described her as a Bernanke disciple, someone loyal to a course of maintaining low interest rates and continuing the Fed's program of bond purchases.  Some experts say this such Fed strategy explained much of last year's upturn and any plan to deviate from this could upset stock markets.  

In 2014, in equity markets, if we don't see continuing upswings, we will see more structural changes in the way stocks are traded. Over the past decade, there have been structural overhauls in stock trading. Major stock exchanges (NYSE, Nasdaq) are no longer stoic boys' clubs that monopolize among themselves  transactional volume. They have had to change, adapt, and be aggressive to stay alive. They compete with lightning-quick electronic exchanges, "dark pools" (run by major financial institutions), high-frequency traders, and markets that have no end of day. They must offer low fees and nano-quick execution or become less relevant.  

So in 2014, the heralded New York Stock Exchange struggles to find a role in the chaotic stock-trading sphere. It is no longer independent. A few years ago, it considered diversity and expansion by acquiring European exchanges and becoming NYSE Euronext. As it struggled to adapt, appease shareholders and remain profitable, it allowed an upstart electronic-futures exchange, ICE, to take it over.  Now in the upcoming year, ICE wants to dismantle parts of NYSE, hinting that it acquired NYSE mostly to grab the futures and commodities arms. It will likely hold onto NYSE as a badge of prestige, while the NYSE goes head to head with other electronic newcomers and trail-blazers.

The overall agenda for 2014 is otherwise assorted--a range of items and issues that must addressed, tweaks here and there.   

Financial regulation continues into what might be phase three--more implementation,  a few more rules, and widespread adjustments by banks, traders, funds and regulators before we head into years of strict enforcement.  Perhaps the year will finally bring more clarity in derivatives trading--exchange trading, clearing vehicles, and over-the-counter rules.

On the legal side, last year's insider-trading scandals continue through the court system. Federal prosecutors suggest there could be more indictments, although they may not match the headlines from accusations, indictments and settlements at SAC Capital.  In this realm, Round 1 involved the hedge fund Galleon Group.  Round 2 brought us SAC Capital and settlements involving its founder Stephen Cohen.  Round 3 will unfurl in the year to come, could involve others in an intricate, tangled trading network, but may not expose familiar, big names.

Global banks performed well last year, but their investment-banking units had less reason to celebrate in 2013. IB revenues across the board sagged at most places. Banks have been mired in IB restructuring (as banks adapt to Volcker rules and capital requirements), and their clients continue to approach the economic horizon with caution. Indeed in 2013, there was a welcome spate of IPO's, big deals, and debt offerings. But clients have been hesitant about expanding too far too fast, shy about acquiring other firms or doing big mergers--all frustrating investment-bank leaders. M&A activity, which suggested a back-to-glory-days trend last summer, has slowed to an ordinary crawl. Some call it humming, normal activity. Others call it doldrums.

Nevertheless, like all years, it's easy to capture and describe current moods (renewed, cautious confidence), but hard to project a specific event that could be the domino that causes market unrest. Experienced market participants and risk managers know it takes one or two correlated events to change abruptly a bright, comfortable course, one event that could pummel 2013's optimism from its pedestal.

Let's hope in 2014 no Russian debt crisis, no Bear Stearns mortgage wipe-out, no unsettling, triple-witching-hour trading day, no Long Term Capital portfolio implosion or no Drexel-like junk-bond circus looms to erode the era of good feeling 2013 brought.

Tracy Williams

See also:

CFN:  Looking Back at 2013
CFN:  Cliffs, Recoveries, Outlook for 2013
CFN:  Where Do You Want to Work in 2013?
CFN:  Opportunities in 2012
CFN:  Approaching 2012

MBA Students: An Eye on Summer '14

CFN hosted its annual webinar to launch interview season

Most MBA students today, including Consortium students across the country, will argue there is no one segmented part of the calendar for "recruiting season."  Every aspect and experience of business school is "recruiting season," from the time students declare their intentions to attend a certain school until graduation. Every day, not just a few weeks in the fall, MBA students contemplate where they want to be and what they should do to secure the right job.

Students today, and their career-advisory specialists on campus, say there is seldom a time when an MBA student is not absorbed in thought about information interviews, mentors, alumni connections, career choices, or a specific post that awaits after graduation. Nonetheless, late fall usually signals the formal start of interviews:  information interviews,  first rounds, lottery interviews, interviews earned from being selected by companies, second rounds, technical interviews, and follow-up sessions to decide whether to accept an offer or go elsewhere.

The Consortium Finance Network hosted its third MBA recruiting webinar Nov. 13 for Consortium first-year MBA students to launch interview season for those interested in finance and financial services.  Panelists included Consortium graduates in a variety of finance roles, working for financial institutions and industrial, entertainment, and consumer-products companies. CFN steering-committee members, D-Lori Newsome-Pitts, Camilo Sandoval and Tracy Williams, moderated the presentation and subsequent discussion. Consortium students logged into the webinar from schools around the nation.

Panelists included Consortium alumni Abijah Nyong from Dow Chemical (Indiana-Kelley business school), Christina Guevara from Goldman Sachs (NYU-Stern), Stephanie Rosenkranz  from ESPN-Disney (USC-Marshall), and Brace Clement from Starbucks (Wisconsin). Some were recent graduates, fresh from the experience of going through the process. 

Nyong from Dow Chemical set the tone for the evening.  "When it comes to talent," he said, "good talent comes off the shelf.  Even if the business prognosis is not good, we take good talent."

To guide students, CFN presented a general recruiting outlook in several segments of finance. Opportunities in finance fluctuate and take assorted, unexpected turns from year to year.  In 2013-14, the outlook is generally upbeat, as banks, investment firms, and companies have become confident enough to open their doors for more MBAs.

But as most experienced finance professionals know well, it helps to be cautious, careful, and forewarned.  In finance, the tide and sentiment of recruiting can turn on a dime. Some years, companies hire more than they need. In other years, companies are sour on economic prospects and hire fewer than they should.  More than ever, however, financial institutions and companies are serious in hiring summer interns, since most hire interns with hopes of offering them full-time employment when the summer is over.

In corporate finance and corporate treasury, as the economy grows and improves, companies are growing and expanding and will, therefore, have financing needs and investment opportunities.

Nyong said companies like his employer are looking for outstanding candidates and are increasing hiring. "We want to ramp up to try to make sure good employees are in the pipeline."

In investment banking, whether it's M&A, FIG, real estate, energy or health care, all depends on the industry segment, expectations within that industry and general business trends. M&A, for example, had shown signs of starting to soar this summer, but experts now can't figure out why it stalls from time to time.

FIG investment banking has benefited from the capital requirements and restructuring initiatives of banks everywhere, in the wake new regulation and reforms. Equity finance is patting itself on the back after renewed confidence from IPOs (think Twitter) and investors' comfort in stocks.  Debt finance has been bolstered by low interest rates.

In private banking and wealth management, banks will continue to emphasize growth, because they like the fee-based businesses without having to build up their balance sheets.

"Banks have pushed to build out (in private banking) because of the sticky assets," Guevara said. "They are focused on growth."

In corporate banking, opportunities exist because big banks, which had swooned toward the high returns and headlines of investment banking, have learned to appreciate the stable returns and bread-and-butter benefits of corporate lending and cash management.

Sales & trading opportunities at financial institutions are limited, because regulation and reform will restrict what they can do--if not now, then over the next few years, as SEC and Dodd-Frank rules are written and become clear.

Banks everywhere have restructured trading desks and trading roles. The best opportunities, if any, for MBAs interested in trading will be at asset managers, boutiques, specialty trading firms and hedge funds. Others will remind us, however, how significant aspects of trading are now directed by computers, algorithm, client flow, and trading schemes--not requiring as many desk traders (or people).

For years, MBAs overlooked opportunities in risk management and didn't know much about the role. Financial institutions seldom tapped business schools for risk managers. After the crisis, financial institutions have learned lessons or have been forced to beef up emphasis, add professionals and become more attuned to all forms of risks. Regulators, too, in these times are always in the vicinity and insist that banks devote resources and attention to risk management in the way they may not have done so in years before the crisis.

Clement from Starbucks said, "I wish I took more classes in risk management (while in business school) and learned more how to manage (market) risks."  He described ways in which his company must hedge the complex risks of costs of commodity products. Business schools have responded in recent years to offer courses in risk management (for credit and market risks). 

Opportunities in venture capital, private equity and hedge funds are fleeting or uncertain, partly because these firms often recruit beyond the eyesight of business schools and tend to have opaque recruiting procedures. There exists, also, possible fall-out from recent insider-trading scandals (think SAC) and industry-wide hedge-fund shake-out.  Hedge-fund returns, believe it or not, trail that of equity markets in the past year or two, and more than a few hedge funds have closed their doors in the last year.

In venture capital and private equity, some industry observers say too much money might be chasing too few good deals.

Sandoval presented CFN's framework for approaching interviews.  The framework encourages students to examine and polish themselves in five areas:

(a) personal background,
(b) personal interest in the industry and company,
(c) personal drive and motivation,
(d) capability (expertise, knowledge, understanding of industry) and
(e) insight.

Nyong said, "I did a lot of informational interviews to find out what (industry segment) felt natural to me." He instructed students, "Look at the spectrum of positions available.  Seek out alumni."

Panelists emphasized the importance of being aware of current events, topics and issues, because interviewers will refer to them and being informed can help students make decisions about what they want to do. Guevara advised that students should make sure to "study markets and current events and have a sense of what's going on."

Rosenkranz recommended that students register and subscribe to www.smartbrief.com, a website that aggregates news stories and headlines, based on specific business areas (finance, accounting, marketing, etc.) or specific topics (derivatives, currencies, digital advertising, etc.). A student can tailor the website aggregation to his specific interests and can see the updates he needs to see.

Panelists emphasized frequently the importance of conveying interest, drive and enthusiasm in finance-oriented interviews. In interviews, Sandoval explained, "We forget to talk about our general interest and passion for finance."

Clement summed up, "You want them (the companies) to believe you can do this job."

"You have to know who you are and where you want to go," Nyong said. "If you can't buy it yourself, you can't sell it."

As panelists presented the CFN framework, Sandoval reminded students, "You are in the driver seat.  You design the framework that works for you. You control the questions."  

Year after year, finance students fear the technical interview, where financial institutions try to gauge what candidates know and how they describe finance scenarios on their feet. To prepare for what they perceive as stressful exercises, students study market trends and refresh themselves in principles of finance, markets and accounting. Beyond that, candidates seldom know how that interview will evolve.

Investment banks may require candidates to present a detailed deal strategy or advise in valuing a stock offering.  Hedge funds or asset managers may require candidates to  explain trends in interest rates or derivatives pricing. Corporate-finance managers may require candidates to evaluate a balance sheet.

Nyong advised, "Read the company's 10-K to prepare.  It offers a vision of their market and shows contrasts with competition."

Rosenkranz said, "Listen to the (company's) investor calls to see how management responds.  Listen to the kinds of questions (analysts) ask during the calls."  She added that for technical interviews, companies want to "see if you have intellectual curiosity." And she suggested that candidates can learn much about the company's structure, management and culture by referring to the website www.glassdoor.com.

"How does the company make money?" Rosenkranz asked, recommending candidates study closely the company's business model.

Clement saw the benefits of understanding thoroughly a company's income statement.  "You'll want to understand the P&L from top to bottom, understand the balance sheet," he said, because interviewers will be familiar with this financial information and will want candidates to show familiarity, as well.

CFN panelists, now experienced and entrenched in finance positions, shared other observations and advice.  However, while satisfied with their efforts to get from the classroom and case study to roles in finance, is there something they would have done differently in the recruiting process?

"I would have gotten a better sense of other roles (in the company)," Nyong said. They would include roles in operations, marketing, manufacturing and other functions, because finance touches so many important activities in an industrial company.  "I would have gotten a better understanding."

"I would have found somebody to act as a blueprint," Clement said, explaining the importance of connecting with a school alumnus, an experienced mentor,  or a senior manager to learn more about the recruiting process, the industry, and the ropes for converting dreams into strategies into meaningful job offers.

Rosenkranz said she understood the importance of showing intellect, expertise and general knowledge about the industry, but wished she examined more carefully companies' work environment and culture.

Panelists concluded that most MBAs, especially ambitious Consortium students at top schools, will find opportunities and take advantage of some of them.

"You want to be intentional," Clement offered. "You shouldn't just want to find any place to land. You shouldn't be fishing for just any place."

Tracy Williams

(A recording of the webinar and the accompanying written presentation will be available to CFN members in Linkedin.)

See also:

CFN: MBAs and the Summer of 2013
CFN:  Is the MBA Under Attack? 2013
CFN:  MBA:  Remaining Relevant, 2011
CFN:  Mastering Technical Skills, 2010
CFN:  Who's Headed into Finance? 2013
CFN:  How Mentors Help, 2009

MBA Recruiting: Working the Game Plan

Cornell's Johnson School: Ready, set, network, interview

When recruiting season rolls around, MBA students in finance (including Consortium students in finance around the country) toss the books on the shelves and roll out the details of a game plan to secure a job for the summer or for full-time employment after graduation.

Student sentiments always seem the same year after year.  They never realize how much time, energy, effort, focus, and discipline the process entails.  Often recruiting season is launched right in the middle of midterms and just before first-semester exam season.

MBA students rejoice in the chance to dream of the opportunities presented to them and the chance to drift smoothly into a wonderful job in an ideal industry, making substantial impact, having meaningful experiences, and accumulating their fair share of sums of money.  That's summer-time luxury.  When recruiting season starts, the real world smacks right in the face.  There is time, but the game plan must be in place.

By the time information interviewing, networking, and corporate presentations are in full swing, the MBA finance student needs to have started the process of narrowing choices.  For most, it's not easy. When November approaches, it would be naive for a student to proclaim interests in investment banking, equity research, community banking, and derivatives trading (all of the above) and then be prepared to handle the tough interview process of three or more different finance segments.

Most MBA finance students at top schools know and understand the game.  They are surrounded by peers and career counselors. They discuss timetables, networking events, opportunities and career choices every day, throughout the day, in between classes and at wine receptions in the evening.  Most are open to advice, hints, and help from school advisers, alumni and contacts at major firms and companies.

Most understand and appreciate the value of information interviews and networking.  Students listen and learn and decide on corporate cultures, compensation incentives, work-life balance, and self-fulfillment on the job.

Many, however, under-estimate the importance of keeping up with current markets, deals, transactions and business and economic trends.  Case studies, projects, and exams often get in the way of knowing and understanding what's going on in current markets: recent deals, recent trends, recent regulation, or important discussions of corporate strategy and growth expectations in industry segments.

It becomes almost impossible to juggle preparing for a finance midterm with finding time to learn about Yahoo's latest earnings results, comprehend the interest-rate leanings of the Federal Reserve, or figure out why there were swings and dips in equity options markets.  But corporate interviewers and committee members who make selections tend to weigh heavily around the topics, transactions and activities they are involved with or familiar with.

Opportunities in finance are broad, and the hopelessness, fears and anxiety coming out of the crisis have receded. Finance students today have a buffet of choices.  Still, they must have a game plan ready, a fierce resolve and determination to go through the process, a refined idea of what they want to be and do and an in-depth awareness of what's going on in the financial headlines.

Tracy Williams

See also:
CFN:  First-year MBAs and Recruiting, 2011
CFN:  Gearing Up for Summer Internships, 2012
CFN:  MBA Job Hunting:  No Need to Panic Yet, 2012 

Who's Headed into Finance in 2013?

Cornell attracts its share of Consortium finance MBAs

On your mark. Get set. This week, over 300 new Consortium students will launch their campaigns to earn an MBA by heading to New Orleans for the Consortium's 47th Orientation Program.  As in previous years, they will be engulfed by activity, events, recruiters, school staff, seminars, sponsors and celebratory gestures. For most of them, OP is a festive, uplifting time. They pause and take a week-long breath before embarking upon the frenetic pace of graduate business school. 

Among the new MBAs, who's headed into financial services in 2013?

How many among the 300-plus have expressed an interest in concentrating in finance at school or a career in financial services? As they take new twists and turns over the next two years, what do they aspire to do when graduation comes in 2015?

Let's consider the current environment.  The awful, dreadful financial crisis is receding into memory, although there is a haunting, lingering impact. The crisis and economic recession caused upheaval and changed the landscape at banks, broker/dealers, investment funds, insurance companies and private-equity firms.  Financial institutions are rushing to hire just as many experts in compliance, risk management, regulation and technology as they are in luring investment bankers, brokers, wealth managers, and traders.

With steady improvements in the economy  and with remarkable upturns in equity markets, this year's new MBA students won't need to whisper when they declare an interest in financial services. The job or role they dream of may actually exist in two years. Or the job or role may turn out to be something they never knew existed in their first days of a corporate-finance core course.

The new class of Consortium students, after the OP, will disperse and head off to 17 different Consortium business schools all across the country.  Of the total, over 130 have expressed some degree of interest in financial services, even if it is a tentative or preliminary interest. That number already suggests renewed confidence. In previous years, especially during the morale-plummeting crisis years, fewer than 100 dared to raise a hand to say they were interested in banking, trading or investment research.

Many of them, like other non-finance MBA students, are in career transition. Some are opting for finance after stints in other fields (non-profits, public service, engineering, or marketing).  Some are currently in banking or trading and will use the MBA (and what they learn in class) to leap from one segment to another (from, say, private banking to equity research).

No doubt they understand what they are about to take on.  They know this isn't the 1980s, when an MBA graduate Dartmouth could join Morgan Stanley's corporate-finance unit and plan to be there for 20-plus years and, with confidence, take steady, resolute steps to managing director.  They know it's possible Morgan Stanley may not exist (in the way we know it today) in 20 years. (Drexel Burnham, Bear Stearns, Salomon, and Lehman Brothers, favorite firms for MBAs in the 1980s, don't exist in 2013.)

They know they must plan a career in five-year segments. Even in finance, they know they must reinvent and rebrand themselves all the time and be willing to try something new when pushed against the wall. They know they must explore a variety of institutions, segments, roles, and options.  They know, too, the best opportunity may not be at Goldman or Citigroup, but could be at a regional investment fund, at a financial institution in Brazil or at a futures brokerage in Chicago.  If they don't know now, they will learn that roles in compliance, risk management and financial regulation are more valued by some banks than first-year jobs in M&A or on the currency desk.

MBA students in finance (including those at Consortium schools) tend to head to business schools with strengths in finance, where finance faculty are widely known and where finance recruiters swarm. They also head toward schools that already have a large concentration of students in finance. They want to be with others with similar aspirations or they don't want to be at a disadvantage. Like-minded students want to be with each other.

In this year's class, Cornell and NYU business schools will have the largest number of Consortium finance students. Michigan, Texas, Virginia, Yale and Indiana follow closely behind. These numbers are as expected, because these schools tend to support the largest numbers of Consortium students and some of them have historically attracted many students with an eye on Wall Street, banking, private equity, or investment management.

Students today, including Consortium students, are mindful to keep they must keep options open. When they are asked to indicate an interest before they start school, they will likely show many hands.  Many finance students will say they will pursue finance, plus something else. Often, that will be finance and consulting or finance and marketing.

Consortium students in the Class of '15 are similarly spreading their wings, while they have primary objectives. Over a dozen expressed an interest in venture capital and are likely aware of the difficulty in securing a position in a major venture firm, particularly one that resides on Sand Hill Road in Silicon Valley. Venture-capital firms hire MBAs from top schools and cherish candidates with strong technical experiences (and degrees), but are notably erratic in how they bring on whom they hire.

Another dozen or so are interested in investment banking. That wouldn't be unusual in any class. Despite the topsy-turvy world of investment banking (Who's laying off or reducing staff this week?), investment banking is still an important segment of finance, it will always be here, and there still remains the lure of working for such firms as Goldman Sachs, Lazard Freres, and JPMorgan.

Many more also say they will explore financial management, which captures areas from private banking and asset management to corporate finance at non-financial companies.  Others are interested in finance in specific industries:  real estate and energy, e.g.

The pairing of finance and consulting seems to be as popular as ever.  That might be a result of some students aiming for a particular firm experience (at, say, Goldman Sachs or Booz Allen or Blackstone), hopeful for an opportunity to have a prestigious, meaningful experience in their first few years and not necessarily loyal to a particular industry. Or they wish to be in an advisory function, which is what investment banking and consulting are about.

Not many expressed an interest in community banking, insurance, or financial brokerage.

Students willing to explore multiple concentrations also suggests a few more trends: (a) They know that the optimal dream job for an MBA graduate may not yet exist or is still in the making or (b) They may not yet be familiar with industry details to know they might be suitable for a certain segment. Many MBA candidates will learn over the next two years (or after they are hired by a financial institution) they are best suited for roles in risk management, audit, compliance or research.  The business-school experience is supposed to permit students to explore, get their feet wet in alien territory, and test new fields.

The daunting rat race of the recruiting process hastens the exploration effort, and that's unfortunate. It thrusts the new student into a boiling pot, where they must make career decisions overnight. Students declare where they will go to school in April or May, and by August, before they have sat through one marketing case study, they are swept into the helter-skelter pace of finding a summer internship.

For now, they get to explore, contemplate, and plan.

Tracy Williams

See also:

CFN:  Outlook for MBAs, 2013
CFN:  Consortium Orientation Program, NOLA-Bound, 2013
CFN:  Consortium Orientation Program, Minneapolis, 2012
CFN:  Consortium Orientation Program, 2011
CFN:  Consortium Orientation Program, Orlando, 2010
CFN:  Consortium Orientation Program, Charlotte, 2009

Where Do You Want to Work in 2013?

Lists can be amusing. Sometimes they might be taken seriously.  Magazine and media companies like to produce them--even if they are flawed or biased, because they sell thousands of copies of issues or generate thousands of Internet clicks. They spawn discussion and banter and get people talking. Some lists should be shrugged off and dismissed. Some are worth examining, because they might offer helpful information about the topic being ranked.

Employees like good pay, good benefits and, yes, fitness centers

Fortune Magazine compiles many lists from year to year. One recent list in its latest issue is its "Best 100 Companies to Work For." To believe in the list and to ensure it's credible and useful, you must believe in its criteria. You must be assured that Fortune has amassed significant data and measured the information properly. Ask employees why their company is a favorite place to work, and you may get dozens of reasons, including especially compensation, benefits, vacation privileges, opportunities for promotion, and challenging assignments.  Some would contend a favorite place is one that is thriving, doing well and generating upward-trending, consistent stock-market returns.

For all the splash in a big cover story on top companies, Fortune's criteria was relatively simple:

a) Does the company plan to hire in substantial sums in the year ahead?
b) Are employees generally satisfied?
c) Can management be believed?
d) Is there camaraderie among colleagues--genuine collegiality?
e) Is turnover less than 5% annually?
f) Is compensation in the top quartile in the industry?
g) Do benefits apply also to same-sex couples?
h) And, yes, does the company offer free access to on-site fitness centers?

Did it miss anything? Of course, it did. It missed a lot.  It didn't address diversity and inclusion clearly. It didn't factor in long-term, sustained performance (Will the company be around 20 years from now?). And it didn't address whether a company is sufficiently managed and strong enough to survive downturns, market-related disasters, or unforeseen, colossal risks. All these factors might be important to at least a few prospective employees. Yet it knew it couldn't complete a list if it tried to capture too much, especially if the list relied on the completion of thousands of surveys.

Google is no. 1 on the list for the fourth time. BCG, the consulting giant, is in the top 10. Companies like Accenture, DreamWorks, Nordstrom, and Intel also made the top 100. Quite notable is a prominent lack of financial institutions.

Given:

a) what the industry has endured the past several years,
b) the topsy-turvy reorganization most large financial institutions must go through,
c) all the uncertainty financial institutions face in finding a way to generate revenues in the decade ahead,  and
d) the discouraging, frequent announcements of lay-offs and staff reductions...

Given all that, it's not a surprise that most of the best-known financial institutions don't find themselves on Fortune's list.

Strike one:  Many large banks, as we know, are not in aggressive hiring modes.  Check the business headlines weekly to see which ones have decided to rethink, re-situate and reduce staff in institutional trading and investment banking.

Financial institutions engage in some form of hiring every year. There is attrition all the time, and it makes economic sense to hire at entry levels annually to keep pipelines flowing and production efficient (and maintain long-term ties with top business schools). "Production" is efficient when junior bankers can do senior-level work at one-quarter the cost. And if you were to peek more closely, many institutions are indeed adding more staff in compliance, regulatory reporting and risk management. 

But for Fortune's benefit, not many plan to expand substantially on the front lines.   


Strike two:  Because of staff reduction, massive reorganizations and employee-related stress arising from uncertainty and confusion, employee turnover is bound to be more than Fortune's 5% benchmark.  If there is a corporate-banking unit with 100 professionals today, you can be assured a year from now, more than five (and as many 10-20 or more) won't be in the same slot a year later.

Strike three:  The culture, workplace and environment in many financial institutions are not the same as that of a Silicon Valley enterprise.  It's not likely the bank, insurance company or investment manager will support free access to a gym on the premises, free gourmet lunches or freedom to engage in playthings during work hours. Employees may wish for such privileges, and they would benefit from immediate access to a fitness center.  At many banks, still rebounding from the crisis, all that is not a priority.

That's not to say no financial institution made its list.  A few did. Many of the familiar names didn't.

St. Louis-based brokerage firms Edward Jones (No. 8) and Scottrade (53) fared well. And that may be no accident.  Both firms rely on the performance, contributions and production of a large, far-flung network of brokers, consultants and representatives. They obsess in making sure the brokerage force is happy, content and well-compensated.  They ensure the same force has ample administrative, securities-processing, and funding support.  Employees don't work under the haunting, continual threat of being laid off.

Another Midwest-based brokerage firm, Robert W. Baird, with similar privileges and values, appears on the list, too (14). The firm is applauded for rewarding employees with a significant ownership stake.

American Express is one of the few large, well-known financial companies on the list (at 51), despite its own restructuring hurdles the last few years. The company's business faces mammoth challenges in the years to come. It makes the list, nonetheless, because of its remarkable efforts in diversity and because of its widespread support of employee affinity groups (groups with common interests or shared backgrounds).  It also has fitness centers.

In pre-crisis years, on any list where MBAs in finance express where they want to work, Goldman Sachs always found itself at or near the top.  For MBAs from top schools, Goldman offered new associates prestige and compensation. It also offered MBAs a chance to learn and master all the nuances of finance, a chance to thrive in a highly charged environment, a chance to travel to all parts of the world, and a chance to exploit the strengths of the Goldman name to get deals done, make trades, invest on behalf of clients, and finance companies and municipalities.

Post-crisis, Goldman, too, would be vulnerable to the strikes above.  As a "bank holding company," it is re-inventing itself or reshaping itself to contend with regulation and profit-margin struggles.  Yet it squeezes its way onto Fortune's list (93), partly because of a commitment to reward employees exceptionally--via benefits and the resumption of huge payouts every January.  MBAs in finance still want to work there, perhaps for a handful of years, just enough to taste the experience, learn, earn and then move on to the next rung on the career ladder.

Of the Fortune 100, only about 10 are bonafide financial institutions (about half of which are insurance companies). The industry is not in the same turmoil as it was a few years ago. In fact, most have begun to report upward trends in earnings and share prices, while they spruce up balance sheets.

But much jockeying continues.  Much tweaking and twisting of old business models are occurring.  And for now, the maneuvering behind closed doors among the senior ranks, as they adapt to new rules and new markets, comes at the risk of neglecting to make themselves employers of choice. At least that's what Fortune's new list implies.


Tracy Williams

See also:

CFN: The Best Places to Work, 2010
CFN:  The Best Places to Work, 2011
CFN:  Affinity Groups in the Workplace, 2011
CFN:  Time to Make that Move? 2010

Bring on 2013: Cliffs, Reforms, Recovery

What lies ahead in finance?

After a long haul and after markets watched and studied the results, we've jumped the hurdle of the presidential election. We now head toward a year-end where sound bites and gurgles of noise from Washington scream "fiscal cliffs" and a possible end-of-world scenario if legislators don't reach an agreement and unveil a fiscal plan before January 1.

Often in an election year, capital markets and finance managers go through pauses, starts and stops. They gauge the political winds that will affect economic recovery, interest rates or the tendencies for companies to invest in growth, merge with others, borrow long term or issue new stock.

The election is done, and it's time to bring on 2013, of course, after legislators cease jousting with each other. What lies ahead for professionals in finance? What is the outlook for those who manage portfolios, trade derivatives, underwrite securities,  borrow funds, invest in big projects, advise clients on retirement planning, and advise companies pondering a merger?

In the post-financial-crisis era, finance professionals are accustomed to volatility and uncertainty.  The two terms are portrayed as variables, statistics and concepts in theoretical finance. Today, they are a way of life. Just when signs point to a full-fledged economic recovery, from around the corner come a momentary slowdown or unsettling gyrations in markets--caused by factors or events previously unaccounted for:  Mideast uprisings, Greece, bipartisan politics, Spain, Italy, China, and the lingering reluctance of U.S. Congressmen to agree on anything. Markets become volatile because they can't handle, measure or project uncertainty or the impact of unforeseen events.

It has become the new normal for finance professionals, complicating how they manage portfolios, assets, balance sheets, funding needs, and foreign currencies. To be prepared, they must brace for the next startling event that unleashes itself to cause havoc in capital markets.

Some events, nonetheless, aren't uncertain in the year to come. They will occur, and bank managers and traders will spend much of 2013 and beyond wrestling with them.

New bank regulation and reform is for real. It's about to happen. The politics, debating and fretting over Dodd-Frank and Basel III are diminishing. The implementation has become. Large banks, broker/dealers and trading firms are hustling to prepare for a new world of restrictive rules of capital requirements, leverage, and trading.

Hence, new regulation will dictate how financial institutions do business, generate revenues, organize their global operations, and expand.  Most of the new rules require banks to hold more capital now, more capital next year, and even more capital in the years to come.  The new rules restrict proprietary trading and require extensive vetting, analysis and approval of new financial products.  Gone are the days when banks could amass large trading positions in options or commodities or when a coterie of bankers with math doctorates could design a derivative one month and trade it profitably with hundreds of counter-parties the next.

With increased amounts of capital set aside to support the same business, they can't generate or reach targeted levels of return on equity. If banks have an ROE (NPAT/Equity) target of 15%, then new capital above the old capital implies (a) they can't borrow as much to support existing business levels and balance sheets, (b) they must squeeze out more revenues from the same business model and/or (c) they must wring out costs from existing businesses.

This week, with revenue growth uncertain, Citigroup decided it needed to slash costs to address the same issues. It announced major plans to cut businesses and trim staff by 11,000--partly to bolster its ROE while meeting the growing capital requirements. 

With the new normal of uncertainty and the periodic slowdowns in recovery, like Citi, other financial institutions, too, are zooming in on cost control and business efficiencies to meet ROE targets. No business line or activity, it seems, is exempt from a revamping, a re-engineering, or a shut down. Some are selling off or closing businesses to meet performance targets; some are choosing to redeploy resources, attention and hiring toward business units already above ROE targets.


Fixed-income.  These business units (corporate bonds, mortgage bonds, structured finance, public bonds, high-yield debt, leveraged loans, etc.) at many financial institutions are under the gun right now. With thin profit margins on trading and lending activity and low fees from underwriting, some banks can't rationalize existing business. Not being able to make it work, many are withdrawing from fixed-income businesses or reducing their scope or capital deployed to support it.   

UBS announced this fall that it was virtually shutting down activities in this sector, while it contracts in investment banking overall. Other banks, too, are painfully making fixed-income decisions. A few more will persevere with hopes of gaining market share from banks exiting the business.


Asset management. New regulation won't overwhelm asset-management sectors as much.  They don't require substantial amounts of new regulatory capital (not much beyond the capital required to support infrastructure).  Financial institutions are, therefore, swarming to the apparent benefits of this sector:  less-onerous regulation, stable revenues, and everybody's projections regarding savings habits among consumers or corporations hoarding cash.  Even this month, Goldman Sachs announced plans to push this segment harder in global frontiers.  

For these reasons asset management--and variations of it (from private wealth management to investment management and institutional client management)--will get attention from bank senior management. Because of such attention, financial institutions will find ways to expand, grow assets under management, offer new products and hire researchers, investors, portfolio managers and client managers.


Risk management. In the years after the crisis, financial institutions everywhere beefed up their risk-management units to prepare for the next black-swan event or Lehman-AIG-Bear-Stearns collapse.  Many had units, people and systems in place, embedded in much of the trading and banking organization.  Risk managers were already detecting, managing, approving and projecting risks (and the exposures, defaults, non-performing assets that arise from those risks).  In recent years, however, financial institutions have tweaked governance and increased the authority of risk managers--given them more institutional power to act, make impactful decisions, raise flags and stop bad banking behavior. 

In the last year or two, risk management now incorporates a bit of compliance, arguably a growth industry in finance these days.  Banks and broker-dealers, now more than ever, require professionals who must interpret the thousands of pages of Dodd-Frank, decipher Basel II and III, and help build systems to monitor capital, leverage and liquidity. Opportunities abound for those who can master the rules, have the discipline to monitor them, and can explain their precise impact on business activity.

Compensation for experts in risk management and compliance sometimes lags that of those on the glamorous front lines.  Some institutions have taken proper steps to close these differences. Others need to. 

Equities.  Equity units aren't suffering as much as fixed-income units, partly because profit margins and fees on equity activity (trading, market-making, underwriting and investing) are higher, despite the worrisome volatility in markets, the anxiety of retail investors and the hesitancy of some client companies to issue new stock. Higher margins and fees explain how banks with equity prowess and market share can rationalize the business and keep in humming--in hopes volumes will once again reach pre-2008 peaks.


Corporate Banking.  Renewed  emphasis in corporate banking has surged in recent years, as major banks see value in old-fashion corporate lending, corporate cash management, custody and processing.  Managing corporate relationships from day to day results in satisfied clients, who provide a steady flow of business and revenues--in good times and downturns. Corporate banking, if risks are managed and harnessed, can meet the ROE hurdles, even with Basel II and III rules keeping tabs on corporate-loan volume.

Derivatives.  "Derivatives" has been the ugly word of finance since the finance crisis. Since then, derivatives have resurfaced in different forms and ways.  They (interest-rate swaps, credit-default swaps, options, warrants, etc.) are still useful corporate hedging tools and weren't legislated out of existence by new reforms.  New regulation now requires that most of them should no longer be traded "over the counter," "by appointment" or at the whims of large institutions.

New reforms will require they be traded and cleared more transparently on exchanges and at approved clearing organizations, so trading participants can see prices, volumes and counter-parties. This upends the trading and market-making models at big banks, which for years gushed at high margins and their ability to strong-arm markets in the way they could. New reforms will slash those margins and profits.

The new trading schemes for derivatives are still under review and subject to vast restructure. Banks, trading firms, broker/dealers, hedge funds, exchanges and clearing firms remain at the drawing board planing how interest-rate swaps and credit-default-swaps and other derivatives will trade going forward. Nervous, they are still unsure how they'll generate sufficient profits to meet ROE targets.

Some banks and firms will retreat; others will try to pick up the slack and make money from volumes and technology efficiencies. For most, it will still be a question mark for 2013 and forward.


Hiring and recruiting.   Financial institutions still hire with the same recruiting habits--massive hiring when the market picks up, massive reductions when threats of a downturn appear. Amidst the profitability challenges and cost-control campaigns, there will be reductions or limited recruiting in some segments (fixed-income, sales/trading, e.g.). They are offset by opportunities in areas where banks are confident earnings will be stable and expansion less risky:  asset management, corporate banking, consumer banking, e.g. Better opportunities exist, too, for those willing to go abroad (Southeast Asia, Brazil, e.g.).

In good times and bad, amidst market bubbles or threats of a system collapse, financial institutions still make their appointed rounds on campus at top business schools. They make their corporate presentations, identify students they covet, and hold interviews. Actual hiring tends to be erratic, but they maintain relationships, always hoping for that sustained market turnaround.

Compensation.  Compensation is always tricky, sometimes bewildering, often one grand puzzle. Media stories dare to project compensation in financial services (bonuses, first-year base salaries, total packages for senior bankers, etc.). Often the stories reflect the sentiments of one or two institutions and are based on quick interviews with a handful of executive recruiters.

For the most part, bonus packages in current times tend to (a) be as volatile and as uncertain as markets, (b) reward those designated as top performers, and (c) be a grab bag of cash, stock, deferred arrangements and even debt securities these days. Many large banks in the past five years have reduced bonus payouts substantially, but have offset that with significant increases in base pay.

Compensation overall may have trailed off, but most packages have been and will likely continue to be attractive for the best of the lot.

Diversity

Markets are volatile, and so is the emphasis financial institutions place on diversity--whether that's diversity at entry levels or diversity at the most senior rungs.  Most institutions devote more attention at the lower professional levels and neglect it at the senior levels. At levels above vice president, they tend to allow the numbers to be whatever they are.

As 2013 approaches, diversity (no matter how it is defined or what it encompasses) has forged its way back onto corporate priority lists at most financial institutions.  During the crisis, diversity initiatives, programs and targets became a forgotten agenda item shoved into the back of the drawer. Today, with a bit of optimism, the major institutions see and feel the benefits of a more inclusive organization. Smaller firms (hedge funds, private-equity and venture-capital outfits, e.g.) haven't quite bought the benefits.

In 2012, diversity highlights culminated with Goldman Sachs' fall announcement that 14% of its new partners were women. Even in 2012, people applauded the 14%, a figure that hints at notable progress when compared to numbers from other years. But 14% still suggests that we still have a long way to go.

In all, whatever is happening in Washington will keep the industry from storming out of the starting gates, as 2013 launches. But most in the industry sigh and feel comfortable 2013 won't be 2008 or 2009.

Tracy Williams

See also:

CFN:  Approaching 2012, Dec-11
CFN:  Opportunities in 2012, Dec-11

Getting Real: Opportunities for 2012

Let's get real. As we turn the corner and head toward an uncertain 2012, where are the real opportunities for MBA finance professionals?

What's the real scoop? In an environment where some tip-toe when they project better scenarios next year, but where every other day large banks announce lay-offs by the thousands, what's the real story?

Who's  hiring? Who's promoting solid performers? Who's luring those interested in finance and promising long-term career paths? Where are the sectors or institutions that will harbor finance pros and allow them to grow, contribute and thrive over the the next few years?

Let's take a glance and gauge vibes and signals across the sectors.

1.  Investment banking, corporate finance.  From now until about mid-2012, you know banks won't commit. Uncertainty forces them to be hesitant. They'll want to see sustained trends in an economic recovery. Until then, banks will resort to old-time habits of firing rashly and excessively, but hiring too aggressively when signs point to more deal flow. Some banking sectors (Asia, financial institutions, e.g.) are thriving more than others. But even those change from quarter to quarter.

But old habits mean when the tide picks up (or when deals rush through the door), the doors of banks open, and they welcome new contributors at all levels. 

2.  Investment banking: equities, fixed-income. Who knows?  Groupon, Facebook, Zynga, and Linkedin IPOs or projected IPOs were supposed to kick-start the equities sector. Low interest rates were supposed to encourage companies to refinance and get comfortable with debt levels.  But regulation (especially from the new Dodd Frank rules) is forcing banks to restructure their trading desks and the complementary role investment banking plays.

Some analysts project fixed-income sectors will diminish in importance because of the lingering damage from the mortgage castastrophe and banks not being able to offset declines in fixed-income revenues with fixed-income banking fees. Some project equities units will soar and thrive, when markets improve, because of higher fees from deals.

2.  Investment banking, mergers & acquisitions.  Read between the lines or current deals. All depends on the industry sector. Many industries wait for entrenched signs of growth before they acquire companies or merge with a peer. Other industries, because of business conditions, must consolidate, restructure, or sell off divisions to survive. M&A groups stand ready to advise on any kind of corporate reorganization that exists.

New regulation won't tarnish this business too much, since it's fee-based and doesn't often require banks to use too much of their balance sheets. Opportunities for M&A pros in selected areas will always exist, as long as they're comfortable with a lifestyle of few holidays and weekends and arduous travel.

3.  Bank sales & trading.  Expect few opportunities. Profit opportunities are disappearing. Regulation, compliance, and market volatility have combined to become an avalanche. And banks, after careful analysis, are choosing to get out of the way. Expect gradual reductions in staff across the board. Some are deciding that trading requires too much effort, pain and compliance just to squeak out a few basis points of revenues or tiny profit margins.

Banks are restructuring their trading desks, because they must. Some will depart from all trading activity, except from bare-bones customer-flow transactions. Many (J.P. Morgan, e.g.) have already reduced staff in commodities substantially. The new Volcker Rules will change the game, guidelines and profit dynamics.  Some will rationalize maintaining a presence in certain trading areas if they can offset declines with gains in business elsewhere, if that's possible.

They know their best traders will flee for hedge funds and take entire desks with them, and there's not much they can do about it.

4.  Risk management. Right after the financial crisis, this was the "growth area" in most financial institutions. Banks, firms, and funds hurried to ensure they had experienced, wise risk managers in place. They reviewed governance policies and rewrote them to give risk managers sufficient authority to confront the next crisis.

They even re-branded risk units to attract and keep talent. Risk management would be a destination unit, not a temporary stop-off between corporate finance assignments. Since then, the rush to reorganize and re-emphasize risk management has slowed down, but few institutions will want to be seen as reducing risk staff or risk support during challenging times.

At many firms, you seldom hear about drastic cuts in risk staff. Risk management, you can argue, is the glue that keeps Goldman Sachs in order. The lack of a strong risk organization, some argue, is why MF Global failed.

5.  Corporate banking.  Corporate banking, or old-fashioned relationship banking and corporate lending, regained prominence in recent years. Big banks, fatigue from the ups and downs of investment banking, rediscovered the benefits of corporate banking:  a stable revenue base from lower-risk products and a loyal, committed client base that rewards banks for service, not for dramatic board-room pitches.

 Many banks continue their renewed emphasis on corporate banking and project hiring experienced bankers. They are also designing new paths for new MBAs, especially for those who never contemplated such a career while in business school. 

6.  Bank treasury services, funds transfer, custody and cash management.  The other half of nuts, bolts, blocking and tackling of service banking. Big firms re-emphasizing corporate banking must also have superior service products, too.  Banks in the past were often careless in their efforts to attract strong product managers or marketing experts from the outside or from within.

Lately, however, some (J.P. Morgan, e.g.) have successfully convinced former investment bankers to transfer into these areas to energize mature (and sometimes moribund) business units.  Banks, nonetheless, haven't yet rationalized a comparable compensation program for those ex-investment bankers and may not be able to.

7.  Corporate treasury, financial management, financial analysis.  Ah, breaths of fresh air. Amid all the market turmoil and difficulties at financial institutions, blue-chip companies are quietly reporting strong earnings, investing in new markets, and projecting reasonable growth. The finance units in these companies continue to recruit aggressively at business schools; some have convinced top graduates to by-pass Wall Street.

They promise more stability, opportunities to work in foreign countries, and worthwhile management experience. A financial analyst job at Ford or General Motors (popular destinations for many Consortium graduates) might have become fashionable again.  Or a position in corporate strategy at Eli Lily or Pepsico is a desirable first job.

8.  Private wealth management. Almost every bank in the country has decided to devote capital and attention to this sector.  Almost every bank is attracted to a business model of aggressive accumulation and gathering of client assets, which lead to stable revenues, steady growth, and fewer headaches from market risks, regulatory threats, and an uncertain corporate clientele.

At least for now, before too many banks chase too few clients or too little in assets (or clients get too frustrated with market performance), everybody agrees this is the hot hiring growth spot in the year or two to come.

9.  Community banking and development, retail banking. Some institutions see long-term growth in brick-and-mortar banking. Some don't.  J.P. Morgan Chase and Bank of America have seen it. Citi sees it overseas. HSBC or BNY Mellon didn't see it.

Those that do will continue to acquire branches, hire more managers and staff, and provide more face-to-face banking services, even if it's not always easy to justify the efficiencies of such expansion.  As long as they attract more and more customers (especially those who prefer a personal touch) and as long as those customers bring their deposits and their ongoing personal needs (mortgages, car loans, credit cards, e.g.), they can justify it.

Not many MBAs from top schools (including many from Consortium schools) have conventionally expressed interest in retail or community banking, but many with experience have eventually turned toward these sectors when opportunities arise.

10.  Hedge funds. Hedge funds stumbled through a tough 2011. They have admitted to their investors they were caught off guard with troubles in Europe and U.S. budget-deficit fuss. But funds tend to forget the past. Or at least they try to.

Others close up shop and reopen in a different incarnation. They move on and start anew.  They know, too, they'll benefit from banks being forced to downsize proprietary trading.  There will be opportunities, but the industry, as always, will still be difficult to break into. Hedge-fund managers hire cronies, classmates, former colleagues from other trading experiences, graduates from the schools they attended, and sons and daughters of  classmates.

11.  Venture capital and private equity (financial sponsors). This is the industry of home-runs and American-dream stories of earning millions inside the proverbial five-year window. Opportunities for firms and funds to make money exist in good times (new markets and mature markets) and in bad times (distressed assets, bargain-basement prices, and restructurings). There are some (KKR, e.g.) who have even discovered ways to make investments in battered Europe. But the doors to get inside this industry are difficult to penetrate. Now, next year, and for years to come.

Some (Blackstone comes to mind) have tried to be open-minded about opening their doors to a wider array of talent and backgrounds, partly because a few have become public institutions or have been contemplating going public. 

12.  Asia, Europe, South America, China.  Of course, Europe is in turmoil, and experts project the likelihood of continued problems. Banks there are besieged with issues and capital challenges. Few European institutions (UBS, RBS, Deutsche Bank, HSBC, e.g.) are heralding opportunities while the continent tries to right itself.

Meanwhile, financial institutions everywhere continue to have expansion eyes on parts of Asia, South America (especially Brazil), and China.


13.  Diversity initiatives. When institutions struggled to remain alive after the Lehman collapse, many initiatives and much enthusiasm for diversity slipped. You could hardly get a CEO or sector head to discuss the topic, much less attend a meeting or conference call on the topic.

Some enthusiasm has revived since then, partly because some institutions see the long-term benefits and genuinely believe it's a way to hire top talent.

We've reached the corner and are headed toward the new year. Uncertainty prevails, but the mood isn't one of hopelessness or disenchantment.  It's about caution and picking the right spots, the right places, and the most optimistic and resourceful institutions.

Tracy Williams

Approaching 2012

Trying to project 2012 is like reading tea leaves. Who's willing to make an informed, detailed forecast and be comfortable and confident about it? The variables are too numerous, too complex, too bewildering.  If you are a finance professional, an MBA student or a Consortium alumnus, how do you brace and prepare for next year--a year of turning points and pivots with Europe unable to make up its mind about a corrective course and with U.S. elections hovering?

By now, we have grown weary of the tail end of 2011 and are ready for the year to get going. Early in 2011, business and financial signs were uplifting. We were poised for a sustained upturn until we fell off a cliff in August. Since then, we've feared a repeat of the fall, 2008, with a different set of plots, twists and finger-pointing.

The plot this time revolved around the bickering in Congress about budget deficits and debt levels and bickering in Europe about debt levels and budget deficits. The collapse of MF Global and its unexplained loss of a billion dollars of customer funds caught everybody off guard. Jon Corzine, its CEO, was supposed to have brought Goldman magic to the struggling futures brokerage. Insider-trading scandals, pending financial reform, and general economic malaise complicate the plot.

Markets meanwhile swooned out of control, with a mind wandering on its own, reacting irrationally to whatever announcement, statistic or trend happened to be the worry of the day. 

Financial institutions, rebounding with a blaze with 2010 profits and gearing up to hire in large numbers, began to stumble. Trading losses hurt their bottom lines, and many are still crippled from mortgage-related businesses. It didn't help in late 2011 when the public perceived big banks were creating fees (ATM fees, checking-account fees, debt-card fees, whatever) out of the blue, unnerving retail customers.  Financial institutions around the globe continued to duck slings and arrows from critics, pundits, politicians, and economists.

Nonetheless, amidst this apparent mess, lately there has been a quiet seepage of good news on employment fronts, retail spending, and general confidence. Facebook still wants to proceed with its public offering, and major banks everywhere continue to push hard in certain areas--wealth management, community banking, e.g.

What do finance professionals--both the MBA student and the experienced, senior executive--make of this confusing environment? How then do they approach 2012, when many expect a market holding pattern as Europe endures a few more scuffles before it figures itself out?

For MBA students, including Consortium students across the country, the environment seems like a whirlpool--enticing, but constantly stirring. Students are unsure when and how the waters will calm down. They are forced to adopt a Plan A, then a Plan B, and likely a Plan C.

Financial institutions are sending mixed signals. They want to hire more interns and first-year associates in private wealth management, in corporate strategy, in treasury, in corporate banking, in risk management, and in spots in Asia. But then they change their minds, reduce their expected hiring numbers, or announce large-scale cutbacks in the areas they previously promised to emphasize more.

Students are wooed by major institutions, but they know they must be purposeful and diligent in finding the right spot at the right place.

More experienced finance professionals are thankful they are in substantive roles. But the memory of 2008 is haunting. They endured the crisis, many survived it, some repositioned or rebranded themselves and landed elsewhere. However, they know what can or might happen. Although 2011 is not 2008, they can't help but wonder whether a Euro collapse could be more devastating than a Lehman downfall. How do we, they must ask, prepare individually for what could happen in a way that we weren't prepared before?

Experienced MBA graduates (including many Consortium alumni in finance) know better this time around they should take efforts to manage the uncertainty around them or shrewdly insulate themselves from career risks that may or may not happen.

Experienced professionals, however, could be the ones who guide younger MBAs who are unsure if a financial hurricane or financial sunshine looms ahead. They can compare the current scenario with other periods in recent finance history. Is this a scaled-down repeat of 2008? How do these times compare to periods of market upheaval or market confusion during the dot-com blow-up of the early 2000s or the maddening sequence of Long Term Capital, Russia and Asia defaults in 1998? How is the industry better prepared now (or less so) than in struggling times in the past? Are we in the midst of a real recovery, but we don't see it because we are blinded by the turbulence across the Atlantic?


More senior professionals, in a mentoring role, can advise younger professionals and students on how to focus on daily, immediate tasks and have confidence in what can be controlled--the next project, the next presentation, the new opportunity to learn.

Approaching 2012 is like turning a corner. Perhaps around the bend lie opportunities, optimism, profits and improved times--not the daunting signals of a crushing, long-term slowdown.

Tracy Williams

Finance Rumblings: Here We Go Again?

Just when we thought all had turned around and we sensed the corner had been turned, we hear banter about financial institutions pondering lay-offs and staff reductions. Haven't we heard these rumblings before?

As big banks and other financial institutions stumble toward the end of the second quarter, 2011, published reports say lay-offs are looming. Senior managers have begun to panic over whether they will be able to generate returns that will match those of 2010, especially with deal flow, trading activity, and the economy sputtering.  Historically, the first response of financial institutions (from trading desks and deal teams to operations groups and compliance functions) is to reduce personnel numbers to brace for rougher waters.  And always, the method that comes to mind to reduce is "LIFO" outplacement--the last in are the first out. Critics say the first reaction is to protect compensation among the elders when the industry must weather a brief storm.

This time around, some financial institutions say they will manage a hint of a slow-down in intelligent, efficient ways.  Banks, funds, dealers and other financial institutions in the past often reduced staff too quickly. Once markets signaled a decline, institutions marshaled out the door the young, ambitious talent it had just hired with effusive enthusiasm.  When markets turned bright months later, firms with swiveled heads rushed to replace the talent it just let flee.

Financial institutions promise they will manage staff numbers better the next time. So at midyear, 2011, when banks and firms sense turbulence heading into the second half (not a crash, not a collapse, not a double-dip recession, but a pause or a correction of some kind), they must restrain themselves to avoid rampant lay-offs in areas where they will be desperate for analysts, team leaders, MBAs and finance experts once markets and activity surge again.

Still, the professionals in these roles must be prepared--from managing director, senior vice president to analyst intern. In fact, this could be an opportune time for self-assessment, the time to ask introspective questions about what's next or the time to make sure you are in sturdy spot if there is commotion around and about:

1.  Are you in a group, unit or business area that could be vulnerable?

2.  How would you expect business-unit leaders to respond, behave or react if there is a prolonged slow-down in the business? How have they reacted or behaved in the past?

3.  Do you understand the positioning, the strategy or the vulnerabilities of your group or area?  Are you aware of the profits and losses (or expense burdens) of your group?

4.  Have you performed as best as possible, given the circumstances? Have you done something recently (managed a project, done a deal, generated new business, or developed staff) that can separate you from the rest?

5.  Are there other opportunities worth exploring? Could this be the right time to move to a new area, new role or a position with greater responsibility and visibility?

Often finance professionals, from those at entry-level to those in privileged perches at the top, will say they are too mired in current problems, deadlines, and group turmoil to address career-related questions.  "We are just trying to survive," everybody says. 

Pausing and assessing what's going, nevertheless, might be worth the time and attention--even if you are exhausted from trying to develop new business in shaky markets, taking on extra projects to prove you can still contribute, or existing in an environment of uncertainty and worry.

Whether they are Consortium MBAs or others with extensive experience, there are many stories of how people thrived when the ground was shaking beneath them, when they took advantage of tenuous circumstances or when they used them to springboard to a better position. This is the time when equity analysts might decide to transition into private banking, when a derivatives expert might consider being a foreign-currency risk-manager, when a top client-relationship executive moves into corporate staff management. Or when a senior manager agrees to take on more responsibility--more groups or more clients reporting into her. Or when the 10-year corporate citizen decides to pursue an opening at a smaller boutique.

It could be the right time, too, to reach out to networks, peers, and colleagues to share ideas, perspectives and concerns.  Not gossip, not hot leads to a new job, but information or insight about what's going on and where the industry is headed. Ideas about next steps and appropriate ways to manage uncertainty. What better time, say, than for Consortium MBAs in finance to reach out to share thoughts about where markets are headed from here, what the hiring trends are in certain areas of the U.S., what opportunities exist in foreign locations, and what the best ways are to confront uncertainty.

Tracy Williams

Midyear, 2011: Perspectives, Outlook

Still looking for a sustained uptown?

We are all suffering fatigue waiting for a surging recovery in job markets and the general economy.  Every month or so, the news sours after a few months of hopeful, surging signs.

That--in a nutshell--describes midyear 2011.  A series of upturns and optimism followed by the stench of a momentum-killing downturn. 

MBAs in finance, especially those who embarked on careers the last decade, know these trends, teasing market movements and promising signs well. Many have adjusted to these ups and downs and press on.

As of midyear, 2011, the mood is not dismal. Uncertainty, however, always seems to be hovering overhead.  Many MBAs are finding jobs and meaningful positions in finance.  Job openings and opportunities are more prevalent now than they were in the depressed years of 2008-09.  Yet they may not be first-choice jobs or dream roles. While a select few are winning prize positions at investment banks or private-equity firms, most others are finding suitable spots at smaller institutions, boutiques and industrial companies and are content.

Consortium MBAs have seen growing opportunities in private wealth management.  The big firms, Morgan Stanley, Goldman Sachs, and JPMorgan, continue to hire large numbers of MBAs--right out of school or with a few years of experience in other finance roles. They have convinced MBAs from top schools to explore careers beyond, say, mergers and acquisitions or bond trading.   Big banks have turned asset and wealth management in response to the crisis, regulation and the likelihood that traditional trading and banking businesses will have difficulty achieving expected levels of profitability.

In midyear, 2011, market signs are unclear. One market, nonetheless, seems to have shown renewed life signs--the IPO market.  The evidence is not necessarily from a flood new offerings, but from recent banner-headline equity deals (Groupon's announcement, Linkedin's IPO, anticipation at Twitter and Facebook).  Technology and social networks have rekindled interests in equity offerings, although investors are still reminded of the busted dot-com bubble of the early 2000s.

Months and months after a new guidelines were enacted, financial regulation is still nebulous, arcane, and uncertain.  The rules are changing, but banks, brokers and funds are still stumbling to understand what the rules will be, how they will be enforced, how detrimental they will be to their businesses, and how certain instruments will be traded, processed and cleared (derivatives, most notably).  Financial institutions are going through proper motions, but many are at a stand-still on what the regulatory picture will look like 3-5 years from now.

Meanwhile, in midyear, 2011, insider-trading indictments and court cases are in the news, reminding old-timers of the dramatic insider-trading scandals of the late 1980s and early 1990s and reminding many that history oddly repeats itself more often than we think.

Lehman and Bear Stearns collapsed three years ago. Meanwhile, the barrage of books retelling what happened (at Lehman, at Bear, at Madoff, in mortgage and derivative markets) continues.  In the first half of 2011, new books telling dramatic tales of about Madoff, Goldman Sachs, mortgage-markets, and AIG have been published.  No finance MBA can keep up with cascading reading list, although many are already familiar with the subject matter and issues. Former Merrill and U.S. Treasury official Herb Allison just wrote a short treatise, not recounting the gory past, but proposing tough solutions.

Inside business schools and at many hedge funds, efficient-market theories have been analyzed and in some cases attacked.  Many are analyzing "asymmetries" of markets. Some are calling for an overhaul or review of older concepts; the crisis proved more than ever that markets are flawed.

Top business schools are now welcoming another class.  The MBA and the business-school curriculum and experience are still criticized by pockets of pundits and the public, who blame MBA-trained leaders, managers, traders and deal-doers for market and ethical lapses of recent years.  All business schools sprint to adapt, reform and make the degree as relevant as ever.  The degree is still in demand--among students, who have applied in near-record numbers in recent years, and among financial institutions, who recruit and hire by the hundreds when markets and business grow.

Diversity topics and issues are still on the agenda.  Few signs exist that big banks, financial institutions, and public companies have reduced emphasis, although even fewer signs exist that there is a notable pipeline of under-represented minorities or women who will step up to become CEO of a major financial institution soon. As ever, there is still work to be done, especially after the torment of 2008-09 discouraged much talent to explore opportunities elsewhere.

The recovery at midyear, 2011, has been a series of starts-stops, occasional stumbles, and promising upturns.  As many economists would say, just like most recoveries.

Tracy Williams