Consortium MBA's: Back to School

In a matter of days, Consortium students and MBA's across the country return to campus. There is no reprieve or period of easing into the intense environment. Students hit the ground running the first day. First-year students learn right away that recruiting and the grinding effort to secure the internship they dreamed about starts the minute they register for core courses.

Consortium second-year students return to campus after a productive summer of internships. Many earned offers of full-time employment when they graduate. In finance, Consortium interns earned full-time offers at such places as JPMorgan Chase and Barclays Capital.

Indiana-Kelley's classes have started already. First-year students have gone through orientation, and Indiana has introduced a new program to make sure its students will be ready when banks and corporations come to Bloomington. The new program, called Me, Inc., aims to advise students on career selections, strategies and preparation and coach them on recruiting techniques, interviewing and self-branding. Hence, students are counseled before the race gets going.

No doubt, other business schools will observe and replicate Kelley's program, if they don't have a similar program in place already.

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A return to campus shifts the focus of the b-school experience back to courses, classes, classmates, professors, and deans. And it reminds all how much the experience has evolved over the decades. Business schools today are significantly different from the way they were in the mid-1980's, or even the 1990's.

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The differences?

1. Recruiting is now a full-time job for first-year students. Long ago, students started worrying about internships in early January. They spent much the fall immersed in accounting, finance and marketing and didn't have to develop strategies, attend corporate presentations, prepare for informational interviews, and do what they can to get on interviewers "A" lists.

Today, students are more perceptive, aggressive, and better coached about what they need to do to get the right offer.

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2. Business schools today are attentive to rankings and popular opinion about their roles, purpose, and value. They've step out beyond their academic niches and are committed to making themselves continually relevant.

They pay attention to their constituencies: students, recruiters, and corporate donors. If those constituencies make recommendations to improve, they consider them and deploy new programs, courses, campuses, and experiences as soon as funds permit them to do so.

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3. B-schools today pay attention to matters and skills beyond the old-fashioned case studies or the legendary finance and accounting texts. They focus more on ethics, conflicts, organization dynamics, communications, branding, teamwork, partnerships and other soft skills. They imbed these values in all aspect of instruction, even if they know they may not always do so successfully.

B-schools also prefer and encourage students to be engaged, active and collegial.

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4. B-schools today have pushed hard to emphasize global business, foreign cultures, and opportunities in other economies around the world. They don't merely teach it on campus; they facilitate experiences in foreign countries: e.g., semesters abroad, spring-break trips to Tanzania or China, internships in Peru, Dubai or Indonesia, or ties to institutes on emerging markets.

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5. Perhaps more than some corporate environments, b-schools are more appreciative and committed to diversity. They trip over themselves to ensure that all groups are represented, that the student body has significant representation from internationals, women, people of color, and people of many interests, career aims, and past experiences.

They know, too, diversity helps attract top students and professors and fosters creative ideas and exciting discussion about global business.

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6. Today, students have different long-term career strategies. Most know it's no longer about the 15-20-year climb up the corporate ladder. Long ago, an MBA graduate might happily join a Fortune 500 firm as a financial analyst and happily take each step up the rung that gets him or her closer to the CFO's office.

Students now know they can't rely on that kind of career plan, even if they want it. That Fortune 500 firm today will likely reinvent itself many times in the next decade, because of mergers, new products, acquisitions, expansions, or (sorry to say) bankruptcy, restructuring, or product obsolescence.

Today, students know they must focus on long-term networks, contacts, transitions, preparing for changes and downturns, reinventing themselves or ensuring the learning curve maintains a positive slope.

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Similarities? Some things, however, haven't changed or may not ever.

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1. Accounting, finance, marketing, capital markets, operations research, and policy have always been mandatory core courses and--in some form or another--will continue to be so. Within the colorful, comprehensive MBA experience, b-schools understand they have to tend to the basics, the canon of business instruction.

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2. Investment banks and consulting firms, years ago, were the top choices among graduates at top schools. Commercial banks, advertising firms, manufacturing and consumer-products companies followed behind. To a certain extent, they are all still popular choices.

But today there are numerous other opportunities that weren't readily apparent years ago: technology firms, Internet start-up companies, entrepreneurship, hedge funds, venture capital, private equity, non-profits, and whatever might be the next new thing. Students today won't hesitate to look beyond the traditional.

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3. In the 1980's through the mid-2000's, compensation was king. Compenation packages counted for much, drove recruiting or attracted students who wouldn't otherwise have headed in that direction. Many headed to investment banking, not because they adored corporate finance, but because of sign-on bonuses and promises of big first-year payouts.

Compensation still counts for much, because MBA students look for a return on their school investment. However, most now add another important variable: work-life balance. If the balance doesn't make sense, then the compensation might not matter.

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4. The media years ago always described MBA students as "conceited" or "entitled" or filled with unusual expecations. The media (including blogs, books, and online sites) still offer the same descriptions.

As they did years ago, that might result from students who, having worked in a suffocating, sometimes overwhelming academic environment, want to apply what they have learned and see a pay-off from their efforts.

Unlike years ago, however, many students don't necessarily harbor visions of becoming a Fortune 1000 CEO in five years. Many aspire to get experience and then consider venturing out to do their own thing in their own ways.

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Nothing wrong with that.

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Tracy Williams

Mentoring: Still Critical, Still Necessary

How often do you hear these days the phrases "these challenging times" or "tough environment"? Just as we got used to the notion that the financial crisis was receding into history books, we encountered signals of another possible dip and more uncertainty about an economic recovery.

Just as we began to see an upswing in hiring among financial institutions and renewed outlook for opportunities in banking, finance, trading and investing, we started hearing daunting phrases again: tough times, tough environment.

All the more the reason for MBA students and recent graduates, including especially those within the Consortium, to seek out guidance, help, contacts or opportunities from mentors. Relationships with those who have "been there" and "done that" are as critical as ever. Nurturing, maintaining and solidifying those relationships are as important as ever.

This year CFN's steering committee will unveil the mentoring program differently. Last year the program worked well for a few, but not for many. CFN, thus, will focus on finding more optimal pairings between students and experienced professionals. It won't try to form a match-up "on paper" and then expect the relationship to take off.

We learned last year that mentoring relationships worked best when students were matched with someone who had common interests, career paths, objectives, backgrounds and sometimes schools. The common ground is what permitted relationships to progress rapidly.

If a student interested in private wealth management (PWM) were matched with private banker who works at the kind of institution the student aspires to, then it was more likely the student would initiate follow-up meetings and calls. Some mentoring relationships, in fact, do thrive even when the student and mentor have little in common and are able to have honest, in-depth conversation about finance, work, and career paths. And mentor programs shouldn't always be about matching up students with their mirror images.

But we found that with limited time and pressing demands in the classroom and in recruiting, students took more initiative if they knew the mentor could help them meet short-term goals: the internship or the full-time offer.

This year, CFN and the steering committee will facilitate pairings for students who express an interest in having a mentor to work with them in recruiting, career coaching or career strategies, and/or certain finance topics. So we'll ask Consortium students in finance to raise their hands if they desire a mentor and tell us their short- and long-term goals. For those who participate, we'll remind them how mentoring relationships can thrive, even with their mind-boggling schedules. We'll also remind all that relationships should ideally last much longer than their getting the job offer.

CFN will try to pair students with mentors who have excelled in the role before, who are eager to participate and assist, and who are willing to carve out chunks of time to have lunch or coffee with the student, to take the occasional phone call just before the student has a big interview at the big firm, or to seek out other contacts who might help the student.

Last year CFN posted many blogs to help students and mentors launch their relationships and make them work. They are still as relevant as ever; the links are shown below.

Over the past year and especially "in these challenging times," we provide some updated advice on these relationships:

1. Students should know mentors don't always have a quick answer or a safe solution. They won't necessarily have a toolkit to provide the answers to all the tough questions in technical interviews and can't ensure their contacts and networks will make time for students. Sometimes mentors have that quick solution; often they don't.

But mentors can frame a question or guide students on how to reach the objective or find a solution. And they can share their own stories about how they proceeded from business school to Plans A, B, and C or Career Paths 1, 2, or 3.

2. The best relationships are those where the dialogue is two-way, the relationship comfortable. The mentor steers, guides, and offers feedback, insight, and a point of view. Some mentors will even allow students to air out their frustrations (due mostly to lack of time or easy opportunities); the best mentors help students to harness those frustrations and keep confident.

3. Students can do much to keep the relationship going. Some students approach meetings with lists of questions and topics or an agenda. Some actually take notes. That eliminates the awkward moment, as student and mentor try to get to know each other. Some students keep in touch regularly, even if there is little to discuss or if there is no time to meet. Mentors appreciate that. They let the mentor know they value the relationship and want it to grow.

4. Mentors can and do provide contacts and introductions to others. Mentors like to help and provide answers, guidance or helpful hints. When they don't, they don't mind introducing students to other experienced people. Hence, the student starts off with one relationship and might end up with several contacts and ties to others.

5. If a student is paired with someone in a sector he/she hopes to pursue (risk management, research, client management, community development, banking, or corporate-finance treasury), then the mentor can provide information, a different perspective, an honest assessment of work-life balance, and possible deep background on a company's organization, hierarchy and the people who run the show. Consortium students in the past have benefited from mentors who helped them understand the people they will interview with or will work with or for.

In times when it helps to have an edge, one of the easiest ways to gain it is to pair up with mentors and work with them to make the relationship thrive and last for years.

Tracy Williams
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What Mentors and Students Focus on in the Second Semester

http://consortiumfinancenetwork.blogspot.com/2010/01/cfn-mentors-second-semester.html#links

How Mentors Can Step Up When Recruiting Season Launches

http://consortiumfinancenetwork.blogspot.com/2009/10/october-how-mentors-can-help.html#links

The Important Roles Mentors Can Have with MBA Students

http://consortiumfinancenetwork.blogspot.com/2009/08/how-mentors-can-help.html#links

Simmons' Value on Goldman's Board

Ruth Simmons, president of Brown University, earlier this year stepped down from serving on the board of directors at Goldman Sachs--but not quietly.


All indications or evidence suggests she left the board because she decided to reduce her involvement in outside corporate activities. She wasn't pushed out or asked off. Yet while Goldman scrambled to confront the financial crisis and the accompanying storm of bad publicity, some questioned whether she and other academics on boards were sufficiently qualified to assess the market collapse, evaluate tough banking issues, and understand products, risks, businesses, and market structures.


Two weeks ago in a recent article, the New York Times (http://www.nytimes.com/) summarized the ongoing discussion about academics (namely, university presidents) serving as board members of major corporations. The viewpoints about their involvement were multi-sided, and those in business, finance and academia weighed in.


Many appreciate the objective perspectives of academics, their experiences running complex organizations (universities with many constituencies and multiple missions), and their proven intellect (Ph.d. degrees and well-documented academic achievements). Nonetheless, some contend university presidents don't have the time to devote to corporate board issues or shouldn't allot the time when they must wrestle with more pressing issues on their campuses.

Some don't like the exceptional compensation packages academics receive serving boards and suggest potential conflicts. And some have outright argued that, without years of business and finance experience, they are out of their league in addressing corporate issues that might overwhelm them.


In the Times article, the head of an independent research firm (Nell Minow of the Corporate Library) says Ruth Simmons' presence on the board hurt Goldman. Minow claims Simmons, as a Goldman director, spent too much time on women's and diversity issues and didn't have the background or expertise to cull through financial issues. "That seat could have been held by someone who understood derivatives," she is quoted in the article. "You don't go on a board for networking, seeking contributions, or working for minorities. You go on a board for one purpose--to manage risk for the long-term benefit of the shareholder." (As many know, Simmons is the first African-American president of an Ivy League school.)

This way of thinking diminishes invaluable contributions someone like Simmons made while on the board or could have continued to make, if she had remained on the board. It's this perspective that undermines the courage some firms have in selecting outstanding outsiders (including women and minorities) to serve on boards to participate in all aspects in overseeing a global business.

Here is a rebuttal to the parochial view that only insider finance experts are capable of serving as board members of complex, global financial institutions.

Or rephrased: Why should Goldman be applauded for inviting Simmons to be a board member, if she were able to carve out the time and attention for such a responsibility?

1. Simmons is learned educator and the senior administrator of a major university, a large, complicated organization with many constituencies, challenges, issues and visions. And one with endowment and finances that must be managed as carefully as Goldman manages its capital and revenue streams. She understands organizational structures and issues and could provide insight and best practices on what works and what doesn't.

2. As an accomplished academic (with a doctorate degree), now responsible for the education of thousands of students, Simmons is likely capable of learning and understanding the primary aspects of banking quickly. One shouldn't discount her ability to master new material.

She may not at first have understood products, business lines, capital markets, mezzanine financing, currency swaps, derivatives, hybrid securities, mergers and acquisitions, or trading positions. But she likely has a knack for coming up to speed quickly. She has to do the same in her "day job," when appointing deans in schools, fields or divisions outside of her area of expertise or when assessing all academic departments at Brown--from biology and physics to art history and sociology.

3. Simmons comes from the outside. She would have little or no allegiance to certain people, divisions, or business lines. She would likely ask questions that others might not bother. She would offer a different perspective, a fresh point of view, and steer fellow board members to extract themselves from minutiae and focus on what makes common sense.

In other words, the outsider is more likely to feel comfortable asking, for example, "Why does it make sense to invest $100 million in new insurance derivatives when you can't explain it to me?"

4. Some would argue there is no way she could intelligently decide on numerous complex financial products Goldman offers, trades, manages, or sells--including, say, credit-default swaps, collateralized debt obligations, currency swaps, high-yield debt, total-return swaps, options and futures. No doubt the products are complicated. Often it takes in-depth knowledge of finance, markets and risk to manage related businesses. It takes experience and day-to-day familiarity, too.

That doesn't mean someone like Simmons couldn't understand the basics--the purpose, the business objective, the primary risks, the profit models, the clients, and the counterparties--to make prudent business decisions. In many cases, the products are new to the experienced bankers, too--the result of innovation the past decade or so.

Hence, even senior managers at Goldman, too, must learn, understand and get acquainted with them. The so-called ABX mortgage index and products derived from that didn't exist a decade ago. Almost no MBA graduate before 1995 would have learned about credit-default swaps in a textbook.

Some market observers, in fact, say that near financial collapse was caused, in part, by the unnecessary complexity of products and models and the inability to grasp or appreciate risks. Some products (e.g, "CDO-squared" instruments or synthetic CDO's) were deemed too complex, too unwieldy for experts, Ph.d.'s in finance, or veteran traders.

Going forward, many will assert that if the products can't be explained logically to smart, fast-learning outsiders (like Simmons), then they probably shouldn't be deployed, issued, or sold.

5. If Simmons didn't emphasize diversity, student recruiting, and women, then who would? When senior managers get distracted by other topics and issues, who reminds board members that successful diversity and inclusion aren't sometime activities--initiatives that get attention only when times are good?

And who helps to remind shareholders (and all stakeholders) how it hurts the franchise in the long term if diversity gets shoved aside if short-term priorities are focused entirely on maximizing current returns?

Simmons was likely the voice in the room who reminds the board to be fair and inclusive in the hiring of talent, in managing director promotions and in overall recruiting. (She has certainly be cited for pushing women's initiatives during her Goldman stint.) She may have been the voice that reminded all a market slowdown isn't an excuse to call time-out on diversity initiatives.

Those who argue that university presidents have enough on their hands and shouldn't accept board seats have a point, if presidents have taken on too many. That would, however, apply to any CEO who sits on perhaps more than three or four boards while trying to focus on his/her own global business. If those from academia manage their invitations to a handful, then they should be welcomed to the board table.

Instead of criticizing Simmons, many should have tried to convince her to remain as a director.

Tracy Williams

The Quants: In Search of the "Truth"

The Quants, the new book by Wall Street Journal reporter Scott Patterson, comes amidst the barrage of books attempting to dissect the crisis. Patterson focuses partial blame on a cadre of hedge-fund managers, Ph.d. types who over the past two decades developed well-known quantitative-trading methods.

They happen also to frequent the same social circles, distract each other by playing each other in high-stakes poker matches, and grew up and learned quantitative finance from some of the same professors and mentors.

Patterson provides a soft argument that these groups of traders (mathematical and computer experts with degrees in finance, economics or even physics) helped contribute to the financial crisis. He doesn't, however, provide a detailed proof--the kind that they (the Quants themselves) would appreciate if presented with polished, mathematical logic.

So don't read this book if you wish to (a) learn as much as possible about quantitative trading methods, (b) understand the direct links between some well-known finance theory (efficient markets, Black-Scholes options models, etc.) actual market behavior and (c) tap into the trading models and secrets that helped many of them make whopping amounts of money before the crisis.

The book is not a how-to or a thorough analysis of how exquisite financial models went awry. But the book is not necessarily a waste of time.

It's more a dissection of the cast of characters who were significant trading participants during the market collapse in 2008-09. It's almost up to the reader to determine whether the "characters" contributed to the collapse, took advantage of the collapse, or were victims of their own forms of market trading, trading based not on gut hunches and hubris, but on models, theories and black boxes. Patterson refers often to the models' recurring search for the "truth" in how markets are supposed to behave.

Hence, Patterson summarizes a few of the theories behind the models without scaring off the non-MBA or non-Ph.d. reader. He pays more attention to the hedge-fund traders' emotional roller-coasters, their innate drive to get models to present the "truth" correctly, and their stubborn confidence and devotion to their black boxes. He also describes their boldness and courage to take risks, tack on leverage, and stick with their models even when markets tell them they might be wrong.

Among the countless hedge-fund managers and quant types on Wall Street or in Greenwich, Connecticut, Patterson focuses on a few: Notably, Peter Muller at Morgan Stanley, Ken Griffin at Citadel, Cliff Asness at AQR, and Boaz Weinstein at Deutsche Bank. He shows how they are connected in many ways. They meet up in the same Poker-playing circles. They had some of the same professors at University of Chicago. And they watch, study, and follow study each other and sometimes learn from others.

In the book, we see less about how Griffin at Citadel grew obnoxiously rich from trading convertible bonds, more about how he was a hot-tempered, demanding, sometimes near-abusive manager of a fund that went through a near meltdown during the crisis.

We see less about how Asness at AQR had been a master at statistical-arbitrage trading, more about how he suffered during the 2008 collapse, going through episodes of destroying desktop computers or isolating himself in his office trying to understand why markets didn't behave they way he said they should or would.

Thus, the book is more a summary of how primary players in hedge funds battled their way through the crisis. Years from now, the book won't stand out among the dozens of crisis tales recently published. It can be regarded as a chronicle of survival from the vantage point of a handful of highly regarded quants.

Tracy Williams

What About Corporate Banking?

The financial crisis and financial reform forced almost all banks to step back and survey the scene to decide how they are going to remain stable and profitable in the periods to come. Constrained by what they can and cannot do and still unsure about when and where the economy will recover, many will focus on the basics.

Many will also attempt to re-emphasize their corporate-banking franchises, where they can more easily build business, capitalize on long-term corporate relationships, and generate more stable revenue streams. (After absorbing some losses, they'll do this with a more defined risk-management posture.)

Over the past year, some big banks have quietly announced plans for how they will grow this business. JPMorgan Chase has said it seeks to hire more than 400 in spots around the world. Credit Suisse, BoA and others have outlined corporate-banking plans. That includes hiring experienced bankers and encouraging recent MBA graduates to pursue this area of finance.

Corporate banking is not a new area. Its heritage is as old as the banks themselves. And it was a primary focus for large banks for decades after Glass Steagall rules in the 1930's prohibited banks from doing both corporate and investment banking.

Depending on the institution, "corporate banking" encompasses many activities. It implies corporate lending in most places. At others, it includes corporate lending, corporate cash management, syndicated loan finance, corporate payments and funds transfer, currency sales, and securities custody and processing. In many places, there is a line between large corporate clients and middle-market clients (usually based on the client's annual sales).
The core activity is always loans.

On the other hand, "investment banking" in its most basic definition entails equity and bond underwriting, corporate-finance advisory, and mergers and acquisitions. However, the corporate CFO or treasurer may prefer to see all of these activities (whether corporate or investment banking) as a bundle of finance-related activities and doesn't care about distinctions. Over time, these activities started to blend.

Think of the differences this way. A company CFO is responsible for all balance-sheet funding and capital structure. Corporate banking plugs into the top portion (of liabilities): short-term loans, working-capital loans, credit lines, letters of credit, revolving credits, long-term loans (fixed and floating rates), project finance, subordinated loans and syndicated loans.

Investment banking plugs into the bottom portion (of liabilities and equity): long-term bonds, mezzanine finance, subordinated debt, convertible bonds, hybrid debt, preferred equity, private equity, and public equity. The CFO and treasurer will have a hand in all of these activities.

By the late 1980's and especially into the 1990's, corporate and investment banking began to overlap more and more. Both rely on well-cultivated relationships with top corporations; both entail advising on, providing and/or arranging corporate funding. Both require bankers to be astute and technically proficient in corporate finance, financial analysis, and capital markets. And both entail degrees of risk in exposure to the borrower (or issuer)--risk that must be calculated, analyzed, and managed.

The line that separated the two started to blur in the 1990's, as regulators permitted commercial banks to engage in limited investment banking. The products themselves began to merge or blend. Eventually it was possible for banks to arrange for syndicated loans, where other banks participate, and where those banks could "sell off" their loans (like bonds) in a secondary market. Or it was possible for banks to syndicate loans to investment banks and hedge funds, as well (like a bond underwriting). And in many deals, the features of a loan began to look similar to the terms, pricing and features of a bond.

By the 2000's, Glass Steagall had been repealed. Commercial banks and investment banks were free to do whatever they wished--within risk-tolerance levels and capital guidelines, while meeting profit objectives. Immediately large corporate banks had to figure out the best ways to become dominant players in investment banking. They could acquire smaller, reputable investment boutiques, and they did (by buying such outfits as Hambrecht & Quist, Alex Brown, Montgomery Securities, Dillon Read, Morgan Grenfell, et. al.). Or they could build investment banking by deploying capital and hiring talent--smart, experienced, aggressive people, including MBA's or experienced bankers (the routes JPMorgan and Bankers Trust took at first).

Meanwhile, investment banks couldn't stand still. They, in turn, had to build corporate-banking expertise, although they couldn't merely acquire corporate banks. Many started from scratch by hiring talent to build a corporate-lending business to counteract large banks trampling on their turfs. (Goldman, Lehman, and Merrill leaped into syndicate loans and corporate lending because they reasoned they had to.)

While hustling their way into investment banking, the established corporate banks didn't ignore traditional corporate banking. But sometimes they overlooked growing it or implementing proper strategies. They didn't always take care to take advantage of their heritage strengths.

They (JPMorgan, Citi, and BoA, e.g.) remained top lenders to corporations and used that as an edge with clients to compete against Goldman, Lehman or Merrill. But to penetrate the core of the top investment banks (that coveted "bulge bracket"), they kept their business eyes primarily on expanding in investment banking (to enhance their capabilities to underwrite stocks and bonds, provide merger advice, and make markets in all instruments).

Nowadays, financial reform and the crisis have forced banks to undergo self-reflection: "What do we do well?" "What are our core strengths?" "Where are the opportunities to expand?" "Where are the opportunities to generate stable, predictable returns?" The more they ask these questions, the more likely one answer could be corporate banking.

Many banks, therefore, are bound to rediscover these strengths. Corporate banking doesn't replace investment banking. It complements it. The blurred lines will continue, because the purposes are similar and because some corporate CFO's and treasurers prefer to see bundled products. If one or few banks can provide short-term loans, facilitate issuance of commercial paper, make payments to the Far East, arrange three-year loans, manage idle cash reserves, expedite private placements and advise on equity offerings, then they will see efficiencies and minimal costs in doing so.

Many big banks can actually do all of the above, although they may do so in separate, distant units. Corporate banking permits bankers to coordinate the delivery of several products across silos with a big-picture view of the relationship. They oversee the client's overall financial requests, and they can evaluate the bank's overall profitability from the relationship.

Add to that the fairly good news that there won't be much in the new regulation that will discourage banks from rebuilding these units and promoting them sufficiently to attract top talent.

Corporate banking/lending, too, took a hit during the crisis. There were risky loans that had to be charged off or sold off at discounts. They had been booked, partly to support an investment banking client or a client that might award it investment-banking business later. The losses were due, too, to careless risk management or risk managers without sufficient authority. In the end, the big corporate banks still retained the infrastructure, their global branches, their history of corporate banking competence, and (in most cases) their long-term relationships.

Going forward, there will still be chances to hit investment-banking home runs--the headline-generating deals, the million-dollar fees, the occasional IPO's, and the blockbuster marriages of companies in M&A. Because investment banking rides a cycle, banks now contemplate that the steady revenue streams from short-term loans, collateralized lending, funds transfer, securities custody, international payments, or currency sales can offset anxiety from lack of deal flow.

In the past decade or so, they may not have tried hard, if at all, to hire MBA's from top schools into corporate banking. Today some banks are reassessing how they promote that unit. They are interested in MBA students or experienced graduates--at all levels. They will look for people with polished client skills and with a keen understanding of corporate finance, corporate industries, and capital markets. They will also look for those who can slide back and forth easily and comfortably into investment-banking or corporate-banking chairs.

Those who prefer and do well in investment banking will usually be those who crave the deal environment. They manage client relationships, but with the intent of pitching a finance idea, securing a deal mandate, coordinating all deal participants to meet tight deadlines, and managing the lucrative deal from start to closing.

Those who prefer and do well in corporate banking will usually be those who have vast knowledge of many bank products and are experts in explaining them to clients. They thrive in client relationships and will occasionally be involved in deal financing. But they are similarly eager to be engaged in non-financial activity (e.g., global payments or custodial accounts).

In both cases, they encounter some of the finance same people on the client side of the table.

Tracy Williams

Will Reform Affect or Create Opportunities?

Financial reform is now under way. Congressmen have discussed, argued, debated and compromised to pass new laws that will modify what financial institutions can and cannot do after the crisis. In many instances, they have two years to adapt.

They will adapt in many ways. Some will redeploy capital and resources toward the most profitable products and services. Some will reprice products and activities to make up for costs or declining revenues because of new regulation. Top banks will examine and analyze their retail products (checking accounts, mortgage products, credit cards), their trading activities(proprietary trading and quantitative strategies in in equities, derivatives, mortgages, currencies and more), their stakes in hedge funds, and their investments in private equity.

They will change their businesses to comply with new laws, and they will evaluate whether they should remain in certain businesses if the new laws make the economics unprofitable. That may mean exiting businesses, spinning some off, selling others, downsizing some units, or making valiant attempts to operate them while complying with new rules.

What does all this mean to MBA students and other finance professionals? Will they shy away from certain financial institutions because of uncertainty or the apparent lack of opportunity? Should they?

If they look cleverly, where there might be constraints or restrictions, there just may be opportunity. Take a peek:

1. Derivatives clearing and brokerage. Financial reform didn't obliterate the roles banks play in derivatives trading. It might limit it, and it might discourage the creation of new products or inhibit those that are on the drafting table now. But banks will still be able to act as dealers in conventional derivative products (futures, interest-rate swaps, credit default swaps, etc.), particularly for products that are or will eventually be traded on exchanges and processed by clearing agencies.

Banks will likely beef up these units, instead of pare them down. And they will seek to be even larger players by facilitating the trading and settling of derivatives on exchanges. If certain derivatives are required to be traded and settled through clearing agencies, then banks contend those trades might as well be funneled through them (for a fee).

They will step up to act as that primary vehicle through which derivatives users and traders must go to execute and process a trade. Some do this already (in a "prime brokerage" role for hedge funds), but many more will try to capitalize on this special role by expanding the client base.

Over time, they will hire more professionals to market these services (to corporations, hedge funds, and more) and manage and process the flow of trades on behalf of clients. This could create opportunities for MBA's interested in capital markets, derivatives and client relationships.

Banks with large prime brokerage units (businesses that facilitate trading for hedge funds, dealers and smaller brokers) may seek to expand their presence and may hire MBA's for roles in risk management, client management, and client flow-trading.

2. Corporate banking and lending. Banks, both big and mid-sized, over the past decade evolved to become not just commercial banks, but expansive investment banks. They focused on attracting smart, experienced people to build the investment-banking operation.

They didn't ignore the commercial or corporate banking side, yet didn't always grow it rationally to take advantage of their heritage strengths. They remained stalwart lenders to corporations and used that as an edge to compete with boutique investment banks. But they kept their eyes primarily on what they needed to do to contend in investment banking (enhance their capabilities to underwrite stocks and bonds, provide merger advice, and make markets in all instruments).

Financial reform has encouraged many banks to rediscover their strengths. Corporate banking is one. It complements investment banking. And they are reminding themselves of the steady, stable flow of revenues that can be generated from a fundamental business of supporting long-term clients (via bread-and-butter businesses such as corporate lending and cash management).

There is not much in the new regulation that will discourage them from rebuilding and expanding these units and promoting them sufficiently to attract top talent.

Corporate lending, too, took a hit during the financial crisis, as banks piled up risky loans, partly to support an investment banking client or a client that might award it investment-banking business later. They took hefty losses; careless risk management or risk managers with little authority thwart aggressive deal-doers is part of the blame. But banks have an infrastructure and history of corporate banking and can grow it cautiously if they choose to.

Hence, where before they may not have tried hard, if at all, to hire MBA's from top schools into corporate banking, they may now repackage how they present that unit, enough to lure MBA students or experienced graduates.

3. Retail products. Financial institutions, via lobbyists, have squirmed about how new regulation will make it hard for them to deliver products cheaply, efficiently and profitably. There are new rules or special review processes for credit cards, overdraft privileges and the unveiling of new retail products.

Banks say the rules add costs to the delivery of conventional products or discourage the creation of new ones (because of a seemingly arduous review-and-approval process). But they won't exit this business. They crave and rely on large deposits from retail banking and the steadfast, long-term customer base. There is too much value in deposits and loyal customers to decide to abandon retail banking, if they already have a large-scale operation.

They will likely repackage and bundle products, reprice them to benefit the most loyal customers, focus on the most profitable retail areas, and perhaps attract professional talent to make themselves as competitive as ever. That might include new MBA's right out of school.

4. Emerging markets. Financial institutions, even if they think financial reform is inhibiting, research opportunities, find them, and go seek them out. If they can do the same things in another region (in investment, corporate and retail banking) and do so profitably and with a keen understanding of the risks, then off they go.

Some banks--post reform--have already begun to expand again or differently in new markets or emerging markets. This means targeting the "BRIC's" (Brazil, Russia, India, and China), and it means identifying favorable business opportunities at the rung of countries below. To do so, they will hire professionals willing to work abroad or already understanding cultural and business dynamics in these areas. Another opportunity for MBA's in finance and those fluent in or interested in other languages and cultures.

It's certainly a new era or phase for many financial institutions. Financial reform helped to turn that corner. Nonetheless, instead of narrowing the scope of what business-school graduates wish to do in finance, it just might have expanded the range.

Tracy Williams

BE's View: The Best 40 in Diversity

In its July, 2010, issue, Black Enterprise magazine once again announces its 40 best companies for diversity. Granted, the list reflects its view, based on its criteria, and likely based on contacts it has with companies and the information it has retrieved from them. One magazine's perspective. (See www.blackenterprise.com/diversity/2010/06/15/they-want-you/)

However, as in years before, BE strives to take an objective approach. It presents a list based on four primary criteria. It doesn't rank the 40, but highlights the companies that present diversity-related strengths on four fronts: employees, senior management, board of directors, and supplier diversity.

The list in 2010 hardly changed from last year. That's expected, because firms not on the list would have to take big steps in diversity initiatives to bump off companies on the list, many of whom are mainstays and have diversity programs that are working.

Financial institutions on the list, too, reflect minor changes, but some big names are conspicuously missing. That's not surprising, given the rocky road many firms endured the past two years. As we know, many financial institutions had to focus on other matters or financial institutions on the list have stepped up aggressively in the past year or so to maintain their reputations for diversity.

Eleven financial institutions made the list last year; 10 are included this year. Citigroup, long time regarded for setting a diversity standard, didn't make the list in 2010 and was pushed off by non-financial institution.

Companies that have historically been Consortium sponsors, as we'd expect, make the list regularly--including financial institutions American Express and Bank of America. Other financial institutions on the list include many insurance companies (Aflac, Aetna, TIAA-Cref, and State Farm) and some regional banks (Comerica and Northern Trust).

It certainly helps that American Express, TIAA-Cref, and Aetna have had blacks in CEO positions or in other top roles. And Ron Williams, African-American CEO of Aetna, is on the board of American Express, which is headed by African-American CEO Kenneth Chenault. TIAA-Cref's CEO is Roger Ferguson, also an African-American.

Although they have had to battle through the mortgage crisis and manage public opinion about their roles in it, Fannie Mae and Freddie Mac seem to have remain focused on diversity, despite all. They made the list again in 2010, partly because of minorities in senior roles (in management and on the board of directors).

For financial institutions in general, this year's list is notable for who didn't make it. The big investment and corporate banks--beyond BoA--didn't make the cut: Goldman Sachs, JPMorganChase, Wells Fargo, and Morgan Stanley.

The reasons might differ as much as the cultures and identities of these firms differ. Some might have made progress, just not enough to warrant a spot on the list (or not yet enough to get BE's attention). Others might have been so focused on other crises issues (raising capital, addressing TARP issues, or lobbying for or against financial reform) that they may not have done enough to keep up with the top 40. (BE notes many companies don't bother to return the surveys it sends out to get information it uses for the list. If a company doesn't return the survey, it isn't eligible to appear on the list.)

In the end, BE's is one of many such lists or surveys. Another magazine or website's list will likely have overlaps with the BE 40 or may use an entirely different set of criteria. All financial institutions, however, ought to know that if the lists are fair and informative, talented MBA's in finance will pay attention to them if they see them and use them as a factor in decided to accept an offer.

Tracy Williams