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When ivy graduates pick teaching over Wall Street
By William D. Cohan |
January 6, 2012, Friday
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Print Edition
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WE are witnessing the decline and fall of the investment-banking profession as we have known it for the past 40 years.
The evidence is everywhere. The increasing regulations on Wall Street will require the remaining companies to increase their capital, curb their risk-taking and reduce their principal investing.
Aside from the fact that investing principal and proprietary risk-taking in itself had nothing to do with the recent financial crisis, these new rules will greatly curb Wall Street's revenue and profitability at a time when the business itself is suffering a severe slowdown.
Not being able to make those big proprietary bets when you see them developing will severely limit bankers' money-making opportunities. It will also protect the rest of us when those big bets go wrong or are perceived to be too risky.
Signs of withdrawal
There is little debate anymore that Wall Street had become highly dependent on its trading operations. Something like 90 percent of Bear Stearns's profits in the years leading up to its March 2008 demise came from its trading and debt-origination activities. The percentages are not that much different at Goldman Sachs, where in 2010 its traditional investment-banking operations generated only US$1.3 billion of US$12.9 billion in pretax earnings, about 10 percent. All but US$1 billion or so of the rest of Goldman's pretax earnings came from its trading, lending and investing businesses.
The slowdown in business, combined with the looming trading curbs, has resulted in job losses across Wall Street. Morgan Stanley recently announced it was firing 1,600 employees. Goldman Sachs has done its usual turn of eliminating the bottom 10 percent of its workforce and a group of its long-serving partners. Bank of America Corp announced that about 30,000 employees would be chopped by the end of 2012, although a number of the firm's investment bankers lost their jobs in the past month.
Yet those suffering the most are the foreign firms that were trying to break into Wall Street's business. Nomura Holdings Inc has pretty much scuttled its most recent Wall Street experiment and firms such as Societe Generale SA, UBS AG, Credit Suisse Group AG and Royal Bank of Scotland Group Plc are all cutting Wall Street bodies.
In November, Bloomberg News estimated that more than 200,000 people who work in finance had already lost or would lose their jobs in 2011.
Not only will the head-count reduction on Wall Street continue for the foreseeable future, but the vast sums overpaid to bankers and traders will inevitably continue to fall as well. There is simply no easier and quicker way for Wall Street firms to keep up a modicum of profitability than by cutting pay for the people who still work there.
Ivy League doubts
The most reliable leading indicator of Wall Street's future prospects is the way recent graduates of Harvard, Princeton and Yale - supposedly the best and brightest - choose to spend their time after graduating. For years, hordes of graduates from those schools beat a fast path to Wall Street.
Now the road is far more difficult to travel. For those who choose to make the journey, there is the prospect of incurring the wrath and scorn of fellow students who make up the various Occupy Wall Street movements - a fact not likely to deter many - and then there are dimmer prospects for a job on Wall Street generally, what with the slowdown in business.
According to a December 21 article in New York Times, whereas in 2006 some 46 percent of Princeton graduates who had jobs lined up after graduation went to Wall Street, four years later that number had fallen to 36 percent. At Harvard, in 2006, a quarter of the class got jobs in finance; by 2011, that number had fallen to 17 percent. At Yale, in 2006, 24 percent of the graduates had jobs in finance and on Wall Street, while in 2010, the number of graduates going to Wall Street had fallen to 14 percent.
The word around Goldman Sachs, I'm told, is that even those offered a still highly coveted entry-level job at the firm are having second thoughts about taking it. More and more, banks are losing talent to Teach for America, a fact that may turn out to be one of the most heartening consequences of the financial crisis.
William D. Cohan is a former investment banker and the author of "Money and Power: How Goldman Sachs Came to Rule the World." He is a Bloomberg View columnist. The opinions expressed are his own.
The evidence is everywhere. The increasing regulations on Wall Street will require the remaining companies to increase their capital, curb their risk-taking and reduce their principal investing.
Aside from the fact that investing principal and proprietary risk-taking in itself had nothing to do with the recent financial crisis, these new rules will greatly curb Wall Street's revenue and profitability at a time when the business itself is suffering a severe slowdown.
Not being able to make those big proprietary bets when you see them developing will severely limit bankers' money-making opportunities. It will also protect the rest of us when those big bets go wrong or are perceived to be too risky.
Signs of withdrawal
There is little debate anymore that Wall Street had become highly dependent on its trading operations. Something like 90 percent of Bear Stearns's profits in the years leading up to its March 2008 demise came from its trading and debt-origination activities. The percentages are not that much different at Goldman Sachs, where in 2010 its traditional investment-banking operations generated only US$1.3 billion of US$12.9 billion in pretax earnings, about 10 percent. All but US$1 billion or so of the rest of Goldman's pretax earnings came from its trading, lending and investing businesses.
The slowdown in business, combined with the looming trading curbs, has resulted in job losses across Wall Street. Morgan Stanley recently announced it was firing 1,600 employees. Goldman Sachs has done its usual turn of eliminating the bottom 10 percent of its workforce and a group of its long-serving partners. Bank of America Corp announced that about 30,000 employees would be chopped by the end of 2012, although a number of the firm's investment bankers lost their jobs in the past month.
Yet those suffering the most are the foreign firms that were trying to break into Wall Street's business. Nomura Holdings Inc has pretty much scuttled its most recent Wall Street experiment and firms such as Societe Generale SA, UBS AG, Credit Suisse Group AG and Royal Bank of Scotland Group Plc are all cutting Wall Street bodies.
In November, Bloomberg News estimated that more than 200,000 people who work in finance had already lost or would lose their jobs in 2011.
Not only will the head-count reduction on Wall Street continue for the foreseeable future, but the vast sums overpaid to bankers and traders will inevitably continue to fall as well. There is simply no easier and quicker way for Wall Street firms to keep up a modicum of profitability than by cutting pay for the people who still work there.
Ivy League doubts
The most reliable leading indicator of Wall Street's future prospects is the way recent graduates of Harvard, Princeton and Yale - supposedly the best and brightest - choose to spend their time after graduating. For years, hordes of graduates from those schools beat a fast path to Wall Street.
Now the road is far more difficult to travel. For those who choose to make the journey, there is the prospect of incurring the wrath and scorn of fellow students who make up the various Occupy Wall Street movements - a fact not likely to deter many - and then there are dimmer prospects for a job on Wall Street generally, what with the slowdown in business.
According to a December 21 article in New York Times, whereas in 2006 some 46 percent of Princeton graduates who had jobs lined up after graduation went to Wall Street, four years later that number had fallen to 36 percent. At Harvard, in 2006, a quarter of the class got jobs in finance; by 2011, that number had fallen to 17 percent. At Yale, in 2006, 24 percent of the graduates had jobs in finance and on Wall Street, while in 2010, the number of graduates going to Wall Street had fallen to 14 percent.
The word around Goldman Sachs, I'm told, is that even those offered a still highly coveted entry-level job at the firm are having second thoughts about taking it. More and more, banks are losing talent to Teach for America, a fact that may turn out to be one of the most heartening consequences of the financial crisis.
William D. Cohan is a former investment banker and the author of "Money and Power: How Goldman Sachs Came to Rule the World." He is a Bloomberg View columnist. The opinions expressed are his own.
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