At the reception held for MBA students at the London headquarters of a prestigious US investment bank, bankers mingled with a crowd of 30 aspirants. “Have you accepted our offer?” was their hosts’ opening gambit. If they answered yes, the bankers gave a nod and rapidly moved on to the next recruit. Out of the 30, 15 had already accepted the bank’s offer. No-one missed the fact that the hosts hovered around the undecided MBAs in the hope of persuading them to accept.
“It’s the best job market in over a decade,” says Geoff Grout, UK managing director of recruitment consultant Robert Half International. European banks expanding into global franchises and US banks taking advantage of privatization, pension fund and corporate restructuring and M&A across Europe are hiring to keep pace with markets. In Europe Merrill Lynch has grown to 4,700 employees, from 2,000 four years ago.
It’s a similar story in New York where competition between banks and management consultancies has driven up the premium paid for top MBA graduates to over $100,000. When consultant McKinsey, among others, raised MBA packages to $115,000, banks, which had been offering around $90,000, followed suit. MBAs now expect starting packages of between $100,000 and $125,000 ($75,000 starting salary, between $20,000 and $25,000 signing bonus and a guaranteed year-end bonus of $20,000 to $25,000). “Banks decided to close the $20,000 gap,” says Dan O’Connell, SBC Warburg’s global head of sourcing and assessment. There are rumours of $150,000 packages on Wall Street.
But graduates should beware of being seduced by high salaries and fast-track promises. They need to understand the different cultures of the investment banks and be sure they are choosing the one most suited to their aspirations. They must realize that as their careers progress, qualifications will count less than experience and, wrongly directed, even high-flying MBAs can end up stuck in a firm’s backwaters. There is even a mini-backlash within the industry against MBAs and an emphasis on other qualifications, such as engineering and mathematics. Those without MBAs should not be discouraged as they remain much in demand and can, with careful planning, tailor themselves for successful careers in banks.
Knowing your bank and targeting applications is important. JP Morgan’s solid reputation, Goldman Sachs’s private partnership structure, or Salomon Brothers’ larger than life working-class Wall Street ethics all stack up differently. One thing top banks share is an aspiration to be meritocracies. Not all succeed.
“The wrong job in the right firm is the right job, compared to the right job in the wrong firm,” says Robert Half’s Grout. Time spent looking for the right firm is not going to be wasted. “Focus on the organization and not the job. Take responsibility for your career. Gain skills and experience which you know are marketable.”
Some firms encourage a star system, others team work, or development of skills. Figuring out which is best for you and demonstrating this knowledge at the inteview will help match you to an employer. Dropping hints that you’ve done your research is no bad idea. Knowing where banks have weaknesses and may be looking to build up is also useful.
The interviewing process for a job in a top investment bank is extensive so it’s important to turn it to your advantage by knowing where you want to land up at the end of it. Some potential recruits, for example, have 30 interviews at one firm, while 15 is not uncommon. Goldman Sachs takes recruits away for the weekend. By the end of Sunday, a recruit will have had between 25 and 35 interviews with different partners.
Graduates who haven’t decided which area of finance they want to enter should be careful to join where they can make a choice. Some, such as Deutsche Bank, place recruits on a 12-month rotation programme that allows graduates to get a feel for different areas of the bank. GE Capital has a similar two-year rotation programme.
Merrill Lynch will have already decided where recruits will be placed by the final interview. Morgan Stanley places recruits straight into the area they have chosen immediately after they have signed the necessary forms and gone through a two-day induction course.
High-octane programme
Although Salomon Brothers’ high-octane training programme, immortalized in Liar’s Poker, offers access to the firm’s top players, recruits have little idea where they will end up in the firm and little influence over how they get there. Goldman Sachs, like many Wall Street firms, puts recruits through a gruelling two-year internship as analysts before packing them off to get an MBA.
David Woods, head of public relations at Goldman Sachs in London, says: “Retention levels are higher than other firms on Wall Street, partly because the rewards at the end of the road are large.” A Goldman partnership is still one of the most sought after positions in finance but competition within the bank is high. “There are no illusions about the standards that are expected at Goldman.”
For those joining without MBAs, two years as an analyst followed by an MBA is the well-trodden route to becoming an associate at a US investment bank. If starting as an analyst in the US, expect 21 to 24 months of gruelling work and little client contact. Graduates typically spend years as dogsbodies, with long hours spent number-crunching, to gain the experience necessary to go on to US MBA programmes. Before further academic training analysts are expected to do the groundwork for those above them on the ladder, probably post-MBAs.
“The MBA is the ticket to get you in the door,” says Brooks Chamberlain, managing director at recruitment consultant KornFerry International. “But after two years employees don’t give a whit [about the qualification] if they’re good.” Two to three years after post-MBA entry, MBAs should be looking for a vice-presidency; five or six years after, a directorship; eight to 10 years after, a managing directorship.
The top jobs on Wall Street still go to MBA graduates. For many banks the sifting part of the recruitment process begins with acceptance onto an MBA programme. MBAs act as a kind of pre-selection for banks. Last year, Columbia University’s business school in New York received more than seven applications for every place. Citibank employs no fewer than 350 Columbia MBAs.
Professor of finance at Columbia David Beim (whose long history on Wall Street included a 10-year stint running Bankers Trust’s investment banking operations) says that Columbia MBAs are increasingly going into finance. “Fifty-five per cent of graduates went to Wall Street last year. This in part reflects our proximity to Wall Steet. We are encouraging advanced derivatives training and investing in software to allow students to simulate real-time trading or to speed up an entire business cycle into one session.”
Out of 100 MBA students who leave a top school this year, 10 are likely to be able to work anywhere, in any firm they choose, while 50 will probably have a choice. “It’s the top 10 who will be approached by every bank that we are after,” says Albert Maasland, DMG’s head of global marketing.
But banks which are expanding may offer equal opportunities to non-MBA graduates. “Changing roles in the market create opportunities,” says a senior DMG manager. “This is an industry in constant flux. We have people here doing things they had probably never heard of at school.” DMG sends graduate recruits on a streamlined training programme based on the financial aspects of an American MBA.
Rashid Hoosenally, who is rising rapidly in DMG’s forex structured products unit, says: “There is no reason why a bright, well-trained graduate cannot be competing with other banks in their areas after a couple of months. I push my trainees to do everything from drafting risk management proposals to structuring deals and pricing products. It’s very much DMG and [head of global markets] Edson Mitchell’s view that graduates feel a part of what we are doing. If they feel they are making a difference they will not leave for another firm.”
Since starting packages in finance vary little across banks and types of business, the bank’s character will be the distinguishing feature. But after a few years, depending on a recruit’s success, variations can be large.
“No-one really knows what their peers get paid, but if you have the right skills and are in the right place at the right time, the sky’s the limit,” says a Wall Street trader. “Traders of three years’ standing can be paid $500,000 guaranteed, rated analysts top seven figures.”
Since Wall Street earnings are based on performance and the demand for particular skills, it is hard to predict future earnings. As one area of the market heats up, so do the salaries paid for the skills it demands. Analysts up to speed in telecommunications, technology, energy, healthcare and financial institutions have been at a premium for the last 18 months.
But George Wilson, Credit Suisse First Boston’s head of graduate recruiting for Europe, says of salary expectations: “Beyond two years, MBA qualifications per se have less relevance. Of greater importance is the personal contribution they make and the overall profitability of the business they are in.”
Says one Wall Street recruitment head: “I don’t care if a person is only 24 years old with only three years’ experience. If they’re producing what I want, I’ll pay whatever it takes to keep them. It’s the purest meritocracy you’ll find. If a trader makes $20 million, no-one cares where they came from.”
Seven-figure salaries
The big money no longer goes just to traders and salespeople, but increasingly to the people you don’t hear about – researchers and the programmers who develop risk models, for example. One New York head-hunter says that a PhD with experience in these areas can attract a seven-figure.
You don’t need to be a PhD or MBA to succeed, but you will need a minimum level of work experience. Technology and an extra language or two make a job application more attractive, particularly if you have experience of more than one culture. “Most people who join are interesting people – they’ve done something different, or perhaps they just have something special in their character,” says a recruiter at one of the large European firms. Eighty per cent of Merrill Lynch recruits who come to work in London have been recruited from outside the UK.
If you don’t have an MBA qualification or don’t want to go for one – it can cost anything up to $150,000 including lost earnings – you may do better approaching a European bank. DMG sends recruits on a training programme that covers the financial aspects of the MBA degree. It’s a growing bank so recent recruits have been known to take substantial responsibilities in a shorter time than at the established bulge-bracket securities firms and investment banks.
“We need people who can reinvent themselves every two years, to give themselves the competitive edge in changing markets,” says DMG’s Hoosenally. Banks like people with a good attitude, who know what they want and who are motivated to get it. “If the first thing you hear after an interview is ‘I wasn’t sure about their attitude’, it usually means it’s over,” says a colleague.
Banks get too many applications and not enough of the right kind. “Our [recruitment] brochure aims as much to discourage the wrong types as to attract the right types,” says a recruiter for a top Wall Street firm. “People have to be different to work here. Whether it’s a farm or a bank, you have to get on with people around you. Here that means people from over 30 cultures. MBAs often gain leadership qualities and we are looking for people to push the company forward.”
Walking onto a trading floor for the first time can be a daunting experience. But don’t worry. During internship, banks look as much at how people react to mistakes, fears and limitations as at what they achieve. “Important characteristics of some of the successful graduates include judgement, humility and confidence enough to admit that they got things wrong,” says DMG’s Hoosenally.
Banks want experience. “At the end of the day it doesn’t matter whether you learnt how to price the latest swaption at a school desk or a trading desk,” says a London-based recruitment consultant.
MBAs are often used as a turnstile, or a way of re-engineering experience outside finance or a non-business degree, without taking a step down the career ladder. They also offer an unrivalled opportunity to network. Says Robert Half’s Grout: “The route to employment depends on the power of the alumni network.” Although European MBA programmes have done much to improve the sophistication of alumni networks, they still lag their US counterparts. “Very often it’s the quality of an alumni programme that makes an MBA rather than the quality of teaching.
Advanced training
But detractors charge MBA programmes with failing to keep up with the sophistication of the markets. Where MBAs tend towards corporate finance, some areas of the markets, particularly trading, derivatives and internal risk control, demand more advanced training in macroeconomics, mathematics or technology. Here banks look for additional experience, in the form of an undergraduate degree or doctorate.
In the late 1980s they began hiring pure maths and science graduates to help analyze complicated structures. Some say that when the pure scientists failed to perform, Wall Street turned to the applied scientists.
SBC Warburg’s O’Connell says: “Derivatives are an important product for our firm and on the whole MBAs don’t provide adequate maths skills. We look beyond the MBA programme, for example to previous employment, perhaps in engineering, or an undergraduate degree in a relevant subject. We are focusing more attention on people with technical skills for derivatives positions. We do visit engineering faculties. An MBA with a maths or engineering degree would be attractive to several areas of the firm.”
“I’d rather find someone with a one-year calculus course than an MBA,” says the Wall Street trader. “MBAs cater for everyone from prospective financiers to fast-food restaurant managers. They are not meant to be a technical qualification. And what you learn in college quickly becomes out of date.”
Complex markets have driven banks to seek out academic mathematicians, particularly in related disciplines such as engineering. Although an applied mathematics doctorate may not be for everyone, PhD qualifications are increasingly common in derivative circles. PhD graduates tend to have the tenacity to work out the minutiae of a calculation where an ordinary trader would not have the skill or the time.
Karl Sigman, a professor specializing in stochastic modelling at Columbia’s department of industrial engineering and operations research (IEOR) says more students are passing though Columbia’s engineering department on their way to Wall Street to firms. IEOR has a financial engineering programme for undergraduates.
Sigman plans to take second-year MBA students from the business school and teach them mathematical modelling techniques, which are becoming more common in the financial markets. “Financiers need more technical training. This course was created in response to the fact that jobs were going to science PhDs.”
“There are a lot of things you don’t learn at business school,” says a derivatives trader dealing in illiquid warrants. “MBAs spend a lot of time pretending to know what they’re doing. A third-year trader should make more than the average $120,000 entry-level MBA. So why quit a trading desk for that?” A Wall Street hedge fund has little time for MBAs. Says one employee: “I don’t think we’ve got even one on our staff. They don’t have the computational skills we want.”
Such sentiments should not deter students from taking MBAs but they make plain that choosing the right one is important. While the classical Harvard and Stanford MBA education tends towards management and leadership, Columbia, Wharton (University of Pennsylvania), Chicago, MIT and Carnegie Mellon all have MBAs that lean towards finance and are beginning to teach quantitative mathematics skills to business students. MIT offers a programme in financial engineering. Carnegie Mellon leans towards quantitative mathematics while Columbia has created a degree in computational finance. Columbia also offers a joint MBA degree with engineering, suitable for would-be quant traders. For those who can’t bear to give up day jobs on Wall St, New York University offers night classes. Similarly Columbia is just a subway ride away from the action and plays host to celebrity guest speakers, including Warren Buffett, Cindy Ma and David Modest.
Columbia’s engineering department sends about 20 MSc graduates and a couple of PhDs to Wall Street each year. DMG’s 1997 intake constituted 56% BAs, 27% MBAs, 8% MScs, 5% MAs, and 4% PhDs.
Some question the sense of employing an MBA at $100,000 plus when a bank may have to spend the same again in training and resources before the qualification can be translated into real work and profit. And once MBA recruits have the necessary real-time experience they frequently move on.
MBAs may not be appreciated at the lower levels of the bank but David Jin, an MBA intern at DMG’s London office, believes “there is a high-level understanding about the importance of MBAs. Management want to be pushed forward”.
Jin, who is about to rejoin the second-year MBA programme at Columbia, is typical of the increasing international and multi-faceted orientation of successful recruits. Born in Beijing, he has already worked for an international pharmaceuticals company and gained a PhD in bio-medical science.
Rashid Hoosenally left Hong Kong at 18 to work for the summer at Deutsche Bank in Hamburg. Since graduating he has worked in corporate finance, foreign exchange and structured products. He says things are different now. “An exchange student from an eastern European university told me exactly how to price prepayment risk on a mortgage security,” he says. “I asked him where he learnt the methodological difficulties associated with calculating value at risk and he told me – ‘I read about it on the Internet’. These are the types of people we want, people who know what they want and are prepared to go after it.”
Above all banks are looking for people with curiosity about the way the markets work. Pascal, a trader based in London, became interested in finance after he was given 100 shares in a video company for his 16th birthday. The video company went bust two months after its flotation. “I wanted to know why,” he says. Ten years and a couple of degrees later, Pascal runs his own trading book. “This guy could own a Porsche if he wanted to,” says his boss. “He’s a long way from where he started.”
