Investment Banking 2014: 6 Things To Know For MBAs

Mod Note (Andy): #TBT Throwback Thursday - this post originally went up on 9/22/14.

This comment was originally posted in The decline of MBA OCR

1. IB is expanding off its "bottom-out" following the crisis; However, this expansion is heavily weighted towards industry groups that cover industries that are healthy and expanding. What does that mean? Consumer Retail, Industrials and maybe a few others are not building up their particular teams, unless that particular bank has MDs with very strong client relationships in that particular sector. Tech is still healthy, and Natural Resources groups are expanding aggressively all across Wall Street. In fact, many banks like RBC who are not traditional IBD powers are really doing well in the Natural Resources space because of all the deal flow. LevFin also is pretty stong in terms of expanding.

Also to note, most Top MBA programs (other than Stanford, of course) recruit for NYC IBD. As I probably do not need to mention, Tech and Natural Resources have the majority of their footprint elsewhere.

2. The recruiting landscape for MBA students has been turned on its head over the last 3-5 years. Top MBA programs have massively expanded their outreach to folks who previously would not have gone down the MBA route. This is due to several factors. Diversity / Female outreach is one of them. Another is that all the top schools are looking to develop strong development programs for folks who want to found start-ups. Every school is competing to see who can graduate the founder of the next Uber (or something like that) and less on being a pipeline for IBD and Consulting. The reason for that is that someone who gets stinking rich overnight when their start up goes public is likely to be more of a big donor to the school than an alumni who is making a $3-5 million a year as an MD at a BB bank.

Also, the fact that the Law School bubble has totally popped is causing a lot of people who would have been interested in that route to go to B-School instead. Many of these folks are probably not the banking type (but some are). People are coming into business school after doing things like Teach for America, the Peace Corps, Congressional Staffers, Federal Govm't employees, healthcare professionals, etc. If you go back 10 years, you would not find huge concentrations of these folks at top MBA programs. Not so, now. Once again, probably not your typical IBD-type folks

3. Pay has not come back to pre-crises levels yet. Although improving, 2nd and 3rd year associates are still making 30-40% less than they did ten years ago. Back then, working 80-100 hour weeks for $450K all-in was acceptable, especially considering they were only a few years away from 60 hours and REALLY BIG MONEY. Doing that now for $300-325 is less attractive, especially when you can go directly to F500 Corp Dev / Internal M&A / Corp Finance and make $200K after two years and be out the door every day at 5 PM. People used to work twice as much because they were making MORE than twice as much. This looks to be coming back, but it's not there yet.

4. The average age of your Top Tier MBA student has increased dramatically. Not sure what the driver of this is (I do have some ideas), but there are MANY MORE folks on Top MBA campuses in their early 30s than there was 5 years ago. I don't have any data to support this, but anytime I go to different campuses to recruit it always strikes me how many older people are getting MBAs. Older people are more likely to be married with kids and are therefore significantly less likely to want to go to NYC or the Bay Area where the cost of living is god-awful. Making that $200K in Corp Dev in Dallas, Atlanta or Cincinatti gives you about the same standard of living as making $500K in NYC or California, maybe better. Add the hours demands of banking to that, and there you go...

5. BB Banks are expanding Analyst to Associate promotes, and Analysts are taking them. If you have done 1 year as an analyst in BB IBD, you are not going to learn anything you do not know about finance by getting an MBA. Especially when it comes to applicability to IBD or PE. In fact, after your first year as an analyst, you could TEACH the core finance and accounting courses at a Top Tier MBA. This is not an exageration. To many analysts who want to stay in IBD and not move to the buy side, they see two years out of the game and $100K in tuition as just not worth it.

6. Foreign MBA students. This is big. Someone can look up the stats if they want, but I would bet you would be shocked at the % of folks on student visas. Top Schools want to recruit folks from foreign countries who will go back to thier home countries and increase that school's network and power base there. Someone from Brazil, China or Russia with family connections there is going to be highly sought after if the school sees that person as likely to return there (even if not immediately after graduation) and thus give the school a presense there. Also, many foreign students would not be a fit for IBD in the U.S. just because their communication skills are not what banks look for in associates.

Remember, unlike analyst recruiting prospective associates are heavily evaluated on their client-facing skills. Being an MD is about being a dealmaker, not a number cruncher. Many a foreign MBA student has been nixed for an IBD job for this reason. This is a FACT! Also, many of these foreign MBA students could also potentially have Visa issues as well if they do not already have a green card.

At the 3-4 top schools that I recruit at (including my own) the number of students who are interested in IBD has more-or-less halved over the last few years. If you want to get into IBD, no matter what you background prior to attending a top MBA program, it's pretty easy as long as you are not a total douche and you are well prepared for interviews.