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Meredith Whitney took to BloombergTV yesterday to spread a little more sunshine about the banking sector, specifically investment banking. This might be the most important thing you guys watch all week. She thinks we see at least 50,000 more banking jobs lost - the majority in IBD. Her reasoning? The MBS tide has gone out, and with it all the investment banking profits. She has a stark warning for those bankers who've been laid off and are holding out for another $300,000-a-year job to replace the one they lost: "Take what you can get...and re-calibrate your expectations." It's not even a matter of conjecture anymore; we're watching it happen before our eyes with new rounds of layoffs and rock bottom bonuses. Don't shoot the messenger.

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Comments (51)

  • Asatar's picture

    Depressing stuff for those about to graduate or just graduating (including myself!) I think what she says about recalibrating your expectations works not just for those being laid off but for people entering the industry. It's almost impossible to get hired to the job you want, so take something as close as possible to it, get some experience and then move over when the time is right in a few years.

  • oreos's picture

    "...you know, errr..you know". No Meredith, I don't. Get your words out....!

    "After you work on Wall Street it's a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side." - David Tepper

  • PennTeller's picture

    I agree with her completely.

    Ask the Detroit auto worker what happens when the profit pool leaves the industry.

  • Secret_Cinema's picture

    Depressing. Puts complaints of a $20k bonus into context.

  • Bobb's picture

    Agree or disagree I cannot stand Meredith Whitney. She just bothers me

  • neilol's picture

    For Ed/ the older guys around here. Does this sort of doomsday contraction in staff and bonuses happen every 10-20 years, or is it different this time?

    I'm lucky enough to even have an analyst job (low base + low bonus, comparatively), but wondering if its worth it to stick it out to be in position for better times or jump ship now? Hours and lifestyle are just not worth it without a very high probability of out-sized future earnings.

    Any thoughts?

  • Edmundo Braverman's picture

    That's an excellent question, and one I gave a lot of thought to last night.

    Wall Street has always had boom times and then doldrums, so in that sense it's mostly normal. For example, the 1980 threw off a lot of dough because of the rise of junk bond and LBOs. There was lots of business and bonuses were really large. Unfortunately the music stopped, and we went into a pretty severe contraction.

    I started in 1992 during that contraction. The Dow was around 3,000 at the time. There was work to be found on the Street, but much of it (mine included) was 100% commission based or very close to it. If you could work within those parameters you could succeed, but nobody was throwing money at you. You had to sing for your supper.

    Then the Internet came along, and we swung into high gear again. This was around 1997, and the dot com boom really took off and all was well on Wall Street again: pay packages were strong, bonuses were large again, etc... So the slow down I hired into lasted roughly 10 years (the combination of the junk bond bust-out and the S&L debacle brought everything down in 1987, and then things started cooking again in 1997).

    The dot com bust would've brought another severe contraction were it not for two factors: MBS (which had been building since the 1970s, actually) and Alan Greenspan. The Greenspan Put ensured a lot of sloppy money sloshing around, and enabled the ridiculous inflation in housing prices combined with sub-prime. It was almost as if Wall Street (with Greenspan's later help) had been baking up the perfect shit sandwich for almost 30 years, and the oven timer was going off.

    The rest is history. 2007 happened, and if that weren't bad enough, then 2008 happened. Ever since Bear and Lehman, banking has been in a downward spiral. And the thing that always made a difference in the past is no longer there - namely, the next big thing for Wall Street.

    Also, the past 40 or so years has been a regulatory environment of unmitigated de-regulation, which benefited the banks like no other industry in history. I think it's safe to say that the biscuit wheels have fallen off that particular gravy train, and things are only going to get tougher from a regulatory standpoint over the next decade. Here Wall Street isn't helping itself out by getting caught doing something else to circumvent both the regulations and just plain common sense every couple of months.

    Having personally witnessed three "boom and bust" Wall Street hiring cycles, it is my opinion that this time is in fact different, and that the industry won't make a comeback for at least 10-15 years (barring another black swan event like the advent of the Internet).

    So the question becomes: is it worth it to wait it out and see if things get better? Or does it make better sense to do something else? The guys at the top are going to get paid regardless, because that never changes. But entry level and junior guys are going to continue to get squeezed, and at some point the diminishing returns take over. Would you do this job for $50,000 a year all-in? Don't say it can't happen, because I've seen it happen. Average stockbroker pay when I started was $118,000 a year - today it's $34,000.

    Didn't mean to write such a long-winded response. This is just what was going through my head the past couple days.

  • rls's picture

    The problem is that the pay structures were not reasonable to begin with- built during a period of unreasonable fiscal and monetary policies. Now the party is over. People always have a hard time going backwards, even if there current position is untenable.

    Bene qui latuit, bene vixit- Ovid

  • BlackHat's picture

    Banking needs to cut more jobs?

    Wish. Granted.

    -Deutsche Bank

    I hate victims who respect their executioners

  • BigBucks's picture

    so.... f finance and just go to med school then?

  • In reply to BigBucks
    Asatar's picture

    BigBucks:
    so.... f finance and just go to med school then?

    Do what you are interested in and makes you happy, not what has the best entry / exit ops. If you are good at something, you will succeed.

  • In reply to Asatar
    Amphipathic's picture

    Asatar:
    BigBucks:
    so.... f finance and just go to med school then?

    Do what you are interested in and makes you happy, not what has the best entry / exit ops. If you are good at something, you will succeed.

    With the rise of Obamacare and other American gov't interventions in the health care industry, med school is prob the worst investment yet. Its no coincidence that Canadians have a shortage of doctors.

  • BigBucks's picture

    I started pre-med and I do enjoy science but I also enjoy business. I am impatient that is why I decided med school wasn't for me(don't wanna wait 6-10 yrs after undergrad to start making real money) but with all this talk of IB as a job being terrible (posts on this forum) and of the IB industry being totally unstable right now I have been reconsidering. I understand the worries regarding obamacare but at least if I'm a doctor i'd be helping people and I feel i'd be more willing to accept the lower pay than in IB (if lay-offs continue and bonuses keep shrinking).

  • 3176401's picture

    Its not such a bad deal if you go to an ivy med school (assuming you get FinAid) or go to a state school. Primary care physicians reported incomes of 213k this year, and its probably going to go higher with obamacare. Doesn't seem like such a bad deal considering they work 40 hour weeks.
    http://www.forbes.com/sites/brucejapsen/2012/07/10...

  • In reply to Edmundo Braverman
    Hooked on LEAPS's picture

    Edmundo Braverman:

    Having personally witnessed three "boom and bust" Wall Street hiring cycles, it is my opinion that this time is in fact different, and that the industry won't make a comeback for at least 10-15 years (barring another black swan event like the advent of the Internet).

    Apparently we live in the golden age of science and technology. Hopefully nanotechnology, robotics, or green energy has a major break through and creates another bull market before I graduate.

    Competition is a sin.

    -John D. Rockefeller

  • In reply to Edmundo Braverman
    BiotechBanker's picture

    Edmundo Braverman:
    the industry won't make a comeback for at least 10-15 years (barring another black swan event like the advent of the Internet).

    So the question becomes: is it worth it to wait it out and see if things get better? Or does it make better sense to do something else?

    To those looking at this remark, I say this: http://artofmanliness.com/2012/07/27/leadership-le...

    Wait it out, but be prepared to step up to the plate when the time comes and be a leader.

    "Live as if you were to die tomorrow, learn as if you were to live forever."

  • In reply to PennTeller
    BTbanker's picture

    PennTeller:
    I agree with her completely.

    Ask the Detroit auto worker what happens when the profit pool leaves the industry.


    umm... get bailed out, then bring in record profits after a few years?
  • TheKing's picture

    Tom Keene's face when she said "condiment products" killed me. Too fucking funny.

    Total side note - does anyone else find themselves watching / listening to Bloomberg over CNBC? I find it's coverage to be completely superior and way less driven by hype.

  • imallcash's picture

    "I would argue that the banks... are... haven't finished firing.... and they are really... middle way through firing." Watching this was like nails on a chalkboard. Que the girl at 6:50 who actually has some tangible numbers/facts to speak to. All I heard from Meredith was "I like turtles".

    It's all manipulated with junk bonds. You can't win.

  • In reply to imallcash
    TheKing's picture

    imallcash:
    "I would argue that the banks... are... haven't finished firing.... and they are really... middle way through firing." Watching this was like nails on a chalkboard. Que the girl at 6:50 who actually has some tangible numbers/facts to speak to. All I heard from Meredith was "I like turtles".

    I agree with this to a large extent. It seems like Whitney went on without being fully prepared. This ain't CNBC, bitch!

  • FormerHornetDriver's picture

    How does MW even come up with this number? Does she have any idea how deal flow will be in the coming months? From what I have heard, companies are sitting on the sidelines waiting for the Election and Euro Crisis to play out (Not that they are optimistic about either, they just want to know what kind of hand they will have dealt to them) and then things will pick up again.

    What I would ask MW, specifically is this: "Other than the contraction of the structured financial products markets, what exactly has changed about the economy that will keep companies from issuing debt and equity, advising on M&A, etc.....?"

    Sure, SOX and Dodd-Frank may have put the handcuffs on some of this activity but core demand for traditional investment banking business is not going to go away.

  • El_Mono's picture

    Next big thing is in health, but thats 10yr from now id say.

    Valor is of no service, chance rules all, and the bravest often fall by the hands of cowards. - Tacitus

    Dr. Nick Riviera: Hey, don't worry. You don't have to make up stories here. Save that for court!

  • FormerHornetDriver's picture

    By the way, friends of mine who work in IB at Wells, Jefferies, HLHZ, and ST Robinson Humphry are all hiring on both the senior and junior banker level. Granted, NONE of these jobs are in NYC and a lot of them are doing deals in the MM and with companies with only a regional focus. These numbers also probably depend a lot on groups as well. I friend of mine who works in an energy group in H-town is doing a shit-ton of deals.

  • In reply to BiotechBanker
    humble_dude's picture

    BiotechBanker:
    Edmundo Braverman:
    the industry won't make a comeback for at least 10-15 years (barring another black swan event like the advent of the Internet).

    So the question becomes: is it worth it to wait it out and see if things get better? Or does it make better sense to do something else?

    To those looking at this remark, I say this: http://artofmanliness.com/2012/07/27/leadership-le...

    Wait it out, but be prepared to step up to the plate when the time comes and be a leader.

    Thanks for the link, amazing story!

  • In reply to BTbanker
    PennTeller's picture

    BTbanker:
    PennTeller:
    I agree with her completely.

    Ask the Detroit auto worker what happens when the profit pool leaves the industry.


    umm... get bailed out, then bring in record profits after a few years?

    In 2006, GM had about ~150K employees in North America. In 2011, that's closer to 100K.

    So, you're right to a degree. Shareholders who owned the company post bankruptcy did pretty good. Executives made out like bandits. I doubt that did the line worker all that much good.

    Put another way, profits have to come from somewhere. Either you grow or you cut costs. If banking can't grow, then it will cut costs. DB was up a couple percent on the news that it would take a chainsaw to its investment banking businesses.

    With so many banks underearning their cost of capital (especially on the cap markets side), I imagine most banks will come to the conclusion that they'll need to slash capacity. I really hope I'm wrong though.

  • In reply to Edmundo Braverman
    Ron Paul's picture

    Edmundo Braverman:
    It was almost as if Wall Street (with Greenspan's later help) had been baking up the perfect shit sandwich for almost 30 years, and the oven timer was going off.
    ...
    I think it's safe to say that the biscuit wheels have fallen off that particular gravy train

    Now I'm hungry! Hilarious.
  • In reply to Ron Paul
    BlackHat's picture

    Ron Paul:
    BlackHat:
    Banking needs to cut more jobs?

    Wish. Granted.

    -Deutsche Bank


    BH, as a "higher up" banker, how do you plan to make deals happen in this environment?

    I fucking love you Ron Paul.

    (not the first time I've said that to someone named Ron Paul)

    I hate victims who respect their executioners

  • BlackHat's picture

    More cuts at UBS today too... DealBreaker comment of the day:

    "My advice? Trade like you've never traded before.

    -K. Adoboli"

    I hate victims who respect their executioners

  • mwgr5's picture

    To answer this I think you have to look at it from a shareholder perspective and then drill down into the business lines. The core problem with the investment banks and money center banks like JPM is a return on equity problem. Investment banks that were able to earn 30% ROEs in 2006 are now earning <10% ROEs that are not long-term acceptable. This is a function of two issues, one secular and one cyclical. The secular issue is that investment banks need to hold almost twice as much capital and other regulations make certain businesses less attractive (eg prop trading and private equity). The cyclical issue is just that investment banks perform poorly in a bad macro business environment like we have today.

    Applying theses issues to the layoff question, you have to think about which business lines are going to be most impacted by the secular issues and which are most impact by the secular issues. For example, S&T has and is going to get hit badly because it is capital intensive and regulations are specifically limiting some of the most profitable businesses that existed before, while a non-capital intensive, simple business like PWM is going to be much less impacted.

    I think the advisory investment banking business falls somewhere in the middle. M&A is a non-capital intensive business that has been around forever and will continue to be a strong business, but some of the capital markets functions that support IBD and have made IBD very profitable may be more impacted. I think part of the reason for layoffs at some of the BBs though is just an issue of over capacity for bankers covering large cap companies. There are a bunch of fixed costs that are required to have a competitive BB IBD business, but a large disparity in revenues between the top 3 BBs and the bottom 3 for example. As IBD revenues have failed to pick up, the bottom BBs aren't nearly as profitable and need to make cuts.

    I think once of some of this overcapacity in capital markets and at BBs with bad market share is cut out though, the IBD business should still be strong and a very high paying job. After all, the boutique banks or PE funds that aren't subject to all of these regulations will still always offer a bid away from a compensation perspective so to be competitive the BBs will still need to offer strong compensation. Also, more generally once the macro business environment improves the BBs have such high net income margins that small increases in revenue can drive large increases in ROE.

  • In reply to mwgr5
    Dreamgazing's picture

    mwgr5:
    To answer this I think you have to look at it from a shareholder perspective and then drill down into the business lines. The core problem with the investment banks and money center banks like JPM is a return on equity problem. Investment banks that were able to earn 30% ROEs in 2006 are now earning <10% ROEs that are not long-term acceptable. This is a function of two issues, one secular and one cyclical. The secular issue is that investment banks need to hold almost twice as much capital and other regulations make certain businesses less attractive (eg prop trading and private equity). The cyclical issue is just that investment banks perform poorly in a bad macro business environment like we have today.

    Applying theses issues to the layoff question, you have to think about which business lines are going to be most impacted by the secular issues and which are most impact by the secular issues. For example, S&T has and is going to get hit badly because it is capital intensive and regulations are specifically limiting some of the most profitable businesses that existed before, while a non-capital intensive, simple business like PWM is going to be much less impacted.

    I think the advisory investment banking business falls somewhere in the middle. M&A is a non-capital intensive business that has been around forever and will continue to be a strong business, but some of the capital markets functions that support IBD and have made IBD very profitable may be more impacted. I think part of the reason for layoffs at some of the BBs though is just an issue of over capacity for bankers covering large cap companies. There are a bunch of fixed costs that are required to have a competitive BB IBD business, but a large disparity in revenues between the top 3 BBs and the bottom 3 for example. As IBD revenues have failed to pick up, the bottom BBs aren't nearly as profitable and need to make cuts.

    I think once of some of this overcapacity in capital markets and at BBs with bad market share is cut out though, the IBD business should still be strong and a very high paying job. After all, the boutique banks or PE funds that aren't subject to all of these regulations will still always offer a bid away from a compensation perspective so to be competitive the BBs will still need to offer strong compensation. Also, more generally once the macro business environment improves the BBs have such high net income margins that small increases in revenue can drive large increases in ROE.

    Thank you sir for your insightful and pretty optimistic take on this.

  • FormerHornetDriver's picture

    Well put, mwgr5!!!

    The capital markets function on the underwriting and advisory side of IB is probably getting some spillover black-eyes from the closely-related S&T business that trade the products they underwrite.

    M&A will never go away. Glad that I am headed to an M&A group!!!!

  • In reply to PennTeller
    BTbanker's picture

    PennTeller:
    BTbanker:
    PennTeller:
    I agree with her completely.

    Ask the Detroit auto worker what happens when the profit pool leaves the industry.


    umm... get bailed out, then bring in record profits after a few years?

    In 2006, GM had about ~150K employees in North America. In 2011, that's closer to 100K.

    So, you're right to a degree. Shareholders who owned the company post bankruptcy did pretty good. Executives made out like bandits. I doubt that did the line worker all that much good.

    Put another way, profits have to come from somewhere. Either you grow or you cut costs. If banking can't grow, then it will cut costs. DB was up a couple percent on the news that it would take a chainsaw to its investment banking businesses.

    With so many banks underearning their cost of capital (especially on the cap markets side), I imagine most banks will come to the conclusion that they'll need to slash capacity. I really hope I'm wrong though.

    So should I stick to my plan of working at the elite boutiques and MM banks?

  • BTbanker's picture

    Edmundo Braverman:
    And the thing that always made a difference in the past is no longer there - namely, the next big thing for Wall Street.

    I wouldn't discount our future tech growth so harshly. If I explained what Google was to you when you were 22, you would piss your pants laughing. Now, I'm not talking about innovating the iPhone 8 or bullshit like that, but what if we discover a new form of energy? Point is, there will ALWAYS be a next big thing for Wall Street, no matter what.

  • prospie's picture

    Correct me if I'm wrong, but I don't think she's talking about traditional advisory groups. People here seem to think that's all investment banks do.

    Maybe the thread title is a little misleading ("IBD"), but a TMT advisory team, for example, is very small potatoes compared to the rest of a financial supermarket like Citi, both in terms of payroll expenses and in terms of impact on the earnings of the entire bank.

  • In reply to BTbanker
    Edmundo Braverman's picture

    BTbanker:
    Edmundo Braverman:
    And the thing that always made a difference in the past is no longer there - namely, the next big thing for Wall Street.

    I wouldn't discount our future tech growth so harshly. If I explained what Google was to you when you were 22, you would piss your pants laughing. Now, I'm not talking about innovating the iPhone 8 or bullshit like that, but what if we discover a new form of energy? Point is, there will ALWAYS be a next big thing for Wall Street, no matter what.

    You're right, of course, and there are a few things on the horizon that could fit this bill. What you have to keep in mind, however, is how long it would take for the Street to not only securitize whatever new tech was invented, but then staff up to create the next bubble.

    In other words, somebody could invent a carburetor that runs on salt water tomorrow, and it would still be almost a decade before the Street was back to models and bottles. And, to my knowledge, no salt water carburetors are in the offing at the moment.

    So if I'm a college kid plotting a course for the next decade of my life, am I going to go all-in on a Wall Street-saving technology that may never materialize, or am I going to study computer science and have to beat offers off with a stick?

    To use your Google example: sure Google took everyone by surprise. But at the time, the investment banking infrastructure was in place to handle it. Consumer computing had taken off in the 80's, and even though we'd never heard of the Internet, the hottest deals in the early 90's were the software companies - especially the new CD-ROM producers. When the Internet finally came around, the Street already had a pretty good base in that technology, so it was pretty easy to roll out.

    But when your whole bread and butter for the past 12 years has been mortgage related, it stands to reason that your tech muscles have probably atrophied a bit. Case in point: the TMT guy above who points out what a small group that is at his bank.

  • blastoise's picture

    lol @ all the people trying to say m&a isn't dead, your out of touch with reality

  • In reply to BTbanker
    PennTeller's picture

    BTbanker:

    So should I stick to my plan of working at the elite boutiques and MM banks?

    Fuck if I know.

    But I'd rather work for a privately owned business that only really has to answer to its employees/partners rather than a publicly traded one that has to answer to investors.

    The "safest" parts of the banking structure in this scenario (M&A, restructuring, advisory type services) have always struck me as basically breakeven type propositions that could be best hived off into boutiques where the principals could just charge the same fees and take home the same pay, all without having to compensate shareholders. My theory has been that the publicly traded banks tried to turn it on its head by using advisory type services to cross sell ECM/DCM services into their clients and then built big trading operations around them leverage the skillset.

    To the extent that BASEL III capital requirements has made all the ECM/DCM/Trading operations less profitable because of the need to hold more capital to backstop them, it would seem that advisory type services would correspondingly be less worth holding onto and would eventually migrate to the boutiques who don't mind operating at breakeven because a partner gets compensated anyway.

    But again, fuck if I know.

  • In reply to blastoise
    BTbanker's picture

    blastoise:
    lol @ all the people trying to say m&a isn't dead, your out of touch with reality

    No, I'm in touch with humanity.
  • In reply to blastoise
    GS's picture

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  • ILOVENYGUY's picture
  • In reply to BTbanker
    BlackHat's picture

    I hate victims who respect their executioners

  • In reply to GS
    Wage Slave Number 9's picture

    "I'm tired of this back-slapping "Isn't humanity neat?" bullshit. We're a virus with shoes, okay? That's all we are."
    - Hicks

  • In reply to TheSquale
    Wage Slave Number 9's picture

    "I'm tired of this back-slapping "Isn't humanity neat?" bullshit. We're a virus with shoes, okay? That's all we are."
    - Hicks

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