Even a $90k MBA is no guarantee of a job in banking

From this link: http://news.efinancialcareers.com/uk-en/143265/should-you-do-an-mba-if-…

A Masters of Business Administration (MBA) has always been an expensive investment – if you study at Harvard or the London Business School, you’ll need to whop out $91k and £61k respectively. If you want to get into investment banking, it may not be worth it.

Investment banks are notoriously fussy about the MBA schools they hire from. There are a few perennial favourites (e.g. Wharton, Chicago, London Business School, INSEAD, Harvard and NYU Stern) and a lot of pretenders. Choose the wrong school and your investment will be wasted. It may be wasted if you choose the right school, too.

“Over the past few years, the number of jobs on offer in investment banking has fallen dramatically,” said Julian Birkinshaw, professor of strategy and entrepreneurship at the London Business School. “consulting jobs have been more resilient and a lot more students are going into industry and starting their own businesses.”

Employment figures from all the top schools reflect the decline. At Harvard Business School, 7% of 2012 students went into investment banking in 2012, down from 10% in 2010 and 70% below the peak of 12% who went into investment banking in 2007. At Wharton, 17.5% of MBAs went into investment banking last year, down from 24% in 2007. At Columbia, a massive 33% went into investment banking in 2007 – compared with 21% last year.

Officially, business schools’ career specialists say investment banks’ appetite for MBAs remains robust. “An MBA is still a valid route into investment banking,” said Jonathan Shepherd, associate director of MBA career and professional development at Harvard Business School. “Banks still hire Columbia Business School students in large numbers,” agreed Regina Resnick, associate dean, Career Management Center, Columbia Business School.
Banks don’t hire MBAs into sales and trading any more

Banks recruit MBAs into so-called ‘associate jobs’. Unofficially, MBA careers counsellors say the landscape for associate hires is unrecognisable compared with five years ago.

“I’ve been to see all the major banks over the past few months and every single one has told me that their associate pool for the summer is barely into double figures,” said the head of careers at one UK business school. “At the peak of the market, big banks would each be hiring 40 to 50 MBAs in London alone,” he added.

The decline can’t just be blamed on market conditions. This is a secular trend. There’s been a paradigm-shift in the way banks use MBAs: five years’ ago, banks hired MBAs into M&A and capital markets, and sales and trading jobs. Now they mostly just hire them into M&A and capital markets. “Fewer hires have been made in sales and trading as firms are more focused on analysts from undergraduate programmes,” said Resnick at Columbia.

In other words, forget the $90k MBA if you want to be a trader in an investment bank – get a trading job straight out of university.
Banks only really want MBAs with prior banking experience

The other big change is that it’s becoming harder to use an MBA as a stepping stone into investment banking from another industry. At London Business School, 58% of the MBAs who went into finance in 2012 came from a finance background, up from 55% in 2010. Another 23% came from consulting (and are likely to have worked with banks in a consulting capacity). Only 19% came from unrelated industries.

“Banks now are only really interested in hiring associates with relevant and interesting experience,” said the director of careers at one major UK business school. “Even people who have experience working for the Big Four accounting firms are struggling to get in.”

A senior M&A banker told us firms have got fed up with hiring jumped-up associates with no previous knowledge of the industry. “These MBAs come in at quite a high level and have no real experience. They end up managing people who are far more knowledgeable about banking than they are and this causes all kinds of awkward situations.”
The banking MBA pay freeze

To add to the discomfiture, banks haven’t really increased pay for newly-minted MBAs for years. In 2007, Wharton MBAs who went into investment banking were earning an average of $95k. By 2012, this had risen 5% to $100k. Technology starting salaries rose an average of 10% to $115k over the same period.

In the circumstances, top MBAs are exploring their options. Resnick said Columbia students are more often going into the buy-side, into middle-market banks and into boutiques. “The jackpot now is private equity or a hedge fund,” said the senior M&A banker. At Wharton, only 10% of the MBA class went into private equity last year, but the average private equity starting salary was $150k – a full 50% higher than the average in investment banks, suggesting private equity firms had the pick of the Wharton class.

Back in the UK, the MBA careers services director said banks are also competing against technology firms like Google and Amazon. “Amazon has an MBA programme and is very popular. Google doesn’t have a programme, but it hires MBAs into particular roles and sends people here to talk to the students about how to engage with Google if you’re an MBA,” he said. He dismissed reports that banks are short of associates and desperately need to make up numbers: “We haven’t had any banks coming to us and saying they’re short of staff. That’s not the case at all.”

 
Emo_Rhino:
Banks only really want MBAs with prior banking experience

The other big change is that it’s becoming harder to use an MBA as a stepping stone into investment banking from another industry. At London Business School, 58% of the MBAs who went into finance in 2012 came from a finance background, up from 55% in 2010. Another 23% came from consulting (and are likely to have worked with banks in a consulting capacity). Only 19% came from unrelated industries.

“Banks now are only really interested in hiring associates with relevant and interesting experience,” said the director of careers at one major UK business school. “Even people who have experience working for the Big Four accounting firms are struggling to get in.”

This must be specific to the UK. Everything I have heard from folks at M7 schools in the US is that banking analysts are using the MBA to get away from Investment Banking and the vast majority recruiting for Associate jobs are career-switchers.

 

Well, the article is correct in that S&T desks don't want MBAs. The number of MBAs getting hired by bank trading desks has declined considerably in the last 5 years.

I was under the impression though that M7 students did just fine with investment banking placement. Boothorbust put up internship placement report for this year at Booth, and those who wanted banking did not have a hard time getting offers. So this could just be a European dynamic (Europe's finance job market is considerably worse than the U.S.) at play here.

 

Do you have specific numbers to bolster your claim that GS and DB S&T recruit "heavily" for MBAs? Even if true, the vast majority of those MBA hires are going into sales, NOT trading. The MBA is simply not that useful for trading, and given the shift in trading towards more automation, it makes more sense to hire STEM undergrads than MBAs, who do not learn any technical skillset during their time in school.

 

and a $200K undergrad target degree is no guarantee of a job in...anything.

To stay on topic, they don't really address potential decline in demand among the students for ibanking. I go to a "target" and over the past 5 years, there has been an abso-fucking-lutely ridiculous increase in the number of "entrepreneurs" both at my school and the one down the street. The MBA kids that I can think of who went into IBD are few in number and were almost all from STEM backgrounds looking to switch.

 

The most puzzling thing is not the decline of MBA people going into IBD, but rather the ridiculous inflation in both UG and MBA intution fees. The author mentions LBS, who have made pretty substantial tuition hikes during the last few years.

 

how can someone writing an article like this have zero clue about compensation in the industry... making no mention of signing bonuses / bonuses in an article about jobs in banking and PE... really leaves something to be desired.

Also the reason only 10% of HBS people go to IBD is because not that many of them want to.

 

Absolutely. Getting MBB consulting out of college is VERY difficult; usually you need to attend a target, get strong grades, have solid extracurriculars, and then nail the case interviews. Because there are so few analyst slots available, you pretty much have to be perfect in the interview to get an offer. For associate roles, if you're at a M7 school, getting MBB is not that hard if you're well prepared for the cases.

 
Best Response
Hodor:
Antipodean:
Hodor:

When Basel 3 comes into effect shit is really going to hit the fan

Why?

The required capital ratio shoots up, lower ROEs, lower bank profits, comps slashed, fewer models and bottles to go around.

And you think that banks haven't been preparing for this? Have you listened to a single earnings call or read through a single bank's financial statements?

 
reformed:
Hodor:
Antipodean:
Hodor:

When Basel 3 comes into effect shit is really going to hit the fan

Why?

The required capital ratio shoots up, lower ROEs, lower bank profits, comps slashed, fewer models and bottles to go around.

And you think that banks haven't been preparing for this?
Have you listened to a single earnings call or read through a single bank's financial statements?

SB, good call just looked at GS’s 10q. Do you know why are they in a rush to implement these changes so quickly? My understanding what that the increased capital requirements were stepwise until 2019?

 

Harvard...90K?...LOL!

Besides that, there's probably a lot of truth in the article, denial and desperation will make people blow it off and try to disprove it, but there's probably some truth to it. With that being said, there's almost always (at least) two sides to a story, so no one should lose hope.

 
Hodor:

SB, good call just looked at GS’s 10q. Do you know why are they in a rush to implement these changes so quickly? My understanding what that the increased capital requirements were stepwise until 2019?

The Fed's been... encouraging banks with their testing of capital plans for the last couple of years now. If your planned distributions to meet the approval, the plan gets rejected and you look like a fool. Or, in Vikram Pandit's case, lose your job.

And that's on top of remaining uncertainty about Basel III requirements, perhaps a general reconsideration of how much leverage is safe within the banks themselves and the fact that you really don't want to be the last one left who has a few billion dollars in extra equity to raise when everyone else is doing the same, or has already done so.

Whatever the impact on ROE anyway, I think that IBD, given the reasonable competition that can be offered by institutions not as affected by Basel III and its relatively low usage of risk-weighted capital, might actually be less affected than some other parts of the industry.

Not that I think the overall impact will really stand out anyway, on top of all the other secular and cyclical pressures on the industry.

 
Antipodean:
Hodor:

SB, good call just looked at GS’s 10q. Do you know why are they in a rush to implement these changes so quickly? My understanding what that the increased capital requirements were stepwise until 2019?

The Fed's been... encouraging banks with their testing of capital plans for the last couple of years now. If your planned distributions to meet the approval, the plan gets rejected and you look like a fool. Or, in Vikram Pandit's case, lose your job.

And that's on top of remaining uncertainty about Basel III requirements, perhaps a general reconsideration of how much leverage is safe within the banks themselves and the fact that you really don't want to be the last one left who has a few billion dollars in extra equity to raise when everyone else is doing the same, or has already done so.

Whatever the impact on ROE anyway, I think that IBD, given the reasonable competition that can be offered by institutions not as affected by Basel III and its relatively low usage of risk-weighted capital, might actually be less affected than some other parts of the industry.

Not that I think the overall impact will really stand out anyway, on top of all the other secular and cyclical pressures on the industry.

The writing is on the wall and there will be serious changes coming.

I think ultimately you'll see GS and MS go private with GS going 1st. GS is the biggest SnT rev bank and going private is one of the only ways to circumvent the impending regulation and get back to his powerhouse businesses in prop trading and private equity.

 
BreakingInDamnIt:

The writing is on the wall and there will be serious changes coming.

I think ultimately you'll see GS and MS go private with GS going 1st. GS is the biggest SnT rev bank and going private is one of the only ways to circumvent the impending regulation and get back to his powerhouse businesses in prop trading and private equity.

I think if any management buyout ideas get floated for any of the big firms, I think it would have more to do with price. I can't imagine that any of these guys would be naive enough to think that the regulators would back off just because the firm happens to be no longer publicly traded. It's not about protecting shareholders after all, but about minimising the risk of their failure having systemic consequences - that's pretty much entirely unaffected by who actually owns the little of equity there is.

If anything, taking them private might turn out to be a huge headache to the new owners: capital requirements would be just as high (basically precluding the use of leverage to buy the equity in the first place), and if they get raised, then it might well be more complicated or expensive to find new capital than it would be to simply sell some extra liquid index-listed shares.

I can imagine some of them might be keen to get rid of their status as bank holding companies (though again, I think regulators would just step around that one with new rules in response). But PR-wise that could be tricky to do, and it would at any rate need quite a bit of lobbying to convince people that such a move would be about anything other than skirting rules.

It might just be easier to roll with the punches and raise the extra capital. So far, it seems like just not buying back shares and paying out less dividends has got them a fair bit of the way over the post-crisis years.

 

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