No chance. I know a lot of people mention IB for two main reasons. Money and Exit Ops.

Well I have to believe that starting next year you will see ibanking top end bonuses (for analyst) cut in half. Is 90/wk worth $90,000 a year? Not to me.
Less PE deals will lead to lower profits which leads to lower bonuses.

As far as exit ops, PE will begin laying people off and there won't be jobs for just any 'Regular Joe' IB analyst.

 
Best Response

PE hiring may slow, but I don't expect to see any massive layoffs. Most people don't realize how thinly staffed these shops already are.

I would expect to see more substantial changes in the people-heavy IB depts. If conditions in the debt markets continue, the deals that do get done will almost certainly be driven primarily by cash or equity financing, resulting in a lower valuations. Lower valuations will inevitably wane sellers' demand to go to market, leading to reduced M&A activity across the board.

Of course, I'm still waiting for someone to regurgitate the argument that corporate buyers will go on some sort of buyout binge - since clearly, the banner years of 2001 and 2002 gave us some insight into what happens to M&A activity when purchase multiples come in at bargain basement prices of ~5.0x EBITDA.

boozer:
Anyone have comments about consulting as an industry during down years? I've only interned/worked during boom years so I don't know quite what its like. I know a lot of MBAs got fucked both in my firm and other firms (they got their start date pushed, and some got their offers rescinded for a 10k severance).

I'd like to know this too. I haven't heard anything bad so far, but do you think this would affect analyst (undergrad) hires? Also, did these MBAs get fucked this year or back during the dot-com crunch?

 
smuguy97:
WizardofOz:
top end bonuses will not be cut in half

Please correct me if I am wrong, but weren't "top end" first year bonuses in 2003 only $30-40K?

What does 2003 have to do with 2008? Its an entirely different marketplace. Bonuses are as much a reflection of the market as they are of competition. Hedge funds and PE shops are still paying for talent and so banks will do the same. Top end bonuses aren't going down to 45k, you might see a dip back to 70k but nothing worse.

 
smuguy97:
WizardofOz:
top end bonuses will not be cut in half

Please correct me if I am wrong, but weren't "top end" first year bonuses in 2003 only $30-40K?

bonuses summer 03 where 10-30k.

 

top end bonuses will not be cut in half, but they will be reduced by at least 25-30%.

Since debt will not be as easily accessible as it once was to finance deals, companies will be using cash or equity majority of the time. As smuguy said this lowers valuation causing sellers to reduce their demand to come to market.

Basically PE is not going to be anywhere near as hot as it was say 3-4 years ago or even today.

Without the ability to use debt to finance deals, PE shops are definitely in for a rude awakening and we have seen this problem cause the worldwide markets to go to the shitters recently.

 

consulting is not a cyclical industry. look at it this way, in good times, companies in certain industries and sector segments are looking to consolidate their market share and expand so they hire consulting firms to make this happen. Also since its "boom-time" they can afford their high fees so its all rosy rosy for consulting firms.

In bad economic times, its still all good for consulting firms (most especially MBB). companies are looking to restructure and prevent themsleves from losing too much of their client base. of course some companies during bad times cannot afford consulting fees but these are typically not the fortune 500s of the world.

so come rain, come shine, consulting firms rock the fees.

 
notanothertool:
consulting is not a cyclical industry. look at it this way, in good times, companies in certain industries and sector segments are looking to consolidate their market share and expand so they hire consulting firms to make this happen. Also since its "boom-time" they can afford their high fees so its all rosy rosy for consulting firms.

In bad economic times, its still all good for consulting firms (most especially MBB). companies are looking to restructure and prevent themsleves from losing too much of their client base. of course some companies during bad times cannot afford consulting fees but these are typically not the fortune 500s of the world.

so come rain, come shine, consulting firms rock the fees.

Where exactly did you hear this? I worked at one of the MBB firms in '04 and heard all sorts of horror stories from '01-'02. Hiring was cut back dramatically, and a number of the consultants were actively "managed out" of the firm.

While debt markets don't have a major impact on consulting firms, the general economy most definitely does. Any time corporate profits take a hit, the first reaction from companies is to reduce their high cost, discretionary spend on consulting services (think of it as "luxury capex"). Agreed that companies should be looking for market share and other growth opportunities in a downturn, but this is far removed from how things actually play out.

 

01 and 02 was different. MBB admits they did overhire and were caught off guard by being part of the mass hysteria at the time.

I heard this from an Mck EM and I specifically asked this same quest and that's exactly what she told me.

I mean granted, consulting services are a luxury capex, but this does not cut across all companies and sectors and once you reach the MBB level, most business executives are pretty sure they'll be getting value for money

 

PE analysts and associates will not get laid off at the biggest PE funds like KKR, TPG. Regardless of the double whammy hitting them right now (cannot raise debt, extra equity investments lowers IRR due to less leverage), they still have billions of dollars to invest. They can't just return the billions of dollars or put it into a savings account at a bank. Plus, at the top-tier PE/VC/HF level, the analysts/associates within these firms have a lot of proprietary knowledge that is very valuable. Furthermore, they also have a lot due diligence knowledge and have insider information regarding portfolio companies. If they are 'laid off' other firms will quickly pick them up for their specialized knowledge, at least, this is true in the growth equity and non-seed VC investment area. So, I can assure you that no one is "scared" of becoming "unemployed" any time soon. Also, smaller growth equity funds like Summit/TA are unlikely to have problems. The only real problems will be in the LBO funds like Blackstone and KKR. Of course, the intensity of recruiting for PE analysts will start to go down since that entire asset class will reduce in attractiveness. HFs will face a similar fate, although I believe that many of the smaller HFs will get wiped out and only the best will survive. Furthermore, the current credit environment means that all the HF/PE funds that are less than 2 years old are also now very likely to get shuttered if they are unable to achieve critical mass needed to pay for admin/overhead costs like rent, salaries, etc.

All that will happen is that the returns on these funds will no longer average 30%+. This is exactly what happened with the VC funds in the nineties.

You guys have to realize that unlike the sell-side, these funds still generate huge AUM fees and can usually afford the analysts and associates and the VPs. Since bonuses are tied to performance anyway, total compensation + bonuses will of course go down.

 

I don't think the pay cuts will matter that much for people already committed to the industry. Yeah, you may only be making $120k now, but at the same time, that's STILL twice as much as your friends. The truth is, there are only so many jobs a banker is qualified for and they all more or less follow the same cycle.

I could see the industry being less attractive to potential new grads, but there really isn't an alternative out there for those who want a proven path to wealth. On the other side of things, I'd argue that us young guys are in the best position. I'd rather be getting a low bonus now when it is a matter of 20 - 30k. When I'm 30 and looking to buy a big time house I'm not going to want to be suffering from a downturn. Lastly, we are just starting to build up our 401k's. I would love for the market to correct itself so I can buy in cheap versus those who have a lot more to lose when the markets turn south.

CompBanker’s Career Guidance Services: https://www.rossettiadvisors.com/
 

Let's not extrapolate a few weeks of temporary market dislocation to armageddon. There are still tons of capital out there. Government investment corporations (UAE, Saudis, Chinese, Singapore) alone are sitting on half a trillion of capital just waiting for the dust to settle so they could pick up assets at 50 cents on the dollar. There may not be many bidders for MBS, but real assets are going to be in demand. So PE and IB are going to be fine.

notanothertool:
boozer: if 01 and 02 were not anomalies you'll need to explain why consulting firms didn't trim down in other times of major crisis

Could you clarify what crises you are referencing? 2001 and 2002 represent that most recent material market cycle - you'd have to go back to the mid 1990's for anything earlier, which I doubt any one on this board has a good perspective on.

To be clear, consulting (particularly for high priced MBB firms) has always been considered a supercyclical.

 

You guys really really need some perspective. Consultants may not get the 100% bonuses of ibanking, but other than finance it is probably the highest paying profession that any undergrad can aspire to (someone correct me if i'm wrong). Also in down years, the pay is essentially the same between consulting and finance.

notanothertool you are completely wrong about the job security part; consultants get laid off all the time. In mckinsey you get a 6 month warning period, then you're out. In fact the only major firm that doesn't pressure you to progress is Monitor.

 

There is a CNN Money article today about the topic,entitled Wall Street: Jobs at Risk. http://money.cnn.com/2007/08/16/markets/wall_street_bonuses_jobs/index…

Some excerpts: One place Wall Streeters may find solace is in private equity firms, which while hit by the debt crunch, may not be as quick to cut jobs as a result.

"It seems like the reaction of investment banks sometimes is to throw a switch and freeze hiring - but private equity doesn't always work that way, said Brian Korb, who heads the private equity practice at New York search firm Glocap.

While private equity firms may find financing harder to come by, they have some flexibility. Buyout funds have been raising record amounts of money, and since investors commit money for the long-term, they aren't subject to redemptions the way some hedge funds are, Korb said.

But instead of splurging on Ferraris and fine art, Wall Street professionals may want to start saving. Johnson expects bonuses to start falling, by as much as 10 to 15 percent, in 2008, although others say it's still too early to forecast a downturn.

 

'In bad economic times, its still all good for consulting firms (most especially MBB). companies are looking to restructure and prevent themsleves from losing too much of their client base. of course some companies during bad times cannot afford consulting fees but these are typically not the fortune 500s of the world.'

I haven't been through bad times yet, so I can't say for sure. I've been fed this before when interviewing with consulting firms and frankly, it sounds like bs to me. If you're in M&A consulting at MBB and there's no M&A there's nothing you can do about it.

 

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