Bad time to enter the finance world?

LongOnly99's picture
Rank: Baboon | 112

Recently UBS, Lazard, and others announced sizable job cuts in anticipation of an economic downturn. I've heard that juniors (analysts, maybe associates) tend to be the safest in these scenarios (cheap, grunt labor).

  • Is this a bad time to be joining the job market, or is it true that junior employees are typically safer?
  • If things get worse, how likely is it that banks will terminate return offers?

Mod note: See related discussions here: Lazard Layoffs, and here: Soft Fired as Part of Firm Cuts.

Comments (47)

Oct 13, 2019

UBS has been a sinking ship for years, and Lazard has struggled with the loss of key senior bankers such as George Bilicic. Stop with the incessant recession mongering.

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  • Analyst 2 in IB-M&A
Oct 13, 2019

LOL this is making me laugh
So many banks are cutting and I guess for each of them is due to "bank specific issues"?

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Oct 16, 2019

It might just be just be that some banks didn't make the "right" strategic moves as over the last decade.

There are lots of Financial Times articles on how the European Banks have been behind the American Banks. Some even show revenue graphs of various banks across different functions they serve. The data shows that the European omes have just been really bad at targetting high growth pockets while more conventional pockets are declining as a whole or just stagnating. So they have been "sinking ships". Same might apply for boutiques that don't tend to be so "innovative"

Do you see JPM and GS cutting headcounts ? (Except for titles that are automatable)

Finance Data Science

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Oct 14, 2019

Who else have they lost?

Oct 18, 2019

I agree, all I hear about is recession recession recession. Yes, we will EVENTUALLY have a recession that is a given. I get it the yield curve.... but come on. Finance is honestly doing very well right now (at least in my city) and there are a ton of postings.

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Oct 13, 2019

Like said above, it may just be firm-specific problems.

What risks, like a loan crisis, could be present in the market 2 years from now.

  • Analyst 2 in IB - Ind
Oct 14, 2019
BillMurray:

What risks, like a loan crisis, could be present in the market 2 years from now.

You must have made a lot of money during the Great Recession.

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Most Helpful
Oct 14, 2019

I would consider the recent cuts as more of leveling off after a couple of really strong investment banking years. 2016-2018 were some really exceptional years for deal activity and banks hired a ton of people, increased class sizes, etc. to keep up.

I think now we are in a position where deal volume has certainly declined in 2019 but is still at a healthy level. Banks are making cuts where they need to trim the fat and reflect this new reality.

There are also a lot of firm-specific problems - especially with European banks. Two things I'll point out which should be obvious. 1) The U.S. market is by far the best market in the world to do M&A and thus U.S. based banks are doing significantly better than European/Asian based ones. 2) It is tough to do deals in Europe for a multitude of reasons including higher regulations, more relaxed attitudes towards M&A, difficult to cut employees post-integration, etc. This combined with a Euro zone that is barely growing over 1% is going to/is most certainly signaling trouble for banks who do a lot of deals there.

I've never worked at a Euro bank but for whatever reason (maybe it is culture, maybe it is client preference for U.S. firms) they have not been as successful in the U.S. market. Hence you'll see UBS, DB, (and probably CS and Barclays too soon), etc. continue to make cuts that are broader than U.S. counterparts.

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Oct 16, 2019

Between 2020-24, the global demographic wave will finally "crest" as the Boomer generation begins to retire en masse and so begins draining the system of capital into which they spent the better part of the last 40 years contributing.

Right now, the population of mature workers as a proportion of global population is at its peak. As this cohort inexorably edges toward retirement, they are shifting their portfolios into less risky assets. Less venture capital / PE, more bonds....

Finance has had its run for 40 years, but every king has his reign and then he dies. It will not be fun for Wall Street's next generation.

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Oct 16, 2019

What do you think is the new best industry?

Oct 17, 2019

Where is the evidence of the population crest?

  • Prospect in IB-M&A
Oct 14, 2019

Laz cuts were in asset management, not IB. Asset management is getting weaker across the board w/ slimmer fees and returns that arguably still don't justify them. As said above, UBS is its own beast. Doesn't reflect on banking as a whole

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Oct 14, 2019

I agree that we're seeing a lot of cuts in asset management, but I would argue it has much more to do with the fact that it's becoming increasingly difficult to generate alpha with larger fund capacity.

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Oct 14, 2019

True. In addition to large fund capacity, another challenge to alpha is the weak strategies that so much of the large asset managers utilize. Smart beta is a joke. And many fundamental shops are effectively index huggers with their 30+ names in a fund. If you don't do enough research to develop true conviction about a few names, you diversify and collect 1% until the clients realize you might as well be an index.

  • Associate 3 in IB-M&A
Oct 14, 2019

Its always been difficult to generate alpha - but you didn't have a choice. Now you can go with an ETF and invest with diversification, but without high fees. Asset Management will never be the same because of the shift to passive.

  • Analyst 2 in IB-M&A
Oct 14, 2019

Wrong.

Oct 16, 2019

Why are quant roles being posted on job boards then?

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  • Associate 2 in CorpDev
Oct 14, 2019

It's a bad time to be born, generally speaking

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Oct 14, 2019

I guess we're all gonna have to add a 2 year reborn phase before applying for deferred entrance to HSW's 2044 class.

Oct 15, 2019

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Oct 14, 2019

If you're thinking of it as a career, it won't matter that much 20 yrs down the road. Like a lot of things, if you have a long term view short term fluctuations don't matter as much.

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Oct 14, 2019

I was told by a couple of MDs that the best time to enter the industry is during a downturn. Something about riding the wave up.

Don't know how it applies to IB but makes sense for markets. As they say, every strategy is effective during a bull market, or something like that...

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Oct 14, 2019

From a quality source: "Recent cuts in Houston across Jefferies, Credit Suisse and Moelis at various levels (Directors, VPs and Associates)...Mainly upstream / A&D folks getting cut."

WSO's COO (Chief Operating Orangutan) | My Linkedin

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Oct 15, 2019

This is a stretch. I know for a fact that the Laz MM headcount reductions in Chicago were due to a rainmaker MD leaving the firm for a different bank.

Oct 15, 2019

To be fair, Laz main also lost a rainmaker (Bilicic) to an energy company which is a bit of a knock on banking. With many large caveats like the fact that its a unique sector and one data point.

Oct 15, 2019

Okay, but I wouldn't say an MD leaving banking for a corporate job is a knock on banking or a sign of a dying profession. That is nothing new, I've seen plenty of MDs leave to go to industry. They are replaced by underlings or by laterals and life goes on.

OP mentions trends at UBS and Lazard as being indicators of a recession and a bad time to enter finance. UBS has been a sinking ship for years and Lazard lost a few key MDs to other banks/corporate. That happens. They will move down the league tables and be replaced by other banks. Finance, and IBD, is not going anywhere.

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Oct 15, 2019

So many reasons why market timing is a bad idea. Here's just a few off the top of my head.

  1. Cycles are something of a myth. We assume the economy moves in large upward and downward swings. If this were true, then you could expect a downward swing at the end of an upward swing. In reality though, the size of swings is unreliable. You can have a small down move followed by a big up move, or small up followed by small down, etc etc etc. Really endless combination of possibilities and you can easily verify this by pulling a graph of your personal favorite indicator (GDP, market, etc) and see for yourself that there's very little pattern.
  2. In addition to the size of swings being unreliable, so is the timing. Pretend OP made this same post in 2015. It would have been as valid then as it is today. Back then, a lot of people felt "how much longer can this recovery continue?" I know of major PE shops at the time who were holding off on the next raise because "we are late in a recovery cycle". Imagine what a shame it would be for someone to not enter IB in 2015 and choose a different career path, only to be here 4-5 years later looking back on what could have been.
  3. Even if you hate the overuse of monetary policy tools as much as I do, you have to admit they have a strong stabilizing effect. The central bank's willingness to plug near-term holes by aggressively printing money is a terrible for our long term future, but kicking the can down the road certainly buys time. You don't know what they'll do at every FOMC meeting but you do know that they will take unprecedented steps to smooth curves, so a fair takeaway is that we are now in a monetary world that prioritizes near-term stability over long term health. So boom and bust cycles, even if you knew when they'd happen, may not be as large as they were in the past.
  4. Even if you know exactly what the market will do at all times, you'd still have the question of: is it better to enter in a boom time or bust time? Maybe entering in a bust (or even right before one, since juniors often stay employed) is the very best time to enter. Then again maybe a boom is the right time to enter because maybe it'll last 10 years like this last boom. So even someone with perfect knowledge of the future market still wouldn't know the right entry point.

The only reliable fact that I know of for career selection: the best people in every field are rich. Figure out what you'll be good at, very hard to fail if you pursue things that way.

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Oct 16, 2019
PteroGonzalez:

The central bank's willingness to plug near-term holes by aggressively printing money is a terrible for our long term future, but kicking the can down the road certainly buys time. You don't know what they'll do at every FOMC meeting but you do know that they will take unprecedented steps to smooth curves, so a fair takeaway is that we are now in a monetary world that prioritizes near-term stability over long term health. So boom and bust cycles, even if you knew when they'd happen, may not be as large as they were in the past.

I've been wondering about exactly this for the last month. Between bailing out the repo market and restarting QE aka "balance sheet expansion" they're essentially propping up the economy despite creating structural problems. Given the US is at 100% debt/GDP and Japan is at 200%, the perception among policy makers is that we have $22T +/- of balance sheet cushion against future recessions. Knowing politicians, there's no way they'll let a recession ever happen again if this works. This coupled with lowering rates, which as trump has figured out you can force if you hound the FED enough, seems to be the shape of things to come.

There's no justification at all for current market prices and we're overdue for a recession but the entire shape of the financial system is changing.

It's really weird too, that the dollar is so strong while it's essentially being debauched.

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Oct 16, 2019

I think the Fed knows that in reality, our $22T of debt doesn't even begin to describe our true level of liabilities. The real number is about 10x that . . debt plus unfunded liability. Our unfunded obligations are about $150T made up of Social Security shortfall, Medicare shortfall and gov't employee pensions/benefits shortfall. On top of that, throw in another soft $50T or so which is a rough calculation of the projected needs of seniors beyond what their benefifts and savings will cover . . this comes largely from increases in life expectancy and the expensive health care that gets us those increases.

So we have about $2 million of societal liabilities on every household in this country. In addition to the mortgage, student loan debt, credit card debt and every other personal debt that household might have.

I think the Fed sees this and says "yeah, no idea how to fix that shit, but I can do my part" which is to print away. Lower rates and QE have the same effect more or less, they just create more money. Trump is just a foil for them; he pushes for even more aggressive rate cuts and that allows them to look like old wise responsible stewards by resisting him. When in fact, they're slipping in as much printing as they can get away with in a good economy. They don't overdo it because god knows what happens when everyone figures the game out.

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Oct 16, 2019

I don't know about the industry more broadly but everyone on Bay Street is slowing down hiring to a snail's pace even if the banks are doing alright overall. I think the are trying to lean up and get ready for an economic slowdown as well as prepare to take up a greater market share where others have retreated.

Either way, no one is calling me back.

Oct 16, 2019

Hasn't this been the case for a while now? With oil and mining down, and now the Cannabis reality is sinking in, the economy is running on 3 legs. Watch for a slowdown in real estate and all the associated lending/brokering that will be affected.

KC

Oct 18, 2019

Well I really only had an inside view for a year's time and YTD job postings institution wide are down 30-50%. In Capital Markets/IB very little action, a lot of shuffling and mostly looking for seriously experienced professionals. Not too many opportunities for a greenhorn to get involved.

That said you are probably right, a lot of the Directors and such that I spoke to while networking and doing informational interviews said its a different game these days.
Oh and real estate slowing down in Canada is a nightmare since as you said all the associated lending/ brokering and not to mention construction also slows down,

Oct 18, 2019

Banks are unlikely to reneg offers from upcoming graduates or completely eliminate return offers for SAs. The former would absolutely kill their reputation with the school for OCR, while the latter isn't a good option because they've already invested a lot in SAs and had a chance to get a 10 week long read on them.

Much more likely to trim the fat from higher up the food chain or analysts/associates a couple years in whose performance isn't up to par.

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Oct 18, 2019

I am probably a little late to this discussion, but it's been a bad time for the past 15 years, at least compared to the 30 years before that. I was out with a broker for dinner last night and one of the senior guys was reminiscing about the old days - in the late 90s, early 2000s any idiot with a bloomberg was making half a mil. Research analysts used to get paid for banking. You could trade best effort and skim off the vwap.

Now shit is fucking hard. You have to do real work and do it well to get ahead. But the industry isn't dying. I started work in 2008 amidst waves of layoffs, and what it gave me was opportunity. If you are smart and hard working, there will always be a job for you in this industry. If you suck, then it doesn't matter if "times are hard" or not because this field isn't for you.

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Oct 18, 2019
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  • Intern in IB - Gen
Oct 18, 2019