UK
What a week! The axe is falling everywhere. Today’s survivors have nothing to rejoice about – after all, they live in fear of being tomorrow’s victims.
As for me, I have found a small cave to hide in and am witnessing this massacre from my temporary shelter. If the mute CNBC TV screen above my office desk is to be believed, the worst is yet to come.
The culling seems to be indiscriminate. One on hand, senior people are being fired because they are too expensive. On the other, junior people are shown the door because they won’t make money any time soon. Talk about burning the cigarette from both ends.
At the height of the dotcom crisis, banks were blamed for cutting prematurely. (I remember how Lehman thumped its chest on campus for not having laid off anyone in 2001 – only seven years later it has made up for it by screwing everyone.) Are banks repeating the same mistakes again?
I don’t think so. Banks need to use this opportunity to set things right. And that may mean getting rid of some of the people they’ve hired over the past few years, who have gone into the industry for the wrong reasons.
Banks could benefit from treating staff more like strategy consulting firms do. The two industries have a lot in common: consulting firms are extremely profitable, charge money for delivering intangible value (intellectual content), and pay their employees top money for working long hours.
Unlike strategy consulting firms, banks have made two big mistakes.
· Paying a quick buck: Consultants are paid well, but never too much, too early. MBAs flock to banking to make the quick money that will allow them to pay off their loans in no time. Similarly, analysts who join trading are lured by the prospects of making six-figure bonuses in less than four years. For many, banking is a funding machine, not a career option.
· Crash and burn: For every Dick who spends his entire career in banking, there are a hundred others who quit because they are either unable or unwilling to take the pressure. Sure, the drop-out rate in consulting is high as well, but consultants at least have the option of joining industry in a management role. The exit options for a CDS trader are pretty much limited.
The resulting occupational risk encourages a higher risk appetite. And this results in volatile returns. Instead of money, banks need to offer longer, strategy-consulting style career paths. Stability will give the traders and bankers the confidence to play the course instead of shooting for a hole-in-one.
Shutup with your nonsense, consulting is a rubbish career/job
I agree with the article that current compensation scheme incentivate people to take very high risks, but what’s the alternative? I think the alternative is to go back to small shops where senior management can really control everybody’s work. For example in a shop with 30 people, the top managers can really control everybody… while in a shop with 350k people like Citigroup, how can you control what’s going on?
Let me add that at the moment financial service’s industry laid off only 20% of workforce, and I think it will go to 40% before June09. The reason is that historically recessions that are driven by a bank crisis are longer and deeper than other recessions… the bank crisis started in may07 and now is not finished yet, so assuming that banks’ problems will be solved by march/april 09, the real recession will start in mid-09 and will bottom in december 09, with recovery clearly starting in spring 2010 (hopefully)
M&A, I think your projections are very optimistic. Given the scale of this banking crisis I think growth will be flat for many years. Unfortunately history doesn’t seem to teach banks – too much lending = over-valued assets = a necessary correction. A recovery will happen when banks feel they can lend again – if this happens by mid 09 I would be very surprised. Roll on 2012!
Why is everyone so convinced that there will ever be a real recovery? That seems to be the underlying assumption, but are we completely wrong in believing things will ever get back to ‘normal’ (if they were ever normal…)?
People have a very wrong idea of what is meant about bankers being expensive. It is not the salary of the senior bankers (talking about investment banking). Salaries of revenue generating MDs are capped at about 150k, if they do not bring in the fees, that is all they get for the year. When they are on a cost cutting programme, it is usually related to the fixed cost of just having a desk for a front-office person irrespective of seniority (I think its about US$2m).
Gnarf56,
I think the general story of global growth (started with China joining the WTO) is still in place… now is on pause due to the financial markets panic and credit crunch, and the appetite for emergin markets is ver very low at the moment… but at same point the story will start again… and once there will be no need for safety assets (USA Tresury) you will see that the USD will go at 2 against 1 Euro… and the next world crisis will be due to inflation generated by weak US dollar and high commodity prices…
strategy consulting is a crap job. project durations from 2weeks to 3 months, no accountability for results or implementation, no assurance on future projects, teams that keep changing, no P&L, lots of charts & opinions instead of compelling numbers, clients treating you like scum instead of vice-versa, crap career growth
Ex-ConSlatAnt, I find your point hard to accept, particularly given that most of my graduating class at business school would happily have traded their jobs within Merrill Lynch, Lehman Brothers et al for a position at McKinsey or BCG; Myself included!
I think what you said makes a lot of sense for the majority. Banking is much more hierachical than consulting. it is heaven for a few people who can follow or even make the rule of the game but hell for most people who follow suit, especially young people who cant afford being laid off every time to learn crisis management. Most of us who made it into a career leading to a star trader or banker believed we had that potential and luck. However it pays to be realistic sometimes, 99% is much greater than 1%, confidence doesn’t change statistics law. Also I think “make money as if there is no tomorrow” was the right attitude for a CDS trader.
in banking you at least do real stuff. in consulting you create no damn value. It’s no career.
I think the banks would get their acts together eventually if all comes out of this mess at all. It can’t be business as usually, the banking trading and credit rules are not based on any form of sound accounting/economic rules. It was an accident just waiting to happen and I dont think we should be suprised it happen at this magnitude.
I was previously an investment banker in one of the tops banks in Africa, after 7 years of target-chasing and daily excruciating pressure at the office, I decided to come over to the UK for a MSc degree in Finance hoping to continue my career here or at worst move over to consulting at the end of my programme.
Surprising when I was conducting my research on financial markets mid-last year, my supervisor and I saw a pattern that show there was imminent crisis about to rock the world financial markets. She advised me not to return to the industry immediately but to go for a PhD or I may be out of job sooner than I can imagine, I took her advice though I didnt believe her totally. Today am happy I took her advice and am hoping the mess is cleared by the time I finish my Phd in 2 years time.
Yeah, but the accident DID happen, so it’s probably a sensible move to continue with your studies, and then look for a job when it’s all calmed (!) down…