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 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.
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."
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."