It's taken a while, but the changing of the guard at Barclays is another sign that the cultural changes called for at investment banks are finally being consummated.
At Barclays, needless to say, brash ex-Lehman bankers are moving on and understated intellectuals are moving up. Other banks have gone for a similar approach: Citi's CEO's has been lauded for his sobriety, Lloyd Blankfein has taken to pontificating about the nature of success, and risky behaviour is being curtailed everywhere. Getting on in an investment bank isn't about profit-generation and pushiness any more. Success is slower, less assured, more nuanced.
In the process, properties that led to progression in banking in the past have been superannuated by new character traits. If you want to get with the programme and to get on in banking today, you'll need the faculties below.
You can still make good money in banking, but you may not make all of it immediately. Some banks defer a high proportion of junior pay from a low baseline. Morgan Stanley, for example, is said to cap cash bonuses at a low $125k. Deutsche Bank will only pay all-cash bonuses up to €100k ($138k). Credit Suisse will only pay them up to $281k. UBS will pay them up to $343k.
$343k in cash sounds generous, but recruiters say high-spending junior bankers on cash bonuses of $138k and less are feeling the pinch. "The deferrals are fine if you're a senior banker and you're already in the deferral cycle and are getting previous years' deferrals rolling in, but if you're junior and you've only got one or two years' of deferrals, you're not whole. You have to wait three or four years before you get a full year's payment," says one.
If gratification is deferred in terms of pay, it's also deferred in terms of promotion. There are now fewer opportunities to get promoted beyond VP and director level. Bankers at these pinch-points in the hierarchy must wait, and hope.
As crude profitability and revenue-generation have been replaced as signifiers of success by risk-adjusted profits, cross-selling, values-embodiment and firm-wide performance, measuring alpha has become qualitative than quantitative. In the process, obsequiousness has become more important as a method of getting ahead. Daniel Beunza, an academic specializing in financial services culture at the London School of Economics, says carefully placed sycophancy works wonders when it comes to today's 360 degree assessments. Beunza says banking was less politicized when success was measured quantitatively.
Don't like your job? Don't want to move internally into a job in compliance? Don't like the fact that you're suddenly compelled to operate under tight risk limits? Suck it up.
In the past, it was easier for revenue generators to switch employers for a 20% pay increase when things weren't going to plan. It was almost unheard of for them to be offered internal redeployment to less remunerative roles in the front office. And when strict risk limits were imposed, it was easier for high-performing traders to set up their own hedge funds. Now, traders who moved to hedge funds have been moving back into investment banks. And even when a job isn't perfect, the risk of moving may outweigh the pain of staying. Success means compromise and pragmatism. The ideal of the high-paying job in the prestigious firm which is committed to building a business has disappeared. Nowadays, it's all about keeping your head down at a bank which is cutting costs but seems to be in it for the long run.
Banking has always been a business of perseverance and stamina, but this is more the case today than before. Out-performance in each quarter is expected. And yet out-performance in one quarter simply leads to more challenging comparables in future quarters (as Barclays has just discovered to its detriment). In difficult markets, where banks are engaged in a 'war of attrition' to stay in the game, the pressure is relentless.
Gregg Lemkau, Goldman's co-head of M&A, makes the perseverance point in an interview published by Bloomberg today. When you have a good year at Goldman, you have around a minute to celebrate your success, says Lemkau. "And then you start right back at zero, wondering, ‘How the heck do we do that again?’”
Being able to build relationships is becoming increasingly important for long term career success in an investment bank. This applies internally, where a broad network of contacts will be beneficial if you want a transfer out of a dying area. It also applies externally. Client relationships are still a key determinant of success. Chirantan Barua, an ex-McKinsey consultant and banking analyst at Bernstein Research, says banks will be home to two types of people in future: 'working ants' who make sure all the systems are working and senior bankers with relationships who can bring in the business.
Technology has become key to an investment bank's success. Goldman Sachs says that 25% of all its staff work in technology roles. JPMorgan now employs 30,000 programmers across the bank and is spending $48m improving the ambiance of its Bournemouth campus so that technologists choose to work there.
It's telling that John Hughes, the ex-UBS trader who was banned by the FCA last week, has re-positioned himself as a data scientist and programmer competent in Java, MySQL, C# and Python.
It's becoming increasingly difficult to get a new job in London if there's any intimation of wrongdoing on your CV. The LIBOR and FX fixing scandals means all banks are risk-averse when it comes to recruiting anyone who might be tainted by involvement in disreputable activities. Recruiters say the Financial Conduct Authority (FCA) takes many months processing applications for new jobs from regulated staff over whom it has cause for concern. This can be challenging. FCA sign-off only takes place after an individual has resigned from a current position and already signed a contract for a new role. Senior bankers with any kind of black mark on their CVs therefore have to take a leap of faith when changing jobs and hope that the FCA will approve them.
Your best chance of long term success in investment banking now will come from reinvention and a willingness to work in new business areas, with new products as the demand arises. Richard Woolnough, the top fund manager who earned $29m last year, said his experience investing in bonds and equities early in his career stood him in good stead. As banks like Barclays and Nomura turn to mixed-product trading floors, cross-product expertise will be a boon to markets careers in future.
The leading bankers of the future may not be those who spend wildly on orange Ferraris, but those who invest their money carefully with a view to becoming rentiers. Thomas Piketty, the French economist whose new book is required reading for the chattering classes, says the 'super-management' wave which gave rise to highly paid investment bankers in the last quarter of the last century, is due to pass as companies realize that the marginal gain from paying people extreme amounts of money is less than the marginal cost. The highest earners from the future will derive a higher proportion of their money from invested wealth, predicts Piketty. If you want to get ahead in banking, an industry where people are impressed by wealth and status, invest wisely now to mitigate any fall in income in future.
Six tips for making the most of a job you want to quit, but can’t
Goldman Sachs has been playing hidden camera pranks on its senior staff
Investment banks and private equity firms battle for ‘elite’ junior bankers