eFinancialCareers

A demanding workplace with outstanding rewards.

Want to work in an investment bank? You’ll need to fight for it. At the start of 2007, graduate recruiters at banks and fund managers expected vacancies to rise nearly 18% to around 3,000, according to the Association of Graduate Recruiters. But tales of multi-million pound bonuses mean more people want a piece of the investment banking action. Student research company High Fliers puts the number of applicants per banking job at (wait for it) 60:1.

Even if you manage to elbow 59 people aside to land one of those coveted traineeships, there’s no guarantee you’ll become a millionaire. Why? Investment banks only pay mega-bonuses to the best people, typically after six years or so, and then only when business is really good. When business is bad, banks are equally quick to make people redundant and bonuses are a lot lower.

A career in banking is a bit like the lifecycle of a butterfly: you’ll have to put in time as a hardworking grub (analyst/associate) before you can metamorphose into a beautiful winged creature (managing director). There’s a constant risk of being squished if unsuccessful – and throughout your life you’re liable to be snuffed out by an adverse economic climate.

Most of the biggest investment banks are either US-owned (eg Goldman Sachs, Merrill Lynch and Morgan Stanley) or continental European (eg Deutsche Bank, Credit Suisse and UBS). They carry out many activities, such as advising on mergers and takeovers; helping companies raise money by issuing bonds and shares; buying and selling bonds, shares and other securities; and managing funds.

Pay for performance

Investment banks pride themselves on being meritocracies. For example, Tracey Hahn, head of leadership and talent management for Europe, the Middle East and Africa at Merrill Lynch, says the bank fosters “a meritocratic and fully inclusive work environment,” and a culture that provides people with “the opportunity to advance as high as their commitment, ambition and talent will take them.”

In plain English, this means if you work hard and have a talent for banking (i.e. make lots of money for your employer) you will both be promoted and be well paid. But don’t expect to be paid unless you perform. “Even for managing directors, banks rarely pay base salaries higher than £260k,” says Lee Thacker, partner at headhunter Heidrick & Struggles. “The rest is performance-related bonus.”

Hiring and firing

Following annual talent reviews, banks such as Goldman Sachs regularly cull up to 10% of their worst-performing staff and Thacker says the practice is becoming more common.

If banks get rid of 10% of staff as a matter of course even in good years, they’re a lot more brutal when business turns. According to the think tank Centre for Economics and Business Research (CEBR), some 35,000 jobs were chopped in the City of London between mid-2000 and early 2003. The bloodbath followed several years of vigorous hiring worldwide – in 2001, the global headcount at Goldman Sachs was 25,000; by 2003 it was down to 19,500.

In 2007, however, banks were back on top. By the end of the first quarter, Goldman Sachs employed nearly 27,000 people globally and by mid-2006 the CEBR said employment in the City of London exceeded the previous record at the height of the dotcom boom.

But after several good years and a credit crunch, are we in danger of another downturn? Banking recruiters say it’s just the nature of the beast. “There’s no doubt that we’re near the peak, but the risk of losing your job when times are bad is the natural corollary to making huge amounts of money when times are good,” explains Logan Naidu, a consultant at recruitment firm Cornell Partnership. “Banking is cyclical. It’s very rare nowadays to go into banking thinking you will never be unemployed – if you want a risk-free job, become an accountant.”

Riding the wave

What can be done to minimise the risks of being rudely turfed out if things turn nasty?

Philip Beddows, a partner and seasoned investment banking career coach at mentoring firm IDDAS, says the best thing is to go for a top-tier bank or boutique that offers excellent training: “If you start in division one, you can always move to division two later – the other way round can be more challenging.”

If you don’t manage to get an offer from an investment bank, an ACA (accounting qualification) can also be a good safety net and allow you to move into banking later on. Naidu tells of one candidate who couldn’t get into banking in 2001, so spent three years training for an ACA. In 2004 he moved into investment banking and in 2007 got a job in private equity. “Careers in financial services are all about riding the cycle,” says Naidu. “If you can stay on the board throughout, you’ll do well. And if you fall off, you’ll need to get back on quickly.”

Hot sectors

Bearing in mind the roller-coaster nature of the investment banking industry, it’s worth giving some thought to where you want to work. Fixed income? Equities? Corporate finance? Choose carefully. You are not just selecting a job; you’re positioning yourself in the financial services market, some areas of which are likely to be more healthy than others. Look at the individual sector articles for more detail, but for a quick guide to hot sectors, read on.

Mergers and acquisitions Mergers and acquisitions is a volatile sector in which to work. When things are hot, they’re very hot. But when M&A deals stop happening, these bankers are often among the first to be shown the door.

In 2007, however, M&A bankers were sitting pretty. In the first quarter of the year, deals announced in Europe rose 14% to $531bn, according to information provider Thomson Financial. And soaring M&A deals inspired banks to add staff – an April 2007 poll of 250 M&A bankers by Financial News found 69% of respondents in the UK were looking for talent.

“Deal flow is still strong and a lot of banks are hiring,” says Adam Cairns, a director at Fennemore Banks.

Derivatives sales and trading Demand for derivatives specialists has been hot for years. Derivatives are complex financial instruments based on underlying stocks, bonds, currencies and assets. Hiring has been driven by the quest for better returns and by banks’ ability to charge more for complex derivative ‘solutions’ than for simple equities or bonds. At their simplest, derivatives may be futures, where a buyer purchases the right to buy a product at a future date and price; at their more exotic, they may be single tranche collateralised debt obligations, where investors buy debt products catering for their risk appetite.

The August 2007 crisis in the credit markets and related problems have temporarily halted hiring. New products may emerge that overcome the turmoil and reinvigorate hiring, but this remains to be seen.

Risk Right now, risk hiring is hot – and even if things get a little more ‘risky’, risk analysis looks like a good place to be. “If the cycle turns down, risk hiring will hold steady,” predicts Gail Connolly, managing consultant at recruiters PSD Group. “Banking is a regulated sector, so you will always need risk specialists for regulatory reasons,” she adds.

Research by PSD Group suggests over 40% of banks are adding risk specialists in 2007 and another 30% are replacing staff who’ve left. The best-placed jobs are in market risk or quantitatively-focused roles helping to price derivative products. As hiring expands, Connolly says some risk staff are getting bonuses equivalent to, or even more than, salaries – unheard of a few years ago.