Investment Banking: The Big Chance

You might've looked twice at the title and the industry in question and wondered, is she joking? You might've chuckled, thinking that it can't get much worse than being called a vampire squid.  I'd agree with you, and so would Professor Charles Murphy, who counters Wall Street naysayers with elegant simplicity. "Main Street's schadenfreude towards investment banking has accrued to the benefit of our students." Murphy argues that the people who are trashing the industry now are giving our students a big chance. He says that the industry needs to be fixed and revitalized and that Stern students have the opportunity to do just that. How on earth, you might ask? Dear readers, read on.

The investment banking industry wasn't always like this. When Murphy (Stern ‘74) began at Credit Suisse in 1976, banking "was more of a trusted, close, client-banker relationship business. Things were slower, deals were smaller and risk was much smaller, but it was still a very good living." Most importantly, perhaps, Murphy and his colleagues could physically see what their contributions to society were: infrastructure projects, energy plants, refineries.

When identifying major trends in the industry over the past twenty years, Murphy points to a shift away from this concrete nature of the business and to the development of very sophisticated financial product. "The output today is more financial than it is physical. There is this very interesting casino-type situation going on, in which people place bets and make money. But they really don't create anything. There is no product."

When this simple fact finally revealed itself, a house-of-cards effect sent various financial institutions scurrying under the protection of TARP. "It was a lesson learned for many people. I think that the hubris and egos got out of control as a function of the amount of money being made. It is closer to reality now as opposed to wonderland." The consensus among the alums questioned, including Murphy, Andres Copete ('06) and Krista Jablonski ('10) seems to be that investment banking's bad reputation will stay around for a while, but is not irreversible.

Both Copete and Jablonski point to revived, even pre-crisis-like deal flow and bankers burning the midnight oil. Murphy cautions, however, that there will be more lay-offs, although that isn't necessarily a bad thing. "It's the nature of the beast. It's a very Darwinian industry, people who are the weaker performers get removed very quickly and that opens up opportunities for our students to have a shot at the business."

The new regulations will force banks to make some changes. "We are going to see more conservative balance sheets, the business will go back to less risk, more lending, more interest in infrastructure projects, starting and helping new businesses, and less financial interplay amongst all the players in terms of making profits." The return on equity will come down from 35% to 18-20%, says Murphy, but hey, you'll "still be able to have a Ferrari, just not two."

Ultimately, the business will look "a lot more like it did in 1985 than it did in 2007" going forward. What does that mean? Murphy argues that concrete projects will lift banking out of the trenches. "Let's say you're an emerging country and have a water infrastructure problem. If you want your country to grow, you will need some very dedicated people to help you solve that water problem. They're going to have to have a passion for what they do, because it will take a while and be very difficult. Thankfully, I see those people in this school. I see a lot of very dedicated students who really want to help do things like that. It's pretty exciting actually."

Murphy continues, "I'd like to see more people in investment banking start to devote their careers to infrastructure objectives that will improve the world, and investment banking certainly lends itself to doing that." He sees the desire in our student body to address massive global problems we face today: healthcare, water, electricity, basic infrastructure such as railroads. "Countries need to be built and developed. Existing countries need to be retro-fitted and renewed. I believe that there will be an attitude shift from making money by creating financial games, to making money by solving problems." What Murphy is suggesting is that the recovery of the banking industry and possibly its glory days lie not only ahead but in your hands. If students like you – passionate people, forward thinkers – put your values to work and create concrete solutions for real problems, you will not only propel the industry to where it's never been, but also likely go to heaven.

Below is some practical job search advice from Copete and Jablonski, who currently work at Jefferies and Citi respectively, doing exactly what you wish you were doing. Here is what you need to get right, to get that big chance:

CS: How did you go about your job search while at business school?

KJ: Two weeks after I started Stern, Lehman collapsed.  Corporate presentations thereafter started with 30-minute speeches on how their firm was not going to collapse. I met with as many Stern alums at as many firms as I could. You start with the MBA2s who summered at your target firms, ask them all the "dumb" questions, then work your way up.

CS: What advice would you give students looking for a job in investment banking?

KJ: Attend all the firm events. Always be current on deals - WSJ is fine. Get the JobJuice cards on iBanking and know them by heart for interviews. Also get Valuation slides from Damodaran's site. Most importantly, you have to be persistent. Not all perspective employers were enthralled with my story or willing to take a chance on me. You can't take things personally.  Eventually, I think they saw the persistence as an asset to any organization.