As many readers of this column are undoubtedly aware, a series of watershed events beginning with the onset of the credit crunch in 2007 have dramatically changed the landscape of Wall Street and the U.S. financial system as a whole. After the collapse of Bear Stearns in March, many analysts declared that the worst of the crisis had passed.
Americans, however, have since been a captive audience to further financial drama, watching as broker-dealer titans Lehman Brothers and thrift institution Washington Mutual were added to the toll, and as Merrill Lynch’s sale to Bank of America and American International Group’s $85-billion bridge loan bailout by the Federal Reserve took center stage.
Collectively, Wall Street held its breath as the mighty Goldman Sachs’ and Morgan Stanley’s stock prices dropped precipitously Sept. 17. This was a reflection of the market’s uncertainty as to whether the independent or “pure-play” investment bank model was stable enough to navigate the current crisis without the added insurance of a businesslike commercial banking model to offset possible write-downs caused by “toxic” derivative and structured products. Indeed, as Securities and Exchange Commission regulators banned short selling on financial stocks, Goldman and Morgan Stanley scrambled to reorganize themselves as bank holding companies in order to gain permanent access to Federal Reserve lending facilities, even though it is foreseeable that the move will drastically reduce the scope of their capital markets operations and limit the amount of leverage they had previously employed to generate outsized returns.
Now, as government officials return to the drawing board after Congress rejected a proposed $700 billion bailout plan, the entire financial community is frantically trying to stop the bleeding.
Given all of this uncertainty and tumult, what does this mean for the numerous University students vying for these coveted Wall Street jobs? Mergers, bankruptcies, buyouts and restructuring plans have notably abridged the geography of the financial sector, and given that investment banks are now hesitant or unable to leverage themselves as highly as they previously could, sell-side earnings are likely to contract accordingly. Stunted recruiting and hiring quotas for both full-time and internship positions were already a reality for third- and fourth-year students looking to break into investment banking over the past year; what will the job market look like without many recognizable “bulge-bracket” names to sign University students?
Third-year Commerce student Steven Aramony said he transferred from Virginia Tech for the opportunity to be recruited by an investment bank on Wall Street. “The [job] market is so difficult at the moment for I-banking, and I’m worried about job security as well,” he said. “I’ve changed my focus towards consulting and corporate development jobs too.” Students may wonder if the lower leverage requirements will result in lower bonus figures, perhaps rendering investment banking a less lucrative or otherwise attractive employment option than it had previously been. With recently terminated bankers from major firms flooding Wall Street as a result of the massive restructuring, will recent graduates be in as high demand as they had been? Furthermore, what sorts of roles will recent graduates be able to fill in a business that may be, at least partially, returning to its “agency business” roots?
Despite the turmoil among the big names, however, keep in mind that many boutique mergers and acquisitions and restructuring advisory firms have been excelling in these unprecedented market conditions. I firmly believe that many of these boutique firms may soon be pushed into the limelight previously enjoyed by the bulge-bracket as the very nature of deals and investment banking operations changes. It’s also important to remember that, after all, someone will need to step up to fill the void left by the “pure-plays” and assume the business that was left behind. This great change certainly has the potential to spawn great opportunity; perhaps startup companies and new forms of financial institutions will prosper as they develop and adapt to the new regulatory environment. Current students may actually be fortunate insofar as they will be poised to ride the next boom phase of this cyclical business or otherwise adjust their course of study to best take advantage of the growth period that will inevitably follow. Even though this crisis has taken its toll worldwide, other international finance centers like London or Dubai may flourish and offer new and unconsidered prospects for students looking to work abroad.
So maybe it’s time to start looking at the future of Wall Street and American finance and expand job searches outside of the well-worn investment banking path. Who knows? The next hot financial business model could very well emerge from the aftermath of this crisis. All in all, for those of us with career aspirations in this field, we will certainly be witnessing a brand new conception of Wall Street.
Adam Wangner is a short fund manager in the McIntire Investment Institute. He can be reached at acw6d@virginia.edu.
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