“It’s over” – announced Christian Meissner to the employees of Lehman Brothers. Wow, I couldn’t have imagined a quicker way to fire 25,000 employees, push down FTSE World by 3.59% and end up somewhere on every newspaper’s cover in the world. Pretty impressive, I’d say. That ominous line, uttered on 15th September, almost two weeks back now, induced a truly frightening avalanche of financial chaos. Since the start of the ‘credit crunch’ last year Bear Stearns, Merrill Lynch, Goldman Sachs, Northern Rock, Bradford and Bingley, Halifax, Lehman Brothers and AIG have all encountered some kind of liquidity problem and drizzled every financial centre with gloom, depression and the memorable sight of city workers with their cardboard boxes. It doesn’t take much brain to conclude like Larry Tabb that “without doubt, the investment banking industry will never be the same”.
Indeed, the effects of the current financial crash will be more far-reaching than anyone can imagine, reflecting especially onto students. To begin with the obvious, graduate job prospects will dwindle. With 21% (totaljobs.co.uk) of graduates currently being employed in investment banking and fund management, the bankruptcy of subsequent financial institutions will result in a tightening job market. Already, HSBC has announced a cut of 1100 jobs worldwide and believe me, this is just the beginning. Say goodbye to glamorous receptions, free parties as part of on-camp recruiting and remember, those internships will be twice as hard to get. But this is not only about the City jobs. There will be ripple effects in industries not related to financial services, as firms face tougher market conditions and the easiest way to cope with these is to reduce costs and thus cut jobs. On the other side of the Atlantic, students’ anxieties are already prominent, with increased numbers of careers appointments booked and “nervous” and “apprehensive” atmospheres on campuses (Carl Kester, Deputy Dean for Academic Affairs at Harvard Business School). It is only a question of time when that mood will be transferred to UK universities – my friend already told me that “I will work in a bank, if there will still be any around”.
This is truly bad timing to be a graduate entering into the real world. Not only is the job market hostile, the housing ladder is steeper than ever. But some would say the prices of houses are falling, aren’t they? Yes they are, as there is less demand for them. And that is, because mortgages have come virtually to a standstill – they are down by 70% from last August. With banks lending to each other at increasingly high rates, financial institutions do not want to face risks. A mortgage to a graduate, even with decent job prospects at this time of the year is a no-no – the priority is to rescue the bank itself.
But, we shouldn’t proclaim the death of investment banking yet. In my opinion, these depressing prospects are indeed only in the short-term. As the economy moves in boom and bust periods, we need to keep in mind Wall Street’s resilience: no one remembers the ‘dot.com’ crash of the early Millenium and even the Great Depression of 1930 didn’t last forever. The economy needs somebody managing the capital and thus investment banks won’t disappear – they are vital for our economy to function. Yes, they will be redefined and deregulated so that they will be less prone to take risks. The salary for the ‘fat cats’ will be scaled down. Yes, they will loose a bit of pizzazz and the position of an investment banker won’t be as fashionable as it was before – at least, the myth of an office somewhere in Canary Wharf, eating in the best restaurants and picking expensive diamond rings and watches from the “How to Spend it” FT section will be gone. In four years’ time, investment banks may rebound as stronger institutions – they will actually advise on corporate finance rather than hunt for profit. And that, hopefully, will coincide with the boom of the economy too – both the Bank of England and the Fed are working hard to ensure that this is the case.
Studying for a degree in Politics, Philosophy and Economics I was inevitably drawn to banking careers. Attending open days at both UBS and Deutsche Bank, I still remember the casual yet glamorous atmosphere of the trading floor with employees shouting behind their three screens, sipping coffee from paper cups or being extremely engaged on the phone. With newspapers highlighting the vastness of city bonuses, I definitely did see myself in one of these glass offices in the City. But considering the last few weeks, I’m hesitant about my future and doubt whether in current circumstances such a job would guarantee stability. Graduate bank programmes provide an easy way out when one is unsure what to do – I still will consider them, but firstly I will have a closer look at what consulting companies propose.
But for now, I can assure my friend that yes, the banks he wants to work in will still be standing where they’re standing now. But seriously, in the meantime, he better think of something better to do, because there are some lean years in front of all of us.