My year in Banking... (Part 1)

Time really flies...

It's been almost a year since I started working in Investment Banking (BarCap Fixed-Income) - I didn't really have time to update my blog, but I will be now trying to write more frequently.

Probably you are wondering how is the life in Investment Banking in Fixed-Income. First - it's very, very chaotic. You have hundreds concurrent things to do and the most difficult part is to control and manage all these tasks so that everyone is happy.

People are really at the very high level. Everyone is from top school and present very good intellectual level. There are many guys from France from all Grand Ecoles and they are always working very closely together. On my desk (10 people) three people have PhD, two people have CFA, one person has FRM.

The pay is very good 60k pounds per year plus some possibility of the bonus (apparently this year will not be too good in this respect though), but there is some really though work to back this salary.

I next couple of days I will continue with my banking story.

Pick-up in hiring!

It seems that we are very close to good times of getting hired by financial industry. Many of my friends (and I - as you remember I started in BarCap) found good jobs in recent months (in CS, Sig, MS etc). Many companies are still very cautious (JPMorgan in particular), but the the situation is definitely getting better (especially in NYC)...
I definitely think that 2010 will be a good year to be hired in good job in Financial Services. For me really good hiring atmosphere will come if S&P500 goes up by10 more percent - people will then get confidence that the recovery is sustainable.
It seems that particularly good demand will be there for junior and mid-level hires. The season for MD hiring is already there - hiring at the junior end needs to catch up.
I also think that this is a very good time to start with MBA or CFA. If you do this at this stage of the economy you maybe almost sure that by the end of the program you will enter the hot job market and you would be able to get a decent return on your educational investment .

My (subjective) timeline of hiring:

1. 2Q-3Q 2010 - Hiring in M&A divisions of investment banks.
2. 3Q-4Q 2010 - Hiring in Equities in Banks that didn't rebuild their Equity Groups yet
3. 4Q 2010 - Hiring in Wealth Management Divisions
4. 2H 2010- Hiring for Emerging Markets roles
5. 1H 2011 - Restaffing of Hedge Funds and Private Equity Companies
6. 2011 - Poorer year for Fixed Income Markets

If you agree with this expectations or your don't please discuss in comments.

Usefulness of CFA in Managment Consulting

As you may see in the 13th Survey I just started on the blog, people are thinking that Management Consulting would be a next "place to be" after the crisis. I thought that it would be interesting to analyze how different financial credentials are applicable to management consulting job.

CFA - This credential is very well rounded. When you study for CFA you need to learn not only about the basics of financial mathematics, but you learn in depth about companies balance sheets and accounting in general. You learn about ethics, about rules of proper conduct etc. This knowledge and especially the breath of this knowledge may be a good preparation for the career in Managment Consultancy. In fact I know number of people, who got their charter and joined top consultancies (McKinsey, Bain, BCG). From what I hear, it seems that the knowledge they got from CFA is much more valuable than what they learned in their Masters degree for example.

FRM - Some of my friends with FRM work in Consultancies (like KPMG, Ernst) in risk departments. In fact these departments grew significantly in recent years and there is really quite a lot of hiring in these space.

CAIA - This certificate is very focused on alternative asset managment, and I haven't heard of anyone, who had it and worked in consultancy space.

PhD - There is some demand for PhD from Consulting Firms (mostly McKinsey), but from my observation PhD in Finance or Economics are not really prefared. It seems they like more PhD in "soft" sciences like PhD in Public Policy, PhD in Medicine etc. Companies like McKinsey attract PhDs to inject some non-standard thinking into the firm. However, PhD in Finance or Economics think very alike MBA students and CFAs, so they don't add much.

MBA - MBA has been the most standard way of getting into Managment Consulting. Companies like Bain or Booz Allen Hamilton recruit most of their employees from MBA students at the best universities. Some companies (like McKinsey) put so much emphasis on MBA business education that they tend to send majority of their non-MBA employees to MBA courses at Top Business School around the world.

Summing up, considering the costs of the degree CFA can be an interesting alternative to MBA for everyone interested in managment consultancy jobs.

Good luck to CFA delegates!

The date of CFA exam is approaching very fast. Although I am not taking my level III this year (because of my commitments at the university) I feel the excitement of the moment. At my university half of the library is filled with just people, who are reading CFA textbooks. Some of them use Schwesers, others are studying directly from CFA Textbooks (which is good thing, but maybe not really just before the exam as the CFA Textbooks are really heavy-weight).
This CFA exam is administrated at important time for the financial industry. It is soon to be decided if the finance industry recovers from ashes and would provide attractive employment opportunities not only for CFA Charterholders. Even if you expect the financial world to look bleaker now than some years ago, do not lose the fighting spirit before your CFA exam. Yes, there are less jobs, yes, salaries are lower, but still with CFA designation you will be able to find a job which would be better than average.
As you could see from the survey which was published yesterday CFA is expected to be the most desirable credential in the new finance world. I expect this is because of two important characteristics of CFA. First it provides really rigorous knowledge. The crisis was caused in fact by PhDs, who knew stochastic calculus, market microstructure theory, but they had real problem with taking the holistic view of the world. CFA with its broad curriculum, provides you with everything what is important to have a global overview of the situation. Second, I belive there is no other designation that puts so much emphasis on ethics and good standards and in fact lack of regulations and ethics is a root of the recent crisis.

All candidates, good luck!

The light for financial industry is even brighter...

After the word of Soros, who claims that the lowest point of the downturn is behind us, and number of other market practitioners there is now even more optimism in the financial industry.

The most notable signal I observe is the revival of the job market for graduates. In last two weeks I observed number of companies approaching students in London. Just to mention few, I have seen a private equity company (Blackstone) willing to find 4-5 interns for the summer, a management consultancy (Bain) willing to find 2-3 graduates for full time job from summer 2009.
It seems that companies are now expecting the worst to be over and they are preparing themselves for the possible recovery.
It seems that financial degrees and CFAs or CAIAs are not dead yet. It seems that people with these qualifications will probably be able to find a job really quickly, when the markets improve. This means that starting CFA or a Masters degree in a respected institution might be a good choice right now. When markets recover (and they surely recover sooner or later) graduates will be able to profit.

Light in the tunnel

After very strong Q1 results from JPMorgan, Goldman Sachs, Citibank and Wells Fargo some people claim that the situation of the financial industry starts to improve. The banks, which suffered extremely large losses during 2008 are now coming back to profitability. Citibank recorded the first positive (and solid) quarterly result for the first time since the middle of 2007. It is worth to mention that vast majority of these results was generated by sales&trading divisions.

Although it's far to early to claim that the banks are coming back to health, I firmly believe that this is definite sign of the recover of the financial industry.
Of course the banks will not restart hiring immediately. It's even possible that they will continue with firing, as the crisis in real economy is still unabated. However, recent increase in profitability gives a very good prediction about the future of the financial industry. It seems that the news about the death of financial sector are overstated - banking will still be here and will be strong - there is no other way. Any economy needs a healthy and profitable financial sector to sustain an economic growth.
I think it soon will be the best time for the newcomer to enter the industry. Now, it is really hard to find a job in the industry, but soon the demand for quality workers (with CFA for example) will pick-up. And at some point it will outweight the supply what would lead to wage inflation.

(If you want to discuss this article please visit: http://forum.examhub.org)

What to do when you were fired?

This is always a problem. In any industry, at any time being fired is not a pleasant thing. However, circumstances in Financial Industry are very extreme. All companies are firing people, so the market is extremely competitive and in fact it is almost impossible to find a replacement job. In addition to this some of you work (worked) in such areas like trading and your skills are almost non-transferable to any other industry. So what can you do?

First, think about your future. Don't assume (of course) that you will not come to finance again, but anyway think about what else you can do. Think about alternatives - where your skills would be applicable and where would you be able to use your potential. I privately expect that there will be a lot more money to be made outside the financial industry in like 5 years to come. I think that really good bets for now would be consulting and law. Some skills especially from the IBD (Investment Banking Division) are really very easily transferable to consultancy (ability to work long hours included :) ), so redundant Investment Bankers should have no problem with finding a new job in consultancy. I also think that talented assets managers would be able to find a job in mainline companies in treasury departments, which now have difficult time managing the liquidity and require talented asset managers/traders. Another tendency I expect to see in following years is the rise of the job market for professionals in emerging markets. I think there would be soon no large discrepancy between opportunities in let’s say China and UK for the professionals. In fact it may be wise to come back to you country of origin, as it may positively affect your career.
Second, consider entrepreneurship. Don't assume that the only possibility is a job in someone else’s company. In fact you may be able to create a business on your own – just look around on what is good in place you live and try to copy this to the region or country you are originally coming from. Think about creating a restaurant, internet shop or anything else you understand.
Third, keep on looking for a job. Even in this market people are hired. It is best to have a good head hunter (for all readers of my blog – if you have good CV I can forward it to my friendly and solid headhunter for consideration – use the email: phdstudent2007@gmail.com) and to be in touch with him regularly. Maybe at some point he will have an offer that would be interesting for you.
Fourth, enjoy your free time. Study languages, exercise, meet friends etc.
Fifth, boost your profile. You should spend a big part of your free time on improving your profile – remember that the world is not standing in one place just because of the financial crisis. People are gaining new prestigious qualifications everyday and you should not lag.
For the list of most relevant business qualifications please visit http://examhub.org.

Good luck in your endeavors!
PS: If you want to ask me specific question please post message on http://forum.examhub.org.

Why qualifications will be crucial for new financial world?

I know that all of you know what is happening in the financial markets. There is almost no financial company that is unaffected by the current turmoil. People are fired in almost every institution on every level in corporate hierarchy.
Many people wonder how the financial world will look like after the situation stabilizes in the longer term. What kind of people will earn good money and what type of services will be provided by financial institutions?
I think that financial industry will still be an important sector in the economy in the future. Stock markets and bond markets will still be there. There will be people managing the risk and allocation of other peoples money. However, the wild-wild west of last decade is over. It will no more be possible that people will earn millions just because they were lucky and some risky bets turned out to be profitable. I think that financial industry will resemble more and more the law industry. What would count most would be reputation, knowledge and hard-work. Those who count on quick-profit in a short term will be forced to look for different profession.
I think that the changes that are about to reshape the financial industry will favour people with solid skills and strong educational background. I suppose that CFA or other technical certificate like (PRM or FRM or CAIA) will be prerequisite for any front office position in any financial organization.
Certificates and good education will be a proof of you knowledge and will improve vastly your reputation. The will be no place in financial industry, where 0-education and no technical knowledge will be enough to get millions!
My prediction is that the financial industry will start hiring around summer 2009... But only those well educated and reliable will be employed.

PS: If you have any questions, or you want to talk, please join discussion at forums.examhub.org...

Merry Christmas!

When the situation improves?

I think that's the question a number of people is asking right now. The mood in Investment Banking is very poor, and that translates directly into lack of employment opportunities... The sad truth is: the banks are not hiring.

In the worst situations are people, who quite recently invested in their education, and now are not able to find a job (example from Investment Banking Forum - please gives your thoughts on the forum). In many cases with debts and some other obligations, these people may be forced to look for employment in sectors other than finance. (An interesting article from Journal of Finance about the impact of the crisis on the lifes of MBA students - really worth reading at least the introduction)

The most important question right now is how long will the bad mood last. I asked this question to a head-hunter who is a friend of mine (cheers Craig!) and who forecasted the downturn at a time, when everyone else was certain that the markets would always grow. Now, he thinks that by the end of the summer the banks will finish writing-off the credit mess. He thinks that by the end of the year (Dec 2008) there will be some capacity in the banks to create new teams. He claims that the general revival will come in the first half of 2009.
I think that he may be right - he is really a great mind and knows the industry inside-out.

Now the question is "what to do during the slowdown"? I wrote about it before in my previous post: "slowdown a good time for education". I still think that each of us should spend the time most productively to polish and improve his or her CV. Doing a financial certificate seems to be a perfect idea. However, if you are forced to get a source of income changing an industry may be inevitable.

CFA or MBA (or both)?

Number of readers of my blog ask me whether it is a good time now to start CFA or MBA degree. In this post I will discuss pros and cons of starting any degree program at the moment.
As you know markets are stagnant now, there is informal hiring freeze and in fact short-term prospects are really bad. No one knows when markets will be back to previous state again. It maybe a year or even three. This timing is the biggest risk for your decision whether to move into further education or not.
If the markets rebound quickly, its pretty save to start let say 1-year MBA. When you finish your degree you will be in a good position to get on board in major investment bank. On the other hand if you decide to quit your current job and start your MBA now and if the markets are stagnant when you graduate you may be really unhappy that you did it.
So the solution is as follows: If you really believe that the downturn will be short go for good MBA program (you even still have time to apply). If your expectations render to be correct you will be in perfect position to accelerate you career when the markets rebound (this time with MBA). If you think that downturn will be longer, or you really don’t know think rather about CFA that will allow you to improve your qualifications while still on the job. In comparison to MBA CFA is much more flexible and much more cost-efficient, but you must remember that finishing CFA is minimum 2,5 year now.

Slowdown - a good time for education

It seems it will take a while for the financial markets to get back to a healthy state. Currently, the banks have decreased their recruitment efforts significantly. It appears that getting IBank job may be a very difficult task at the moment. Probably this is good time now to go back to school. Doing additional certificate or degree, when the market is stagnant, may be an extremely good investment. Not only will you get a powerful credential when the market is back to healthy state again, but also you will NOT lose too many opportunities. The alternative cost of studying is now smaller than usual.
The big question is, however, how long will the current crisis last. If it is short, you’d rather not start PhD program for example. You don’t want to be stuck preparing your dissertation when the market is booming and all your friends are making big bucks.
If I were to guess I would say that it will take about 2 years for the financial job market to be hot again. This indicates that CFA or MBA may be good options. If you can’t afford halting your current job than go for CFA (or CAIA or CQF), otherwise think about the MBA. With additional credentials, when the market is booming again, you will be in much better position to advance your career.

CQF - Certificate in Quanitiative Finance

CQF is a specialized certificate for all those who are interested in becoming Quants in Investment Bank. This certificate was launched by Paul Wilmott, who is considered by some as a guru in this field. The company that is organizing the exam and classes (which are integral part of the certification process and you cannot be awarded CQF designation without spending many weekends in the classroom) is 7City, which is also preparing students for CFA and other certificates.
CQF designation is not very popular, but due to the fact that it is very focused it is quite prestigious in the quant environment. It has simply no competition. CFA or CAIA are by far more general and do not cover asset pricing (etc. Ito's Lemma, Interest Rate Models) deep enough to prepare a candidate to very technical field of quantitative finance. If you are thinking about becoming a Quant CQF certificate (or more broadly - a CQF Course of Studying) will prepare you to that role. You need to remember, however, that you need very good prior math preparation in order to catch up with the course of studying.
And should you do CQF if you already have PhD in Finance or in Economics? I think that it will not be very wise choice to do that. PhD is already very useful degree for Quantitative Finance. CQF is expensive (~10k pounds) and it takes time to finish it. On the other hand, if you have PhD in other discipline (like Chemistry, Mathematics) and you never did anything with finance, getting a CQF will probably open a lot of doors in IBanks for you.

Which degree/certificate for specific division in Investment Bank?

If you want to have successful career in the investment bank you have to carefully tailor your education to your goals. Some degrees/certificates may be useful in certain division and completely useless in different ones. Below, I created a list of the certificates/degrees that are most useful in various IBank divisions. [You can find detailed information about various certificates under: examhub.org]. Of course the list is subjective - if you have suggestions please let me know.

Investment Banking Division: MBA should be considered as a top choice for all who target this division. IBD is mainly about general business knowledge, and MBA is great for that. I've heard about some IBD people with CFA, as CFA is quite prestige designation, and you need prestige if you are willing to work in IBD.

Sales: No specific degree or certificate is required. What counts most is your energy and ability to talk with people. MBA may be quite good for this division anyways (as MBA is about networking, and in Sales you may use your network/contact to market the products). In Hedge Fund sales CAIA degree may be desirable.

Flow Trading: Most useful certificates for flow trading are ACI (ACI Association) or FSA certificates. This certificates are focused on very specialized knowledge (how to make deals in the market, how to book the deals etc)

Prop Trading: Prop trading (including Stat Arb.) is nowadays very quantitative discipline. PhD in highly quantitative discipline (physics, economics etc) is preferred, but in this business there are many people, who are self made men - without special degree etc.

Research: In economics research EconPhD is extremely useful. In equity research CFA is a good choice (better than PhD)

Wealth Management: CFA or MBA are very useful

Risk Management: FRM or PRM are good choices. PhD may be useful as well.

Qualifications of Investment Banks' CEOs

For sure there is no easy and universal way to the top positions in investment banks or similar institutions. Each success case is entirely different. What is more, most of us will never become a CEO or even a Managing Director (what a pity ;) ). Getting on the top of the financial world is not just a matter of qualifications and hard work. What counts most is the luck. Luck of being in the right place at the right time. I think, however, that it is still worth to study the qualifications of people, who currently rule the financial world. I collected all available data about education of the top managers in financial industry in the table below.

First conclusion of this analysis is that qualifications of top managers differ a lot. We have guys, who completed MBAs at Harvard, but at the same time many of CEOs graduated just with BA degrees. This indicates that a degree is probably not the decisive factor for the success in the Investment Bank. Degree seems to be only entry level requirement...
What is more none of these great CEO's had any of these fancy certificates (like CFA, FRM or CAIA). The reason for that may be the fact that all these certificates were not popular when current generation of CEOs began their careers. Maybe CEOs of future, who begin their careers now, will have these qualifications.

When it is worth to get online MBA

The number of online MBA programs has exploded recently. Many established schools (but also new ones) offer online or distance MBA education. All programs differ considerably in the quality, length and prestige.
Of course online or part-time MBA courses are considered to be less prestigious than well established full-time MBA courses. Chicago MBA will be by far more prestigious than any part-time MBA course, unless its part-time MBA of... the Chicago GSB. Yes, Chicago GSB has its part-time MBA program! And it's not written on your degree that it was earned part-time. It is absolutely the same degree as standard Chicago GSB degree.
And what about other, less popular part-time or online MBA degrees? Is it really worth to pay bucks for any less popular online program?
The answer is as always: it depends.
If you are not working full-time, or you want to make a break in your work full-time is probably the best investment for you if you think about the managerial position in the future. Full-time MBA is also a good place if you want to build your network (but don't over-estimate networking - networking is not a most important element of the MBA program), have a wonderful time in your life or if you just want to look for the new job (during the full-time MBA program looking for a job is one of the most important activities).
However, if you already have a good job, you have family or you don't need "holidays" from work you should consider on-line MBA from the good school. This is especially true if you already have reputable education on different level (let say good MSc or CFA), but you need an MBA to be eligible for managerial position. If this is not a top-ten MBA program no one will look at the name of the university anyway, neither on wether this was full-time or part-time program. The most important will be that you have an MBA.
Of course you may find different online programs. You should analyze how much you want to learn and how much you want to pay for it.
Also the quality of different programs is various. Just compare some programs like: Instituto de Empresa MBA, Regis University Online MBA, Robert Kennedy College in Swiss, Frederick Taylor University and you will see that quality and level of fees varies hugely.

To conclude, I would say that not always is an online MBA degree useless. Sometimes, especially when you have good prior qualifications, online MBA may be the smartest route that would lead you to the managerial position in the company you are working in. And maybe even if you could combine online MBA program with learning to other qualification (for example CFA) simultaneously that would make your position on the job market similar to that if you finished very good full-time MBA program

And what about the CFA?

[CFA vs. the rest of the world]
The second deadline for the CFA Exam in December 2007 is approaching soon. If you want to enroll to this program you shall be fast. The exam fee will rise to 465 if you pay for it after 15th of August.
The CFA Institute is advertising the CFA designation as the most prestigious designation in finance. Is it true? Yes. That is true. All other (strictly investment oriented - so excluding ACCA for example) certificates like PRMIA, FRM, ACI etc. are definitely less prestigious, and less popular. The CFA designation, however, does not give superior money earning power as some people think. In terms of money earning power some credentials seem to be much more interesting.
In order to see which are most powerful credentials on the financial markets I conducted small research. I analysed the job offers on the efinancialcareers website. I was looking for the offers in which employers explicitly stated that they look for certain designations/certificates and education.
Here is what I found when I searched through all offers:

• There were 171 Jobs online in which Employer stated that FSA is an advantage
• There were 167 Jobs online in which Employer stated that ACCA is an advantage
• There were 153 Jobs online in which Employer stated that PhD is an advantage
• There were 144 Jobs online in which Employer stated that MBA is an advantage
• There were 139 Jobs online in which Employer stated that CFA is an advantage
• There were 80 Jobs online in which Employer stated that MSc is an advantage
• There were 3 Jobs online in which Employer stated that PRM is an advantage
• There were 3 Jobs online in which Employer stated that FRM is an advantage

From this data you may see that ACCA and FSA designations generally outperform CFA in terms of the number of job offers.

And what if you are interested in trading for example? (I put the word trading into the search) The result of the analysis is on the chart below:

This chart shows that when you are interested in trading CFA designation is worth less than good MSc education for example. Relatively, the CFA charter is even less rewarding in trading environment than in general. This chart shows also that PhD qualifications are dominating trading now.

The CFA designation, although it is not the most "powerful", has many advantages you shall consider. First, you may work while getting it. Second, it is obviously much cheaper than good MBA (although still expensive). Third, you have growing community - CFA may be even more powerful in the future.

My personally, I am going to get my CFA designation (I hope) although I am studying for PhD right now. I think that combining theoretical side of PhD with practical approach of CFA will make me really interesting asset on the Job market.