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Wall Street Fights To Lure The Best Business School Talent

US investment banks are raising salaries and banishing weekend work for junior employees, as they compete with private equity firms for business school hires.

Wed Aug 27 2014

US investment banks are competing to attract the brightest graduates with higher junior staff salaries and relaxed leisure policies, as private equity firms make early job offers to lure analysts away from banks.

This year's junior banker hiring season, where many business school graduates will enter analyst's positions, is being likened to a “mad scramble” as the biggest finance houses fight to attract the most talented applicants who have already lined up interviews and jobs elsewhere.

Since the 2008 crisis, banks have been burdened by regulation and compliance, while scandals drawing negatively publicity have made investment banking a less attractive career path. But this summer, thousands of graduates have started work at investment banking departments at the likes of Morgan Stanley and Goldman Sachs.

Business school leavers are being tempted with a range of incentives, including massive pay hikes at investment banking and underwriting units and more time off work at weekends.

Goldman Sachs plans to increase 2015 salaries for junior employees in the US by about 20%, according to Bloomberg. The hike will apply to employees in all divisions with the title of analyst, which is the typical entry-level route for business school graduates and undergraduates. These junior bankers already earn $70,000 to $90,000 in salary, according to Johnson Associates, a consultancy.

Other Wall Street banks have faced pressure to pay their junior employees more, and have been cutting back on their hours, as recruiting has suffered from the reputational damage of the financial crisis, according to a senior recruiter at a large investment bank.

Morgan Stanley plans to raise junior bankers' salaries by up to 25% for workers on its capital-markets desks, according to a report in the Wall Street Journal. J.P Morgan may raise some employee salaries by at least 20%, Bank of America is boosting the pay of junior investment banking and trading employees by at least 20% in 2015, while Citigroup is considering a pay increase for analysts and associates.

The moves come at a time when MBA students at some leading business schools are shying away from investment banking. At the same time, tough new rules are forcing some banks to defer and claw back bonuses for several years.

As firms have faced reputational challenges, it has become more difficult to attract talent, according to a HR manager at Morgan Stanley. The person said: “We saw a bit of a drop in applications since the financial crisis… The financial sector is not the easiest brand to sell these days because we are facing a big reputational challenge. The sector is less attractive.”

Beyond new financial enticements, banks are making an effort to improve incentives for junior bankers. Last year, Goldman Sachs added a protected weekend for investment banking analysts in which they aren't allowed to work from Friday evening to Sunday morning. Banks such as Credit Suisse and Barclays have followed suit with similar leisure policies.

Discussions about working conditions came to the fore after the death of a 21-year-old Bank of America Merrill Lynch intern in London last year.

Given that many banks have followed Goldman's lead, junior employees are now thought to be more tempted to stay at investment banks.

A banking survey released this month by Vault shows that these bankers are about 3% more satisfied with work-life balance than a year ago. Respondents to the survey were also asked to rate their satisfaction with the amount of hours they work each week. Participants gave their firms an average rating of 6.94 out of 10 – 1.5% higher than in 2013.

One anonymous analyst told the survey: “My firm is really committed to improving the culture and lifestyle [of] junior bankers. All of the new initiatives, such as no work on Saturdays for analysts and associates, have begun to change mind-sets.”

However, many investment banking units including mergers and acquisitions (M&A) and corporate finance still require junior bankers to work 80 and 90-hour weeks, according to Vault.

Daniel Shi, a CEIBS MBA who spent four years in M&A at a large investment banking division in China, said that the roles still have an “intense and challenging manner”.

“Promising as they may look, most M&A related-jobs are still unlikely to enable you to learn and grow to become a deal maker, or to fulfil the sense of achievement you expected in the first place,” he added.

Promising graduates are not only a prize to be fought over by investment banks: they are increasingly tempted away by private equity firms. They have grown stronger after benefiting from low interest rates, and as they have raised new funds to expand, have required more new hires.

It is not just financial incentives that lure business school students to private equity firms – the New York Times predicts that they make about $300,000 a year – but the promise of early job offers, which have become increasingly popular at US schools.

Private equity firms make offers up to 18 months before a job begins. The six major firms – Apollo, Bain, K.K.R, the Blackstone Group, TPG and the Carlyle Group – are known to interview candidates far in advance.

The timeframe means that firms often poach junior analysts and associates at investment banks.  

In response, J.P Morgan Chase and Deutsche Bank recently switched from two-year contracts to three-year contracts for their analysts, while Goldman Sachs analysts who started work last year were taken on as full-time employees.

The trend is reflected in business schools’ career reports. Some have seen the number of MBAs entering finance drop 50%, with investment banking worst hit.

Students have instead flocked to asset management and private equity – asset management accounted for 21% of finance recruits at INSEAD, up 11% from a year earlier. PwC, the consultancy, recently predicted that assets under management will surge from $64 trillion today to more than $100 trillion in 2020. The growth is expected to create jobs across the industry for MBAs in various roles.

Some investment bankers, however, leave the function altogether. After graduating, Daniel – who already secured an internship with China Merchants Capital – plans to work in private equity as an investment manager.

But first, “I hope to take a rest after working exhaustedly for several years in an investment bank”, he added.