Currently the most “Frequently Asked Question”, which Fidelio has addressed, is what will happen to the bankers? Against a backdrop of on-going job cuts, we have clearly now moved beyond a cyclical downturn. As the Financial Services industry, and London in particular, is facing a structural re-basing, Fidelio explores how bankers respond to a diminishing job market.
Gillian Karran-Cumberlege
A recent survey by the Centre for Economics and Business Research estimates that London’s financial sector will have lost around 100,000 jobs by the end of this year compared to a peak of 354,000 in 2007. The Office of the New York State Comptroller also predicts that by the end of 2012 there will be 20,000 fewer jobs in New York than before the Financial Crisis. It is not original to point out that were so many jobs to be cut in any other industry politicians would be up in arms and schemes to stimulate jobs and soften the financial blow would follow in quick succession. Not so for the vilified bankers.
As a London-based Board and Executive Search consultancy, Fidelio witnesses on a daily basis the structural down-sizing of the investment banking industry. While much is written about the loss of investment banking jobs, a similar but possibly more significant contraction is happening in investment management. Indeed much of the Financial Services eco-system is experiencing a chill wind and the question is very properly raised – what will these senior finance professionals do next?
The Centre for Economics and Business Research now estimates that the average number of City jobs for 2012 is likely to be down to 255,000 compared with the estimate of 288,000 made 6 months ago.
– The Centre for Economics and Business Research, May 2012
As ever, while investment banking headcount continues to decline in London and beyond, there are undoubtedly pockets of growth across the sector. Geographically Asia and the Middle East remain more buoyant than Europe but in China for example the rampant build up in capacity in recent years has certainly slowed. Indeed Equity Capital Market activity in China fell by 20% in the first half of 2012 compared to the same period last year according to Dealogic.
Lack of Equity Capital Markets and M&A activity has certainly prompted a reduction in investment banking headcount but some elements of Fixed Income Business are robust and there is clear demand for Distressed Debt and Restructuring skills. Given the sheer weight of regulation that is being heaped upon the banking profession, it is unsurprising that employment in “risk, regulation and compliance” has seen an increase and according to a Thomson Reuters report, ‘The Cost of Compliance’, companies and regulators are all competing for a small pool of senior compliance talent. But all of the above do not compensate for the structural headcount reduction currently being undertaken by an industry looking to restore profitability.
So what will senior banking and investment professionals do next? This question is particularly moot for senior and experienced industry professionals who cost more to employ. Given the dearth of opportunities in their traditional areas of expertise, many bankers are having to think radically and laterally in order to secure employment.
Yes, it is true that levels of compensation in the banking sector have been out of kilter with the rest of the economy, but not all bankers who find themselves out of work can simply afford to retire. Some can; many can’t. Indeed among those who can afford to retire, Fidelio has frequently been struck by a gritty determination to remain economically, commercially and intellectually active.
Investment bankers with client facing and business development roles tend to have an easier time of re-inventing themselves. Bankers or senior buy-side professionals whose focus has been inward looking and analytical can find the re-invention process more daunting.
The macro-picture is still forming as to what the bankers do next. From the coal face here are some of the trends that Fidelio has identified. Firstly, we see a flurry of entrepreneurial activity in and around banking and investment, extending into governance. Examples include bespoke research capability and Board evaluation services. There is undoubtedly a greater openness on the part of corporates to work with boutique advisors, see for example the roster of advisors on the proposed EADS/BAE Systems merger; however, life as a one man band in an early stage start- up can be very lonely.
Looking further afield, we see a large number of former bankers seeking to move into corporate roles such as Strategy, Finance or Non-Executive Directors. There is clearly a well-worn path from banking advisor to corporate officer. The sheer number of bankers seeking to tread this path at present, however, means that supply and demand are far from aligned and competition for corporate roles among the banking fraternity has increased substantially. Indeed, corporates are also more risk averse and are putting greater emphasis on prior corporate and/or managerial experience when considering prospective hires from the banking sector.
Given the relative dearth of corporate openings for former bankers, Fidelio has been delighted to see a small number of senior bankers and investors put their own time and capital to work, often by making an investment in existing businesses. Recent examples we have encountered include the acquisition of an engineering business and investment in a self-storage company seeking to expand internationally. This transfer of time, experience, skills and capital from the banking sector to the so-called real economy is to be applauded. Indeed it often involves a public rolling up of the sleeves and getting down to real work, which is also not bad for the image of bankers!
We need to maintain or lengthen London’s lead as the best place to raise and allocate capital, and we won’t succeed in that objective if we keep on bullying, berating and generally beating up anyone who has anything to do with a bank
– Boris Johnson, The Daily Telegraph, 9th July 2012
Banking and public service are rarely mentioned in one breath, so it is good to see bankers move into roles that manifestly support the public good. A small number of former bankers have retrained as teachers very often drawing upon their financial skills in order to teach maths. Numerous not-for-profit and sustainable investment organisations are harnessing the skills of former bankers, often in terms of financial and investment advice. We also think that there is substantial opportunity for not-for-profit organisations to benefit from bankers’ proven fund raising skills.
Almost five years into the Financial Crisis it’s still too early to answer the question what the bankers did next? On the whole bankers are highly educated, motivated and very able; therefore the opportunity cost is particularly high if sizeable numbers of bankers are not economically active. While almost all the alternative openings set out above are not as remunerative as the glory days of investment banking, they do represent a very real recycling of banking and investment skills. The City clearly yearns for hiring to pick up. Consensus suggests that further headcount is still to be shed. Any indication that former banking expertise is being put to good use has to be celebrated.
Coming Up…
Overture explores how talent drives valuation. Future editions of Overture will deal with
• Who has a voice on ExCo?
• Unlearning CEO behaviours
• De-risking the hiring process
• The Strategist and the Communicator
• The art of building shareholder buy-in
Please contact us with comments or for more information on Fidelio Partners on info@fideliopartners.com