|For new MBA students, time to review where opportunities are prominent in financial services.|
Some, the first-years, are gleeful, excited and anxious about the new days ahead, new courses, new contacts, and new relationships with professors, deans and career advisers. Some, second-years, are still hopeful that summer internships, including the celebrated networking receptions and occasional work on deals, will turn into offers any day now.
Both groups, whether they head back to campus at Darden, Tuck, Ross, Marshall or Haas, know they need to allot the right amounts of time to make career and employment decisions. Corporate-finance case work is important, and so are finance-club duties and public-policy presentations. But trying to decide where to go by next summer is crucial, too.
As we head toward the latter days of 2016, let's update where the state of opportunities among sectors of finance. Let's peek and highlight where banks, funds and financial institutions have elected to expand (or not), grow (or not) or support (or not).
Opportunities, in general, seem bright, if only because capital markets, while occasionally volatile and uncertain, are stable these days, notwithstanding ongoing uncertainty about where interest rates are headed. Market experts know well that with a finger snap, markets can misbehave, volatility can surge and financial institutions will retreat and tighten up as quickly as winter will inevitably approach.
This follows reviews and assessments from late, 2015, and early, 2016.
Corporate treasury: STABLE/POSITIVE
Some foreign banks (Deutsche Bank, Credit Suisse, e.g.) are having second thoughts, as they seem to do every other year. Other names (like Wells Fargo and other foreign-based banks) start, stop and resume in the sector, but still command respect in certain niches. Barclays this year, with many prominent hires in the senior ranks, appears to be regrouping to prepare to compete fiercely with the big names.
Boosting this business helps boost revenues and potential transactions in investment banking. The two go hand in hand now. In fact, many big banks combine the sectors. It's more common to see the sectors named "Corporate and Investment Banking." The banking group that can issue the bonds on behalf of a big company will likely be the same group that can arrange a billion-dollar syndicated loan.
Thus, while they beef up corporate-banking units, they must concomitantly beef up risk management and suffer the headaches (and capital requirements) that come with big loans to big companies.
Regulation has restricted what they can do or how they can do it. Profit opportunities are fewer. Dodd-Frank's Volcker Rule (which prohibits proprietary trading at banks) is in place. Some banks have scaled back; other big banks continue to hold big positions (to facilitate customer flow), while they struggle to ensure compliance with new rules. Some determined banks have found ways to be profitable, but most banks aren't seeking to expand these areas aggressively. Hiring occurs, but not in the way it did before 2008.
Hedge funds have experienced horrible returns and times the past two years. Many have shut down, closed shop, and returned money to disappointed investors. Some updated statistics show as much as 15-20% in redemptions, partly reflecting dismal performance when other market indicators are doing well, partly reflecting frustrations at investors paying fund managers the proverbial 2-and-20 fees (2% asset fees and 20% of fund profits) for almost embarrassing outcomes.
These would also include activist-shareholder funds, funds that do less frequent trading and are more involved in building equity stakes in notable companies to drive a new financial strategy (merge, acquire, expand, change business model, pay more in dividends, reward shareholders better, reconstruct board membership, conduct stock buy-back campaigns, etc.). Some have had satisfactory results; some, too, have had weak returns. Others have just merely withdrawn their relentless efforts to force the new strategy.
Many hedge funds, therefore, aren't opening their doors widely to new candidates fresh from business school.
Dodd-Frank has been in force for more than a half-decade. Financial institutions continue to do all they can to understand, interpret, analyze and comply with the thousands of pages (yes, thousands) of new rules. Many rules under Dodd-Frank and Basel III are still in formation, still in draft form. So banks must be ready to comply with regulation that has still not been written in entirety. Or they must work harder to improve the metrics that show they have excess levels of whatever is required--capital, liquidity, stable funding, cash reserves, etc. They must survive complex annual stress tests and prove their demise (even if it won't happen soon) won't damage the financial system.
Compliance and regulation are now beastly tasks that require attention, investments (for systems), and expertise (in the rules, in statistical analysis, or in organization structures). And they must be explained to bankers and traders in a way to help them understand the impact on their businesses and their dwindling returns on capital.
They must prove (based on new quantitative tests of their roles in the financial system) they aren't "too big to fail" or suffer the onerous regulatory requirements that come with being global, colossal institutions.
Many large institutions will admit they don't have sufficient enough people who willingly and eagerly want to be involved in ongoing compliance. Those doors are as wide open as any door in a bank is these days.
If there's a hot sector for the times, it's financial technology--or fin-tech. The time is ripe where the worlds of technology, new ventures, and financial services are locking hands to create something new, or at least "disrupt" the traditional ways of providing financial services, advice and funding.
Fin-tech presents innumerable opportunities. While the trends are upward and show promise, the sector is too broad and too unpredictable to pinpoint how young professionals can best take advantage of opportunities. Fin-tech includes electronic payments, small-business lending and robo-advising in wealth management, but it may also include mergers and acquisition, investment research, and financial reporting.
Companies have formed everywhere, not just in Silicon Valley or on Wall Street. Companies have been started by computer experts and former bankers and traders.
A few themes are emerging: Big institutions have taken notice and are responding with their own strategies (and investments or partnerships). As with most new ventures, not all fin-tech businesses and models will survive. Many won't be able to expand in scale. Others will make mistakes not in technology, but market strategy or risk management. Most will require time to perfect a business model (how to provide financial services, funding, or advice profitably).
But all that won't diminish opportunity in the early days of what might be called a financial revolution of sorts.