Tuesday, September 16, 2008

Lehman: Going, going, gone

There will be no more bright eyed IIM grads flying to London and New York to do their summers with Lehman Bros.

It's the death of a Dream.
The end of the Formula.

Sure, in time, i-banking may bounce back but right here, right now the idea that clearing one entrance test, followed by two semi-educative years on campus lead you straight into the 'global league' (in terms of greenbucks).

That, for the next couple of batches, is over.
And honestly, I think it's actually a very good thing.

I don't hate i banks or i bankers. But I do have a problem with the fact that these jobs offered so much more money than ANY other sector that even the thinking bschool grad could not help being dazzled. It was like a thousand watt bulb shining in your face -blinding you to all else.

2007 was actually the peak year for the global i-banks, in 2008, they remained strong but consulting and private equity were seen as 'hotter'. One 2008 grad from IIMA who had offers from a global i bank in New York as well as McKinsey chose the latter. Two reasons: I banking he felt was more 'risky' and secondly, he wanted to stay in India.

Here's the sector-wise break up of who got placed where @ IIMA in 2008

That will change because Lehman & ML apart, there are just very few jobs now on offer in the financial sector. Global or otherwise. The regulars will come and pick up a couple of students, just to keep the relationship with the institute. But that will be a light drizzle, not a downpour.

We won't be seeing (I think) any new records being set in terms of dollar-converted-to-rupee salaries (last year's record: Rs 1.44 crores).

We also won't be seeing (I hope) the crazy one-upmanship among the top three IIMS about which one bagged the most PPOs and global ibanking offers.

What will happen? No IIM grad will be wanting for a good job, but there will be no auto-pilot choice. Students will think and choose more carefully.

The traditional recruiters like FMCG marketing (HLL, P & G), Indian companies (TAS, Aditya Birla group) and emerging sectors like retail and telecom will attract more attention and interest.

Consulting and PE of course will be red-hot.

An interesting phenomenon (pointed out by a former i banker friend) is that in the US, whenever there is a slowdown, applications to MBA programs surge. If you're out of a well paid job you may as well go back to school. By the time you graduate, the economy would also have recovered.

In India though, I wonder if all this news may not have the opposite effect. I don't think the aam junta will STOP wanting to do an MBA but we may see the numbers taking the CAT stabilise. Instead of the year on year surge.

Also watch for the hot new trend of i bankers returning home. And when asked "What are your plans"? the response I'm hearing a lot of is "Starting up".

That could be a respectable way of remaining unemployed until the markets correct themselves. Or a case of i bankers who've 'made enough money' deciding to hang up their ties for good.

In which case - welcome to the club!


  1. Don't think that will happen. Retail banks having investment banking divisions like JP Morgan, Barclays, HSBC will become more coveted. Thats about it.

    The number of banking jobs will change but I doubt the focus will change. It is about the Indian mentality, lure for money and probably going outside India. If you have to change something then change that.

    And think about the 1000s of people who got unemployed. Tons of IIM and IIT grads in that. It is a big loss and a very big loss for IIMs.

  2. This comment has been removed by the author.

  3. You have got every fact right in this post - hit the nail on the head.

    I already see the shift in thinking on the IIMA campus already. A lot of people are going to think long and hard about their careers.

    A pre-bankruptcy take on Lehman

  4. The scare is definitely there. The ex-prospective-I bankers at the B schools are definitely going to look at alternative careers.
    My bet is on Consulting being back in flavour big time.
    However, I believe the number of applications could go up here as well. I myself have been asked by some people - "Does it make sense to leave job and do an MBA now, Markets to waise bhi kharaab hain".
    The numbers that could go down is the number of students who wanted to do an International MBA. The cost benefit analysis is surely going to show other pictures now. Already, the average salaries have shown significant impact in international B schools(European B Schools included).

  5. I think fot the time being(1-2 yrs),the i-bankers will try other options, but all said and done, if a 158 year i-bank could vanish in a yr or so, then an multi billion dollar i-bank couls be made when the economy is in upswing.
    @shubham: what's wrong with the Indian mentality of earning money,aspiring for cleaner air,better lifestyle.If we can get these things in our country no one would want to go outside.

  6. point well taken, rashmi. speaking as a b-school prof at a top US school, i'd like to add one more point. i think graduating mba students from top indian schools (as well as the newly returning lehman type crowd) should think very hard about phds in business. the numbers of indian applicants to top phd programs has fallen off sharply in the last ten years, and academia, as you allude, is an industry that does very well on the countercycle.

    - long-time lurker who enjoys your blog.

  7. A typical rashmi bansal blog....just flowing with the stream. Why cant you think something of your own

  8. RB, your writing makes light reading and i like it.. however, this article is so superficial (and plainly wrong at many places) that i actually think it doesnt belong to your repertoire (or maybe it belongs to show how you should not analyze :)).. so with that rabid criticism off the way, here are a few core things that you TOTALLY missed..

    1. the model of I Banks vs retail / corporate bank is based on funding type. I Banks are funded by hot money and their leverage ratios are astronomical

    2. I banks have always been way too riskier than retail banks due to the funding model. govt doesnt regulate them like retail banks as millions of consumers are not directly involved

    3. the party went on for last 20 yrs or so because all factors (declining asset value, tightening liquidity, economic slowdown etc) didnt converge at once.. now they did and the whole I banking model is gone (GS, MS have become normal banks accepting federal regulations. others have vanished)

    all of these are well-documented. wonder why you didnt research at all

    so takeaways:

    1. IIM Grad running after the I banks either understood the risk - reward ratio OR they used hope as their strategy (meaning losers)

    2. Best learning is through experience. now the new batches will be careful (and tone down the rhetoric that almost everyone knows is false)

    3. the gruesome filthy propaganda in placement season actually shows that institutes dont have a clue (in general) about global finance work and how their students were exposed..

    overall I banking as you have known is dead.. so your starting sentence (it will be back) is baffling.. hope sanity prevails..

    and i sincerely wish you (as a learned individual) do not add noise in the system with your opinions that evidently are based on limited research.. (sorry again)

  9. People read your blog but only few really understood the purpose behind it.For me,You push for creativeness and entrepreneurship,still mostly disagree,few agree and fewest try to walk down on least walked path.But it is really good blog for regular reading..

  10. I banking attracted some of the best talent from the premier institutes and were paid bags of money to manage somebody else's money.

    And now we see what happens ... so much for being the brightest of the lot.

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