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Banks Thinking Long-Term on Analyst Recruiting?

By The Prince ⋅ March 5, 2008 ⋅  Email This Post ⋅  Print This Post ⋅ Post a comment

Every school year aspiring financiers or merely financial opportunists begin the summer and full-time investment bank recruiting process.  The most prized positions in the capital markets and investment banking divisions are intensely desired by these undergraduates.  Each student dreams, realistically or not, to snag a spot in the M&A group at the most prestigious bank possible, and fantasizes about the doors that would open from acquiring such a position.  The thought process goes something like this: "Kill myself to get interviews, get a summer offer, kill myself over the summer in the best group, get a full-time offer, kill myself for 12 to 24 months as a full-time analyst, learn a lot, hope that the sacrifice part of my 20s is worth the long-term rewards, maybe get proven right after securing a PE or HF job, and not need to work after 35."  This train of thought, or something like it, is what goes on in the minds of most if not all of the applicants’ brains.

Many of the applicants, at least the competitive ones, will pour over resources like the Vault Guides, Wall Street Oasis, Mergers and Inquisitions, and maybe even this site in search of an edge in the process.  The Prince has blogged before that the odds are not good in the regular recruiting process when it comes to bulge bracket banks and especially when it comes to the top groups within these banks.  If the deck is stacked against even someone from a target (i.e. Harvard, Princeton, Stanford, Yale, etc.), then for a non-target (i.e. state schools, liberal arts colleges, Indian country, educated and raised by wolves etc.) the odds appear downright disheartening.  Nevertheless, some non-target applicants will make it through this grueling process and secure offers with the right combination of connections, interviewing skills, finance knowledge, academic record, and character traits.  The target versus non-target distinction may not be fair and no one disputes that applicants from both groups will be able to do the work.  Like an old coworker said to me once during my summer analyst job: "I can’t believe I get paid this much to just add, divide, subtract, and multiply in a model then put that into a pitchbook."  I even have one really quantitative friend with a double major in math and financial economics who was told in a banking interview that he was too bright for the work, would get bored, and would be better off going into sales and trading or a hedge fund.  Please check out the Prince’s two older posts about getting interviews and then killing them if you want to explore this further.

Now that we have set the scene, The Prince wants to offer some gross speculation on what this year’s recruiting season was like.  This is mainly based on anecdotes, the fortune or lack thereof of friends, and insight from some friends that are currently bankers.  Typically, the regular recruiting process for full-time analysts starts in late August and wraps up before Christmas.  It consists of interview drops, followed by on-campus interviews, and then ’superday’ interviews at the firms for target schools’ students.  For non-targets, it looks more like a resume passed to HR by a contact, a phone interview, and then maybe a ’superday’ if the applicant is exceptionally impressive or has a great connection.  Summer analyst recruiting starts in the middle of January and runs till about the middle of March normally at the bulge-bracket banks.  Some banks will take some people off cycle for full-time or summer analyst jobs but this is fairly rare.  The Prince has known one person who left Google after only 3 months on the job after graduation and was taken off cycle to start at a bulge bracket as a 1st year analyst.

By all accounts this was a brutal recruiting season.  Full-time offer rates to summer analysts were down sharply.  In some regional offices I heard of groups giving offers to 1 in 4 summer analysts.  Many summer analysts who did get offers jumped on them and didn’t wait to try their luck for better offers in the regular process.  So there were fewer slots left for the full-time process.  The number of full-time analysts hired was also down across the street.  The Prince has friends at targets that had summer analyst jobs at top banks but didn’t get full-time offers after the summer, and then didn’t get any full-time offers in the regular process.  By all accounts it was a bloodbath this year in recruiting. The Prince and a few of his friends were fortunate enough to get summer analyst jobs and full-time offers at places they wanted to work.  Others were not so lucky and many are still looking.  This was not the case last year when banks were hiring at higher rates not seen in years.

Yet, why was it so brutal?  The response seems obvious—if banks figure out bonuses by placing 50% of their weight on the past year of performance and the other 50% on the outlook for future performance, they probably do the same thing with analyst recruiting.  The forward calendar looks weak.  The LBO game is shut down and certain fixed income products may never come back.  This also looks to be a sleepy year for M&A.  So things look bad and banks are cutting back on their analyst classes.  Does this really make sense?  Well, it is possible to argue that this is a dumb reason to cut back on analysts that are the cheapest form of professional labor employed by a bank.  For example, take a bulge bracket bank with 100 investment banking and 100 capital market summer analysts.  If the total cost of training, paying, relocating, and hiring each of these 200 summer analysts is $18,000, which is probably high, the total cost of this program for a summer is $3.6mn. 

That seems like a small expense to get to do a three month job interview of the most qualified candidate your bank can convince to come.  It looks even cheaper when you consider that many no name managing directors get bonuses is excess of that every year.  Albeit these managing directors do normally bring in business and don’t just crunch numbers but you get the Prince’s point.  Also, do we really believe that all those summer analysts don’t ad any value to the firm in excess of their $3.6mn cost.  My summer experiences had me doing the same work but slower than my full-time analyst peers. 

If everyone else is cutting back, should an opportunist bank increase hiring of summer analysts to get stellar candidates that in past years it would not have had a shot at? This seems like a great time for HR and the leaders of banks to think strategically about how to improve the quality of their talent at the analyst level.  Now for full-time analysts, cutting back may be more prudent because the costs per analyst are higher.  Yet, analysts are still the cheapest labor a bank has, and getting top quality talent in at the ground floor will improve the firm if the talent stays.  It may also help the firm if the top talent does leave after 2 years to head into PE or HFs, since these former analysts will rise into positions of power on the buy-side with, if their experience is good, a preference for their old firm.  Certainly no one gains friends by firing their incoming analyst class but a bank also sacrifices potential future high quality talented friends by cutting back on full-time and summer analyst positions.  Maybe The Prince is full of it and less work for a bank on the forward calendar must translate into fewer analysts getting hired.  Yet, that seems like a pretty short term outlook, and banks that act strategically now to hire more analysts may reap long-term benefits by getting more quality talent than they could expect to attain in previous years.