So you fancy a career as an Investment Banker? Is this a good long term choice?
[IF YOU ARE OVER 25, DON'T BOTHER READING THE REST]
Once upon a time the smart people went into Investment Banking. It had the best technologists, package makers, fortune tellers and sales people. Today the smart people see bankers in the same light as real estate agents or burger flippers. But don't discount a career in Investment Banking because the next 10 years are going to be great fun and profitable. If you survive you will be wealthy beyond your dreams and if not you will have experienced probably the end of banking as we know it and have some great stories to tell your grandchildren.
My previous life as a banker was summed up by LTCM, the Russian bond crisis, the dot com bubble and as a hedgie the subprime debt fest debacle. Money was made and lost on misinformation. There is one common theme with these events and that is a lack of transparency, for bankers love packaging simple things and making them complicated and not telling the whole story. We all learned afterwards that not all was what it seemed. AAA is not a safe bet and governments lie. A liquid piece of paper can soon turn into third degree burns and valuers can make big errors of judgment.
Bankers are great story tellers. They like extreme endings. They like holding back on parts of the plot until the story ends and then walking into the sunset living the life a 1000 people could live off.
The regulators chop and change and the legislation comes and go. Although the laggard regulators eventually catch up, there are still new opaque business models to make money off. It took the authorities nearly 20 years to bring OTC derivatives onto exchanges. The authorities are slow and always try to solve last years perceived threats. Bankers are clever and have the world to play with whereas regulators are stuck in their own jurisdictions. Until there is a Global regulator which will never happen whilst China and the Middle East live by different rules, the playground has lots of hidden nooks and crannies to hide and plan and exploit in.
Today the banks are in an extraordinary position. Assets are guaranteed, interest rates are very low. Corporations are loaded with cash invested in short term government debt waiting for the next bank led opportunity to make more money. Here are some indicators and potential opportunities to think about over the next 10 years:
ETFs: Huge market, opaque and a bubble ready to explode. Packaging up illiquid assets and making them liquid. Bankers love that. It is so subprime. UCITS 4, funds for the plebs, commissions wrapped up as admin fees, license fees, risk fees, any old fees. ETF indices for hedging, equities and fixed income wrapped up into tranches, income and capital strips, recycling old sales into new sales, this is the place to be.
M&A: With low rates, and truck loads of cash, IPOs and Mergers are going to explode. Bankers love an Ocado / Facebook overvaluation story. It is so lastminute.com. Corporate finance is going to come with a vengeance. Tax structures will become so complex they can never be wound down. So complex the courts will never come to a decision.
Hedge Funds: As opaque as could be, with the requlators forcing banks to spin out prop desks, hedge funds will morph into private equity and VC and M&A and become the new Investment Banks. They love leverage and there are ways banks can lend to them without it impacting their capital adequacy. Money market funds. Overnight. Liquid. But during the night and invested illiquids which are passed around like subprime tranches of old. Lending to off balance vehicles owned by cartels that lend onto hedge funds. Nothing new. Just new ways of doing old things.
SWFs: Sovereign Wealth Funds are opaque, huge and growing. Unregulated they can do whatever they want. But they need advisors. When QE2 stops, who buys US debt?
Real Estate: The last bastion of money launderers, regulators struggle to control real estate bubbles because people need houses and places to work. It is opaque and real.
Data: Banks make money off data they have and noone else has. Scraping websites, inside trading, selling of corp secrets, banks already own data that makes them money. Take Markit.
Agriculture: This will be the next packaged bubble. We have had hard commodities but the markets in timber and many food stuffs have spreads as wide as Cherie Blairs mouth ready to be exploited. When we see ETFs in teak and prozac and solar generated electricity then the bankers are back to their old ways.
Lending: Banks lending to people is old hat. Lending between companies and people is the way forward. Banks in China, SPVs in Singapore, SIVs in Iraq. New ways to lend, micro lending, wonga.com, peer to peer, bartering, lending exchanges, credit unions, and so on. Remember its the governments who need to borrow and they will be trying lots of new tricks to get paid and it will be the banks who will be placing their debt for huge fees.
FX: There was a time when it seemed we would end up with only one currency pair - USD/EUR. The good news is the EUR will collapse and the USD will diminish as the world currency.
Bankers love beating the system and if that is you, join an investment bank. The biscuits are good, the first class travel fun and for a period of your life you can feel full of yourself until it all ends, happily or not. If you have no moral compass and don't give a fcku then sign up. I hate investment banks and investment bankers with a passion. They are evil scum. But I am me and you are you and while the opportunity exists, make the most of it before the world turns into a red tape socialist utopian nightmare just as China turns into a full blown capitalist country.
You only live once and you never know, but you might be the person who turns the Investment Banking industry into a fun lovin' cuddly Apple. Now that is a goal worth pursuing.
IMF and the wall of debt (telegraph)
Investment Bank dupes clients (bloomberg)
Investment Bank pays for inside trading (marketwatch)
Investment Banks to help sort out subprime foreclosure mess (bizjournal)
Investment Banking to move head offices to Bob Diamond's yacht.