Investment banks’ star is dimming to MBAs, but it’s still a competitive job market

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Are MBAs falling out of love with investment banking? The prospect of a high paying role with plenty of career progression opportunities always came with some risks attached – notably the sector’s cyclical hire and fire mentality – but this, together with the reputational damage of the latest crisis, has turned some students off.

“Investment banking has lost some of its appeal to the current MBA class,” says Eileen Devine, relationship manager at Cass Business School. “Some banks have scaled back their recruitment plans, the bonus potential has diminished and job security is not what it was.”

It would, however, be wrong to assume that investment banks’ recruitment of MBAs has fallen off a cliff.  In 2001-2003, in the wake of the post-dotcom bubble market crash, banks like Goldman Sachs and Morgan Stanley cut back MBA recruitment by up to 80%. Lessons have been learned.

“We still have to see the conversion rates to full-time at the end of the summer for 2012, but we saw a relatively small dip in the total number of MBAs recruited by investment banks this summer,” says Lara Berkowitz, head of employer engagement at London Business School. “It will remain the biggest financial sector employer.”

Last year, 14% of MBAs from LBS ended up in investment banking – the largest proportion of those going into finance – followed by private equity (7%) and asset management (6%). At Columbia Business School, a traditional pipeline of Wall Street talent, around 27% of the class of 2011 went into investment banking – a slight increase on the 26.2% in 2010.

Other stats aren’t as positive – at INSEAD, the largest financial sector employer was private equity (17%), while the Financial Services Authority was the biggest industry recruiter at Oxford Saïd.  At Wharton, while 18.2% of the class of 2011 ended up in corporate finance, just 4% of the class of 2012 intake secured internships in the sector, which suggests the job market is declining. Private equity (10.3%) and asset management (10.4%) offered the largest proportion of internships in the financial sector.

What’s more, of the investment banks questioned in the 2012 GMAC Corporate Recruiters Survey, just 21% said they were hiring MBAs in Europe. This compares with 18% in the US, and 27% in Asia-Pacific.

Investment banks insist MBA hiring is flat, and that the places are easily filled

Investment banks themselves tell us that they’re still keen to recruit MBAs. Morgan Stanley, for instance, is taking on 35 in EMEA this year – the same figure as 2011 and 2010 – and Deutsche Bank tells us that hiring is flat for 2012.

Stephanie Ahrens, head of firmwide graduate recruitment for EMEA at Morgan Stanley, says that MBAs: “Bring a different set of values, perspectives and ideas to the table and are generally better able to make an immediate impact.” They also have “determination, commitment, motivation and drive”, she says.

While rumours abound that investment banks have been reducing the number of MBAs recruited in Europe this year, all the firms we contacted insisted numbers had remained consistent with recent years. Until the employment figures start to emerge in October, this will remain unclear. For the time being, however, investment banks remain relatively positive.

“If we restrict the pipeline of MBA recruits when market conditions are challenging, we may result in a talent deficit in future years, so we’ve kept our intake relatively consistent,” says Faye Woodhead, head of graduate recruitment for EMEA (excluding Germany) at Deutsche Bank. “This year, while the volume of applications has dipped slightly, we’ve been more than able to fill our classes. What’s more the quality of applications has remained as strong as ever, which suggests that the students that are applying are very focused on investment banking.”

The job market is as competitive as ever

The European MBA survey by research firm Universum suggests investment banks’ appeal is fading. Only Goldman Sachs makes it into the top ten, at 7th, behind the large management consulting firms like McKinsey and Boston Consulting Group and tech firms such as Google and Apple. J.P Morgan is in 12th spot, followed by HSBC (17th), but the likes of Credit Suisse, Deutsche Bank and Barclays all fall outside the top 30.

To assume this makes it any easier to secure a spot on banks’ associate schemes would be foolhardy, however. LBS’s Berkowitz says that the “tourists” – namely those students with a passing interest in finance – are absent from this year’s investment banking campus presentations, but there’s still a lot of interest.

“Numbers are down for students attending banks’ presentations this year, but the people attending are really focused on investment banking, and for those committed students, their needle hasn’t moved despite the negative press,” she says. “It’s incredibly competitive – students need to network and be prepared to move into banking from day one of their course. Internships are more crucial than ever.”

If MBAs can’t secure a position on a formal associate programme at an investment bank, business schools advise taking a more indirect route.

“More than ever this year, students getting jobs in investment banking have done so by leveraging their network and proactively trying to gain a position via lateral recruiting,” says Cass’s Devine. “Most have prior industry experience, but combine this with the skills gained through an MBA to secure an investment banking role.”

A career transition certainly appears to be tougher – 61% of LBS students moving into finance last year worked in the industry before their MBA, while just 10% moved from either consulting or a corporate sector into finance.

GMAC’s employment report says the preferred recruitment strategy in the financial sector this year is employee referrals, followed by on-campus recruiting and then hiring interns.

“One of the things we look for in the MBAs we recruit is a strong network and an ability to leverage their business network, combined with the corporate maturity, prior work experience, and business acumen that the qualification brings,” says Woodhead.

Within the investment banking sector, MBAs are making the call that M&A/corporate finance has the better longer term career prospects. Even at Deutsche Bank, one of the few firms that still recruits more MBAs into its sales and trading divisions, there’s been more interest in corporate finance this year.

Exploring a wider range of options

If MBA students aren’t going into investment banking, where are they heading? Well, one answer is consulting – all the business school’s careers services we spoke to said that management consultants were increasing their MBA intakes and the proportion of students securing roles in the sector is increasing.

36% of LBS students went into consulting in 2011, up from 25% in 2010. At INSEAD, this figure remains at around 40%, while the proportion of students gravitating to the sector from Oxford Saïd has increased from 12% in 2009 to 29% last year.

Within the financial sector, however, MBAs are more willing than ever to explore a wider range of options.

“Private equity remains a popular choice, while more students are applying for roles in asset management and wealth management,” says Devine.

Derek Walker, head of the careers service at Oxford Saïd Business School, says smaller firms are capitalising on the reputational damage of bulge bracket banks.

“There’s been increased interest in investment banking and capital markets boutiques among students this year, who feel they can offer more interesting work and potentially greater rewards long term,” he says.

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