Rob, great news for my youngest daughter. Who finally graduated btw.;-)
>NEW YORK, March 29 (Reuters) - Wall Street firms are heading back to school, not to pick up more knowledge but to recruit lower-cost talent amid a market downturn.
Some of the top U.S. investment banks are cutting back on hiring banking veterans during a stock market slump that has cut into earnings. But the companies pledge to keep prowling college campuses for talented graduate students.
"Campus hiring is really the future of Goldman Sachs," David Viniar, chief financial officer of Goldman Sachs Group Inc. (NYSE:GS), said last week when the company reported quarterly earnings.
"As far as experienced hiring goes, we're going to significantly cut back from where we've been," he said, acknowledging the firm would still hire top names.
Business school graduates will help power the growth of the firms for years to come, executives and analysts say. But there is also a simpler truth: MBA grads come cheaper.
"The experienced people tend to be much more expensive than trainees," said Ray Soifer, a former bank analyst who now runs his own agency, Soifer Consulting.
The average graduate from New York University's Stern School of Business in 2000 made a base salary of about $83,000 and a signing bonus of about $20,000, according to the school. The median base salary of a 2000 graduate of the Tuck School of Business at Dartmouth who snagged an investment banking job was $80,000, the school said.
That pales in comparison to the pay package of a banker with only a few more years of experience.
The average total compensation range for a class of 1997 business school grad working for a top investment banking is about $450,000 to $500,000, according to one market source.
The cheaper hires from business programs also shoulder most of the grunt work, Soifer noted.
"You need a reasonably steady flow of trainees ... to get some of the immediate processing work done," he said.
FIRMS GOING BACK TO SCHOOL
Other firms echoed the comments of Goldman's Viniar.
"We're going to continue to recruit aggressively on campus for MBA-level students and have planned to step up that effort and hire more people at that level this year," Sam Molinaro, Bear Stearns Cos. Inc.'s (NYSE:BSC) CFO, said last week.
The rate of growth in hiring experienced bankers from elsewhere in the industry would likely be lower, however, Molinaro added.
Wall Street firms bulked up during the stock market's bull run through last year. From 1990 until 2000, the number of employees at New York Stock Exchange member firms increased 74 percent to 365,381 workers, according to the Securities Industry Association.
But times are tough, and the big names are hurting.
Goldman, Bear Stearns, Morgan Stanley Dean Witter & Co. (NYSE:MWD) and Lehman Bros Holdings Inc. (NYSE:LEH) last week all reported declines in first-quarter income. Plunging stock prices have curtailed merger and stock offering activity, which brings in big fees to investment banks.
To help staunch the bleeding, Goldman and Morgan Stanley both said they will rein in new job growth.
"Our expectation is headcount will be flat versus last year," Morgan Stanley President Robert Scott said last week. Goldman said it expects to have about 23,000 workers at the end of the year, roughly the same as at the end of its fiscal 2000.
COMPETITION DWINDLES AS DOT-COMS FADE
Although Wall Street is going through rocky times, career counselors at premier business schools and top recruiters aren't worried.
"I think students get a little more nervous than we do here from an office perspective," said Gary Fraser, assistant dean of the office of career development at NYU's Stern.
"At the end of the day ... there's still a need for people to be in the industry," he said.
Headhunters dealing with top bankers and executives also said they were busy as different firms have spots to fill.
"There is still a good level of senior-level hiring going on, so it hasn't really dropped off," said John Rogan, head of global banking recruiting for Russell Reynolds Associates.
Senior associates and younger vice presidents were also very important, he said, noting some firms cut back too severely in recent market downturns.
"When (the firms) let go of some of the younger people, it really took the better part of four years to play catch-up to fill in the ranks," said Rogan.
Lehman is one firm bucking the hiring trend and said it wants to increase its staff by 10 percent this year, after expanding by 27 percent in 2000. Campus recruiting is a big part of its growth plan, CFO David Goldfarb said.
But Lehman and others may be less lavish in their recruitment spending because of the weak environment.
One grad student who plans to work at the firm for the summer said Lehman canceled a March trip to New York for all summer interns.
Lehman said it couldn't coordinate schedules but has always managed to hold the event in the past, the student said, speaking on condition of anonymity.
A Lehman spokesman said he had no knowledge of a canceled intern trip and that even during extreme cost cuts in the past, the company has left its graduate recruiting budget alone.
Indeed, the reason Wall Street firms don't have to pull out all the stops to snap up MBAs may be the result of less competition, rather than a desire to cut expenses.
"I don't know that it's so much cost-cutting; it's a less competitive environment than it was two years ago, when the dot-coms were in vogue," said Soifer.
Internet companies were wooing business-school students with the promise of lucrative stock options as their shares were soaring in late 1999 and early 2000. Those fledgling companies also offered young grads the promise of more responsibility.
But the bubble has popped, as the tech-heavy Nasdaq Composite Index shed 38 percent of its value last year and is down about 25 percent in 2001.
Dot-com hiring has dried up and some high-profile ventures like Pets.com and MotherNature.com have closed their doors. |
