I-Banking: A Shrinking MBA Option

It’s no secret that investment banking jobs have become a smaller piece of the MBA job pie. Many think the decline in i-banking dates back to the Great Recession of 2008-2009. At Harvard Business School, the percentage of the graduating class headed into investment banking has been cut in half in the past five years alone to 5% for the past three years from 10% in 2010. At the University of Pennsylvania’s Wharton School, just 14.2% of the Class of 2014 ventured into i-banking, down from 20.6% in 2010.

But the truth is, the big dealmaking firms that have long dominated investment banking have been cutting back on MBA hires long before the Great Recession hammered Wall Street. Columbia Business School, which sent 43.7% of its entire graduating class of MBAs into investment banking in 2001, last year saw only 16.0% in that industry (see below). Over the past ten years, Wharton’s exposure to the lucrative profession peaked in 2006 when 26% of its MBAs headed into i-banking–12 percentage points more than today.

The declines are the result of a confluence of factors: industry consolidation, several waves of downsizings, the rise of more boutique dealmaking shops, an increase in the hiring of less expensive undergraduate business majors at the analyst level, and even the career preferences of millennials who refuse to work the grueling hours required. “There is still a strong core of graduates who consider going into it,” says Damian Zikakis, director of career services at the University of Michigan’s Ross School of Business. “But some of this is a millennial issue. I’ve seen students come back to campus from their internships in investment banking and say, ‘No way. I don’t want that lifestyle.'”

FIRST-YEAR SALARY-AND-BONUS COMP PACKAGES FOR TOP MBAS TYPICALLY APPROACH $200K

The jaundiced portrayal of the business in everything from The Wolf of Wall Street to Straight to Hell: True Tales of Deviance, Debauchery, and Billion-Dollar Deals, the latest tell-all book by former-Citigroup and Goldman trader John LeFevre, hasn’t helped, either.

“Investment banking was hit hard with the bust – not just in terms of job losses, but banks were vilified in the media,” says Jeremy Shinewald, founder of mbaMission and MBA Career Coaches. “Some bankers and traders went from being quite proud to feeling persecuted. Simultaneously, the tech industry picked up the pieces and really captivated young people.

“You don’t hear about two college kids starting an investment bank in their dorm and selling it for $2 billion dollars. You do hear that – though not nearly as often as people might think — with your Instagrams, Snapchats, Facebooks and more. To put it simply, right now, tech is hot and banking isn’t on a relative basis, as they compete for talent with each other. At some point — and Goldman just this morning announced a big jump in i-banking revenue — it will swing in another direction. Maybe even to something new. For now, it is all about tech.”

Even so, the industry remains a staple of MBA graduates. The lingering appeal of i-banking is understandable even if you never slicked back your hair or subscribed to Gordon Gekko’s infamous “Greed Is Good” ideology. After all, a job in investment banking brings super generous compensation packages and puts you inside a meritocracy where the top performers advance quickly in responsibility and pay. MBA grads from top business schools typically enter at the associate level with annual salary-and-bonus compensation packages approaching $200,000 a year. Like consulting, i-banking offers a well-defined career path, exposure to C-level executives early in one’s career, access to a high-powered network of movers and shakers in business, and a good number of exit opportunities that range from jobs with client companies to starting your own business.

“The benefits of investment banking can be tremendous,” adds Shinewald. “You gain a broad and deep education in business and finance, and you build a great network across the industry. Whether you contribute to the completion of an M&A (mergers and acquisitions) deal or research a company’s stock, you learn how businesses operate and how to analyze situations with a laser focus on details.”

THE PAIN POINTS ARE MANY BUT SO ARE THE REWARDS

Although associates are expected to put in hours building financial models and putting together presentations, more of their effort goes toward checking the work of the pre-MBA analysts involved in their deals and ensuring that products meet the senior bankers’ specifications. Associates have more client interaction than analysts do, notes Shinewald whose firm has produced a career primer on the industry. “Some associates make the jump to vice president, while others leave after a few years for corporate development and other jobs.”

Make no mistake: There is no shortage of some fairly painful pain points. Investment banking, after all, is notorious for all-nighers and seven-day work weeks. Expect to work 80 or more hours a week. Only last month, Goldman Sachs made headlines when it told summer interns they should be out of the office between the hours of midnight and 7 a.m. during the week and to take Saturdays off. Goldman, the largest player in the business, had even formed a task force in recent years to tackle quality-of-life concerns. If you want work/life balance, this is not the way to get it.

Fact is, it’s hard to work anything approaching normal hours when you’re in the heat of a big deal. I-banks typically boast intense work cultures with little room for mistakes. Newbies inevitably confront a steep learning curve and are thrown into a “sink or swim” environment. And based on what happened during the Great Recession when Lehman Brothers went bankrupt, the banks are quick to hire and just as quick to fire with the economy turns down. Your job security pretty much rides on your performance.