In mid-2008, right after my first annual performance review, the cocooned world of investment banking suddenly changed.
The first blast came with the news of Bear Sterns’ financial difficulty. Since early 2008, we had been hearing negative news concerning the real estate market, but Bear’s news alerted us to the fact the crisis was close at hand to the investment banking industry. On May 30th, Bear Sterns, the fifth largest investment bank in the US, was acquired by J.P. Morgan – salvation. The next blasts occurred in quick succession that September. Following the nationalization of Freddie Mac and Fannie Mae; Lehman Brothers, the fourth largest investment bank in the US, filed for bankruptcy after many failed attempts to save the company.
I clearly remember the day of Lehman’s bankruptcy. It was September 15th. One of my colleagues watching the Bloomberg terminal suddenly screamed, “Lehman has folded up!” His voice echoed throughout our floor, and 160 investment bankers stopped dead in their tracks. After a moment of silence, some people started checking the news on their computer, and others scrambled to the Bloomberg terminal. Since my desk was next to the terminal, my desk was surrounded with my team members. The monitor was displaying market news and stock prices of the investment banks. Goldman Sachs, Morgan Stanley – all stock prices were falling by the second. $38, $36, $33, $29, $26…looking at the falling stock price of my company, I asked a managing director, “are we going to go bankrupt?” He said nothing, continuing to stare at the monitor.
Since then, the world has totally changed. All investment banks downsized, many people left the industry, and some divisions even vanished into thin air. Survivors also had a difficult time. Many deal opportunities evaporated, companies continued restructuring, and investment bankers lived with the specter of lay offs.
After several years, the financial industry now seems to have regained its footing. However, investment banks are not as “shiny” as they had been, and the lives of investment bankers are totally different from what they were in 2007. Recently I talked with an old colleague at Morgan Stanley, and he told me that the company doesn’t reimburse $40 for dinner anymore, and new hires’ expectation for their performance bonus is far smaller than their base salary. He didn’t say so, but I suspect that these days managing directors may be scrutinizing menus when they select wine.
That’s the financial industry. Economic upturns and downturns come on a ten-year cycle. It’s inevitable. Luck is a critical factor for success in the investment banking business.