For decades, investment bankers have held the key to untold riches -- but now they're being laid off by the tens of thousands. As the crisis forces the industry to search for a new identity, is it ready to mend its ways?...
...The crisis has struck at the heart of the financial center. In 2012, banks began to downsize their investment banking activities. For years, the area had been seen as a playground for those seeking instant riches and guaranteed success, and it provided tens of thousands with sometimes exorbitant incomes.
October 30 would become a horrific day for the financial district after the Swiss bank UBS announced that it was slashing 10,000 jobs in the sector. On one morning alone, the bank's London office let hordes of bankers go. Some were intercepted at the entrance, still carrying their coffee in to-go cups, only to be shown the door a short time later with a piece of paper filled with instructions.
All he felt was hate, says a 51-year-old who was among those affected by the recent layoffs. For him and others like him, the chances of finding a new job are slim. The competition is also doing its utmost to downsize. Morgan Stanley plans to lay off 1,600 employees in the coming weeks, Lloyds is cutting as many as 15,000 jobs worldwide, and Deutsche Bank has just eliminated 1,500 jobs in its investment banking division.
An era seems to be coming to an end, the era of an industry that led us to believe that what it did was useful. In reality, though, it was lining its pockets by conducting more and more reckless transactions and involving itself in increasingly insane deals and products. Senior executives say the business is merely shrinking to a healthy level and characterize it as something like a catharsis...
...It only gradually emerged that the bankers, with their murky forecasts, were often wrong. In fact, studies now show that every other merger was a failure. Nevertheless, the volume of such transactions increased tenfold from 1990 to 2007, to almost $4 trillion worldwide. Investment bankers, it would seem, can be very convincing -- especially when they're banking on high fees...
...Wötzel believes that a monoculture has developed in the industry, starting with recruitment methods. "In their recruitment,," he says, "investment banks focus on a handful of elite universities, which produce similar, streamlined types of people."
The investment banks show the candidates glossy brochures depicting the rosy side of the business, and then they roll out the red carpet. But, once on the inside, they discover that things are very different.
"Suddenly the glamorous image is no longer sustainable, and it quickly becomes evident how one-sided the career mechanisms are," says Wötzel. Those who deliver the biggest deals and the most impressive spreadsheets, and are the most skillful at playing the political game, are the ones who succeed. This leaves a mark on people. "Once they have been in investment banking for 10 or 20 years," he says, "they begin to conform to the cliché."...
...Former German President Horst Köhler once described the financial markets as a monster controlled by investment banks. Since 2008, politicians have been trying to tame the monster and assume control.
For instance, they want banks to set aside more capital as collateral for risky deals in the future, which means that many areas will hardly be profitable anymore. Banks and bankers are to be forced into a tighter corset -- but they are fighting back. The United States recently -- and yet again -- cast doubt on the chances of seeing new rules introduced. There is also heated debate worldwide over tighter regulation of bonuses, which are sometimes exorbitant.
"It gets to be less and less fun every day," says trader Peter Burger, who believes that the proposed regulations are almost as excessive as the banks' former dealings were...
...mass layoffs at UBS -- which is completely abandoning large portions of its investment banking business following the appointment of Axel Weber, the former president of Germany's central bank, the Bundesbank, as supervisory board chairman -- are seen as a warning sign for the entire industry. It is "as if Daimler stopped making sedans," says the head of the German division of a major US investment bank...
...Roland Berger, a German management consulting firm, estimates that another 25,000 jobs will be slashed in the coming years as the entire industry rebuilds itself.
"The trend is fundamentally toward the sale of simpler, industrially produced products," says Markus Böhme, an expert with Berger. These instruments are known as "plain vanilla," which is industry jargon for mass-produced and therefore requiring far less personnel.
But will the world of investment bankers truly become less risky?
"The investment banks will get rid of the traders, but not the books," warns Michael, a 35-year-old who worked as a trader of "exotic" products in London for 10 years after training to be a software engineer.
In the wild years, UBS's balance sheet, for example, was inflated with hedging transactions and bets worth 560 billion Swiss francs (€450 billion/$600 billion). The competition argues that downsizing the portfolio will be about as easy as shutting down the Chernobyl nuclear power plant.
Indeed, only a select group of experts understands what exactly is still lurking in the books of investment banks. "The formulas are simple; it isn't very high-level math," says Michael, "but you have to see the risks." The trick, he adds, is to recognize all contingencies.
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