MBA students need to get their timing right

Whether there is ever a right time to leave a well-paid job in order to spend 40,000 (€60,000) on a course claiming to teach the nebulous art of management is open to question. Nevertheless, thousands of people do it every year and many are bankers. Wharton Business School in Philadelphia says 17% of its Masters in Business Administration (MBA) applicants are investment bankers, while 26% of applicants to London Business School come from a finance background.

For these people and other would-be investment bankers, the class of 2004 has a couple of things to recommend it. First, there is less competition to win a place than in recent years. Second, it is easier to find a job at the end.

Columbia Business School, Wharton and London Business School are among the colleges reporting fewer applications this year than last. The number of people taking the Graduate Management Admissions Test (GMAT), which is usually required to enter MBA school, fell 8% globally in the past year. Outside the US, the drop was more than 15%.

While interest in MBA courses has fallen, banks report they are hiring more MBAs than before. Lehman Brothers said its MBA hiring in Europe is up 65% from last year, though the bank declined to give numbers. At Bear Stearns, which plans to hire an additional 200 to 300 staff in Europe in the next three years, a spokesman said the bank is embarking on its most ambitious MBA hiring programme since the 1990s.

Banks' hiring plans are already being felt in MBA colleges, which report a resurgence of interest in employing their students. At London Business School, banks have hired 50% more MBAs as summer interns this year than last. Insead, the self-styled global learning network, said banks are preparing to recruit MBAs in the autumn for the first time since 2001 as well as hiring through summer internships as usual.

Schools claim senior bankers are increasingly keen to make presentations to MBA students. London Business School has played host to John Studzinksi, co-head of corporate banking and investment banking at HSBC and former deputy chairman of Morgan Stanley International, although HSBC has no MBA hiring programme.

Not only are MBAs finding it easier to get jobs, they are also likely to be better paid than of late. On Wall Street, Bear Stearns is offering its first year associates guaranteed packages worth $200,000 (€162,000) in the first year, $250,000 in the second and $300,000 in the third.

Tony Brown, director of staff at Bear Stearns in New York, said other Wall Street firms have done the same. "It is a market move. Everyone is reacting in the same way."

Guarantees are less common in Europe, though Credit Suisse First Boston has followed Bear Stearns' US example. But European MBAs are being compensated in other ways. According to headhunters, MBAs joining investment banks in London can typically expect to receive signing on bonuses of up to 15,000 this year, up from a maximum of 10,000 last year.

Nevertheless, starting an MBA soon may not be a wise move, particularly if it is intended as a springboard to investment banking.

There are persistent rumbles from banks about what they regard as the poor value of MBA recruits. The head of European graduate recruitment at a US bank, usually among the biggest recruiters of MBAs on the Continent, said line managers are becoming increasingly sceptical about the qualification.

She said: "We are definitely moving in favour of growing people in-house. Someone trained by us straight out of university is more loyal and can deliver more immediately than someone hired from MBA school. Business managers are starting to say that if we are going to hire outsiders at a more senior level they should have specialist sector knowledge, which is not usually provided by an MBA."

Jeffrey Pfeffer, a professor of organisational psychology at Stanford Business School, believes that two or three weeks on an intensive business programme may be as useful as an MBA course. Others disagree, arguing that MBAs equip students with a valuable mix of general and specific abilities.

Although banks are hiring more MBA graduates this year, the trend might change by the time the next influx of MBAs hits the market.

Anyone who decides now to do an MBA would have to start in 2005 as deadlines to join this year have passed. Given that most MBA courses take two years, it would be 2007 before they were ready to work in a bank, by which time recruitment might have dried up.

The recruiter at the US bank said a movement against the qualification is gathering momentum. She said: "We're not about to pull the plug on MBA hiring entirely - at least, not yet."