Our Take: On Picking Cherries

Goldman Sachs is pulling still further away from the pack. That's not good news for the sea of candidates casting wistful glances in its direction.

Back in mid-November, we compared several top banks' pre-tax profits, investment banking revenues and firm-wide compensation expenses. Viewing those figures side-by-side, we were struck by how widely they varied - so much so, the old catch-phrase about banking being a highly cyclical industry seemed to miss the point.

"Cyclical" implies that competing firms' business metrics move together in lock-step, propelled by a common cycle. But although the ongoing mortgage and credit blowup did indeed shape the quarterly results released by four bulge-bracket institutions this week, that is true only up to a point. As we concluded last month, speaking of "the outlook" as something uniform and monolithic may be a misnomer when discussing the credit crunch's impact on this industry.

With that in mind, here are our initial takeaways from the latest round of bank profit and loss reports - worth considering as you mull your career moves in the new year.

Winners and Losers

The clear casualties were Morgan Stanley and Bear Stearns. Both reported not just net losses, but negative revenues for the quarter ended Nov. 30. In other words, their mortgage asset write-downs exceeded not just their profits from all activities, but their complete revenues - from capital markets transactions, private wealth management, asset management, prime brokerage and everything else. Yet, even those two firms' results were scarcely carbon copies of one another.

Bear Stearns fared worst. In addition to a $1.9 billion write-down, fourth-quarter revenues from both equities and investment banking slumped precipitously, while clearing revenue (which includes prime brokerage) was near flat. Those weak comparisons appear to signify "a loss of franchise business," according to a Credit Suisse report quoted in Thursday's Wall Street Journal. Translation: Various classes of institutional clients may be losing confidence and withdrawing business - a potentially severe blow to Bear's fortunes for the long haul.

At Morgan Stanley, mismanaged sub-prime exposure overwhelmed strong performances in most other areas, from merger advisory to asset management. The resulting $9.4 billion write-down was much worse than management's $3.7 billion forecast. Coming off the top line, it left Morgan with negative quarterly revenue of $450 million and a $3.59 billion net loss.

Lehman Brothers managed to hedge the bulk of its mortgage losses, so it had a relatively small net write-down of just $830 million for the November quarter, after taking a similar $700 million write-down in the third quarter. Aided by stock trading revenue and private equity gains, Lehman reported a quarterly net profit of $886 million - down 12 percent from a year earlier, but a respectable performance in a tough market.

Once again, Goldman Sachs was the standout. Goldman's fourth-quarter profit actually surpassed its year-ago figure. As in the third quarter, much of its success can be traced to a series of short bets against a sub-prime mortgage credit index placed by a 16-person group responsible for structured-products trading

Expect Goldman To Be More Selective Than Ever

That brings us to this week's theme: cherry picking.

A few eFC users have expressed the view Goldman will vacuum up everyone good from Merrill and other firms who is dissatisfied with his or her bonus. Of course, cherry-picking raids will happen, as they always do on Wall Street. But is there any reason to think Goldman Sachs is poised to step up hiring, simply because its rivals are on the mat? Quite the contrary. Goldman already has their pick of anyone on the Street, and it's been that way for a long time. If anything, they can afford to get even more selective now.

Consider this: If you click "Careers" on the Web site of Lehman Brothers, Morgan Stanley, Bear Stearns, Merrill Lynch, Citigroup, UBS or Credit Suisse, you can search individual job openings for "experienced professionals" at each institution - in some cases, hundreds of current openings. Even Blackstone Group lets you do that.

Goldman Sachs, alone among U.S. bulge-bracket investment banks, never posts openings for professionals on its Web site. The firm provides plenty of information, but when it comes to applying, experienced candidates are asked to simply submit a general-purpose resume and let HR at Goldman decide if you're worth a look.

So if you're tempted to take a flyer on getting in the door at Goldman, here's our advice. Go for it...but only after getting a thumbs-up from a suitably qualified third party who wouldn't be afraid to tell you that chasing windmills is not a wise use of your time.