The move by Morgan Stanley and Goldman Sachs to convert to bank holding companies will mean more work for accounting and compliance professionals in the short run, but may lead to eventual layoffs, industry observers say.
Things are bound to be busy in the back office immediately following the conversion, says Ricardo Kaufmann, head of full service brokerage for Bulltick Capital Markets in Miami. That's because the move from Securities and Exchange Commission regulation to bank regulation increases the complexity of compliance. "It will take the compliance teams from investment banks to a whole different level," Kaufmann says. Compliance, he adds, "is the only department where people are going to get hired instead of fired."
When Goldman and Morgan become bank holding companies their investment bank functions will continue in a new framework, says Guy Erb, a director with consultant LECG in New York who formerly worked at Goldman Sachs. "The expectation is that the two firms will in some way link themselves by route of a merger or purchase of a bank, which will continue deposit and commercial bank activities under the same ownership umbrella," he says.
As the firms move fully into the universal banking model, there are bound to be redundancies. "The accountants for those firms, some of them will be looking for jobs because you'll have duplication in the back office," predicts Stuart Kruse, CFA, president of Kruse Asset Management in Chicago. "They'll need them for the integration, and then they'll cut back."
Technology also can play a role in the demand for employees. For example, the proportion of employees dedicated to accounting at big investment firms has declined in recent years from a peak of 5 to 10 percent of employees due to automation of the accounting function, Kaufmann says.
A Smoother Ride
For those who aren't enamored of the market's highs and lows, the shift from being regulated by the SEC to the Federal Reserve and the Federal Deposit Insurance Corporation) means stricter oversight and a corresponding reduction in risk, says Mary Harris, CMA, assistant professor of business administration at Cabrini College in Radnor, Pa.
"The positive side to that, as an employee, is the banks are doing better and weathering the storm better than investment companies," Harris says. "Your long-term potential to stay with the company, and the company's long-term viability, are going to be better with a (universal) bank than with an investment bank."
Having worked for both banking holding companies and a securities company, Harris knows first-hand that less risk also means less reward. "Where you're an investment banker and highly leveraged and the economy is great, you're making a lot more money than with a bank holding company," she observes.
Based on the experiences he and colleagues had at Bear Stearns and Lehman Brothers, Kruse predicts the accountants at Goldman and Morgan will stay put rather than shake the cart. "The people that are happy to have a job are going to continue to wait and see what it's like to work at whatever firm scoops them up," he says. "The compliance professionals, some of them are going to be somewhat superfluous."
Change = Work
With Congress taking on the role of Monday-morning quarterback, it's probable those who remain with the successor organization will have plenty of work to do, suggests Andre Peschong, partner and co-founder of Bridgewater Capital Corp. in Newport Beach, Calif.
He points to a statement made last week by Treasury Secretary Henry Paulson, emphasizing the need for new regulation: "When we get through this difficult period, which we will, our next task must be to improve the financial regulatory structure so that these past excesses do not recur," Paulson said. "This crisis demonstrates in vivid terms that our financial regulatory structure is sub-optimal, duplicative and outdated."
If Paulson has his way, the accounting and compliance industries are headed for a period of increased regulation, Peschong believes. "The incoming administration and Congress will turn their interest to an examination of the regulations," he says. "With that challenge and the events of this year behind them, I can't imagine there won't be more calls for regulation and more compliance issues to look at."