More Graduates Shun Investment Banking

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The last 12 months of scandals and redundancy announcements at investment banks seem to have finally dented students’ appetite to enter the industry. Applications were down by 30-40% globally in the 2012 round of graduate hiring, according to banking recruiters.

The observation contrasts with the past four years, when application figures for graduate programmes at banks have remained high and places easily filled. According to a recent roundtable with heads of human resources and recruitment from investment banks hosted by eFinancialCareers, global applications to graduate schemes have slipped by 30% at European firms and by 40% at US institutions.

The banks we contacted – Credit Suisse, Deutsche Bank, J.P. Morgan, Morgan Stanley and UBS – all declined to comment. However, banks’ graduate recruiters, speaking off the record, insist that it’s closer to a 20% decline in applications in 2012, but that vacancies were still “comfortably filled”.

Because investment banking graduate programmes have always been so competitive – 142 applications for every available role last year, according to the Association of Graduate Recruiters – investment banks are still able to fill their vacancies, even with a significant drop off in applicants.

And not all agree that banking has lost its appeal. Graduate research firm High Fliers’ 2012 careers survey said that 11.9% of final year students in the UK applied to investment banks this year – a four-year high. It also said that 81.6 students applied for every available investment banking role in 2012, compared with 70.3 in 2011.

Nonetheless, universities have noticed the fading allure of investment banking. At Cambridge University, for example, an annual event showcasing investment banking careers attracted 1,068 attendees in 2011 and had been “steadily rising for years”, according to Gordon Chesterman, director of the careers service. This year, however, 898 students attended.

“There’s been a marked decrease in interest, but because a sufficient number of students are available to meet the recruitment requirements of the banks, this is not seen as a big issue,” he said. “Investment banks may still pay more than other industries, but Cambridge students want an intellectual challenge, good career progress and a chance to contribute to society. It’s questionable whether investment banks can offer all these things.”

At the London School of Economics, arguably the number one target university for investment banks in EMEA, there are still huge waiting lists to attend events organised by investment banks, said Jenny Owen, director of the careers service at the university. However, even there, things are starting to change.

“More students now have a plan B,” she said. “Before, some students would single-mindedly pursue a career in a bulge bracket investment bank, but they’re considering other options this year. The allure of the big banks has diminished, and more people are looking towards careers in asset management firms or boutique investment banks.”

Of the major investment banks, only J.P. Morgan and Goldman Sachs made it into the top ten of the 2012 global student ‘ideal employer’ rankings by research firm Universum. Others, such as Morgan Stanley (18), Deutsche Bank (23), Credit Suisse (35) and UBS (36) all declined slightly. Only HSBC, which jumped from 51st in 2011, to 26th in 2012, has improved its status.

Students still value the prestige associated with working in the financial services industry, said Universum, as well as the potential for high future earnings and challenging work. However, a lack of job security and innovation are perceived as downsides.

An increasing number of graduates at Cambridge are gravitating towards management consulting roles, said Chesterman. Hedge funds and boutique investment firms – which recruit just one or two graduates – have started appearing on campus at Cambridge for the first time this year.

“These firms are competing with investment banks for the same types of students and this year have cumulatively managed to take on 35-40 students. This may be a relatively imperceptible figure, but over time could expand and diminish the pool available to investment banks,” he said. “Insurance, which is seen as a more secure vocation, has also been more popular this year.”