What Goes Up Must Come Down
Charlotte's big banks are shedding jobs, slashing bonuses, and no one knows where the bottom is. The city's brash young investment bankers—the iconic front lines of our white-collar workforce—are bearing the brunt
Written by Mike Giglio
Illustration by Matt Mahurin
- How a Trade Goes Down
- How an Acquisition Goes Down
- Relax. It's Not That Bad. Mostly
- The Charlotte Economy: The Worst Case Scenario
- So How Much Do These Kids Make?
- WEB EXTRA: Quit Whining: The Annotated Rant
- WEB EXTRA: A Cautionary Tale
- WEB EXTRA: A Walk on the Buy Side
When I pick up Buck at 8 p.m. on Tryon Street, the clock is already ticking. In forty-five minutes, I'll have to bring him right back. He's still in his investment banker garb. A slim-fitting, light-blue button-down shirt with white pinstripes and a starched white collar tucks into black suit pants that end, just so, atop shiny black bit loafers. Whatever hair gel he uses is a good kind of hair gel, because his wavy black hair is still slicked back after the long workday, and his rolled-up sleeves suggest he wouldn't have had the time to reapply.
Buck is in many ways your typical twenty-three-year-old analyst, plowing ahead through his two-year program at a top investment bank in center city. He's tall and lean, smugly good looking, and cocky. He lives in an overpriced uptown condo, though he often sleeps on the cot in one of the side offices at work, and he eats most of his meals at the restaurants and bars around Trade and Tryon, paying for them with the company card because he is almost always on the clock.
Like all of the young finance professionals I speak with for this story, I can't use Buck's real name. I have to run every relevant detail of the final cut by him to make sure it won't give him or his firm away. Some of what I'm asked to keep off the record—the number of people in an office, the name of a product group—is laughable for its seeming obscurity. I have to be careful about using company e-mail addresses, because those can be heavily monitored. If I call at work, the conversation might be hushed and hurried.
In other words, these people are weird as hell, at least if you're not used to them. But chances are that's not the case. In an up-and-coming city ruled by Bank of America and Wachovia, entry-level bankers overflow from the condo towers, sushi bars, fancy restaurants, and swanky clubs. On a sunny weekday afternoon, you can't sneeze on the corner of Trade and Tryon without spraying a few traders and analysts.
The ongoing economic crisis that killed more than 83,000 financial jobs worldwide from July 2007 through late May of this year has been making its presence felt in Charlotte. The city's two ubiquitous financial institutions have suffered monumental losses, and corporate belts are tightening fast. Wachovia, BofA, and other financial services firms are slashing bonuses, putting a hold on hiring, and laying people off.
"It's no coincidence that when the financials were killing it, Charlotte was booming," Buck says.
Now the financials are getting killed. And they're threatening to bring the city's iconic young i-bankers down with them.
For a hotshot college senior who dreams of becoming a financial bigwig, the most competitive career paths go through the investment banks. Titans like Bank of America and Wachovia and small shops like McColl Partners, Edgeview Partners, and the Stanford Group run highly selective two-year analyst (advisory) and sales and trading (the people moving securities on the floor) programs. Within a two-week window during the fall semester, these banks send recruiting teams to target "tier one" schools throughout the country, generally the Ivies and places like Davidson, Duke, and Chapel Hill. From here they screen resumes to narrow the field for what can be a five-round interview process.
The sales and trading program throws new hires onto the trading floor. A salesperson will start with a roster of small-fish clients, such as a hedge fund with $20 million in holdings that trades occasionally as opposed to one with $10 billion that can make several trades a day. He fields calls from these clients with requests to buy or sell stock. At night, he accompanies them on dinners and drinking binges. Traders work with the sales team to arrange deals with multiple clients at the best possible price. (See How a Trade Goes Down.)
After two years, sales/traders can either stay on the floor to continue growing their reputations and client lists or use the considerable connections they've made with those clients to move on, most often to a hedge fund.
The sales and advisory teams have a bit of a rivalry, at least on the entry level, reflecting perhaps the different personalities drawn to each—or the ultracompetitive personalities demanded by both.
"When you think of the typical person who thinks he is sweet, makes enough money to convince himself he is correct in this thought, but is still not important enough to actually mean anything, this is a sales/trader," one second-year mergers and acquisitions analyst writes in an e-mail, sent from his BlackBerry. "They basically have to be some horrible hedge fund junior trader's b–ch."
"I-bankers aren't outgoing, so sales aren't their thing. They're smart, but they're not," says a former trader, who now works for a hedge fund. "Traders need a certain amount of quick wit, the ability to see things quickly. In college, [i-bankers] got great grades because they went to the library and studied, and that's all they did. They're the type of people who don't mind getting a project at 10 p.m., and the only way to finish it is to go through these 200-page binders of company finances and spend seven hours following through and paying attention to detail."
The term "investment banker," and the image of the aggressive, overachieving workaholic that goes with it, belongs to the advisory side. Here young analysts put in anywhere from seventy to 100 hours a week sifting through spreadsheets and financial records and churning out slides and pitches. A deal (see How an Acquisition Goes Down) can take months and even years to play out, and the analysts shoulder the bulk of the grunt work throughout. One might be buried simultaneously in six or seven, all in various stages.
A new project usually starts with a tap on the shoulder, or a message on a BlackBerry. This is never a welcome development.
"You're pissed," Buck says. "It's miserable. And it always happens at 4 p.m. on a Friday."
Buck gets into the office between 9 and 9:30 a.m. and leaves between 11 p.m. and 4 a.m., depending on what comes up. He claims to never have cooked a meal at his condo. If he has to sleep on the office cot, he showers the next morning at the gym.
"A lot of it tends to be similar to college," he says. "You have a certain amount of work you have to get done, and you kind of get it done at your own pace. If you can finish your work, you're out of here. If not, you're here late. I can sit here [doing nothing] all day and nobody's going to come over and yell at me, provided my work's done and on whomever's chair it needs to be by 9 tomorrow."
When Buck does go out on the town, it's a throwback to his glory days. The attire switches from in-your-face-finance to in-your-face-fraternity. During the summer, his flat-front Brooks Brothers shorts are colors like pampas green and Nantucket red, or seersucker or patchwork. His polo shirts are tight and crisp, collars often popped. He scoffs at any man who owns a pair of jeans. If you wear cargo pants, he probably won't even talk to you. He bombs around in his European car blasting rap or house music and parks in his company spot smack dab in the middle of the city. At bars, and in public in general, he's loud and arrogant, with a genuine disregard for anyone in earshot. If Hasbro made a mergers and acquisitions Ken doll, Buck would be the model.
Along with initial public offerings (when a private company issues public stock for the first time), M&A (Buck's field) holds the greatest allure of the many divisions of advisory. Think of an M&A firm as a glorified real estate broker. When a company wants to put itself on the market, it hires the firm to determine its value, locate potential buyers, and coordinate the purchase. Analysts do the dirty work, learning every mundane detail about the company and its industry as they put together pitches and marketing material. Sometimes, Buck gets to deal directly with a client's management team, an advantage of being an i-banker as opposed to buried at the bottom of a corporation somewhere. Other times, he gets blown off.
"Some clients won't talk to me. They'll talk to the senior people," Buck says. "Because they're cocky and think they're better than young kids. The ones that are smart and realize you're doing [most of] the work will talk to you."
Much of an analyst's happiness depends on his managing director, who can either keep the clients in line or allow them to burden his analysts with their every time-consuming request.
The management team and M&A managing directors take the presentation Buck has put together and present it to potential buyers. When Buck is permitted to come along, he sits in the back of the room, keeps his mouth shut, and hopes there aren't any mistakes (See A Walk on the Buy Side).
"Technically, it's supposed to be [the clients'] presentation, their market index, their model," Buck says. "But I did it all. I mean, that's why we're hired. And that's the reason why everyone wants to get into private equity instead of banking. I'm working for someone else, which is what sucks. They say jump, I say how high."
Attrition is high in the analyst programs. A class that started at fifty might be whittled down to fifteen by the time the two years are up. From there, even fewer will be asked to stay on as third-year analysts or associates, paths to further promotions and riches as well as continued inhuman hours. Many don't plan to stay.
The most common jump is to the buy side. These jobs are hard to come by, and the range of experience gained from putting together so many deals as an analyst opens a lot of doors.
But many of those doors have been slammed shut of late. In just under a year, mergers and acquisitions have dropped by about 40 percent. Job cuts and hiring freezes have filled the unemployment pool well past capacity, and with some unusually big fish, making competition for open jobs and promotions as fierce as ever.
Investment banks hire first in good times and fire first in bad, the adage goes. When Buck graduated from college last May, they were closing out a fiscal year so successful that employee bonuses reached record highs. As one of the top students at a prestigious school with strong ties to the banking industry, Buck wrote his own ticket to the job of his choice.
With credit (or debt) becoming increasingly cheap and easy to get, investment banks thrived. Math-whiz i-bankers took risky subprime mortgages and packaged them with safer debts to create increasingly complex securitized bonds, which were then sold on the trading floor for incredible profits. On the advisory side, meanwhile, raising capital and selling companies became easier and more profitable thanks to the low interest rates and more accessible loans.
"Anyone could close a deal," Buck says. "Anyone. Because anyone could get financing. It's the same reason there was a housing bubble. Anyone and their brother was getting housing loans, so everybody was buying houses."
Just a few months later, however, the red cape of so-called loose money was yanked away to reveal the edge of a cliff. The market had been surging ahead recklessly behind the momentum of a credit bubble that, in retrospect, was bound to burst. The interest rates combined with irresponsible lending practices had encouraged many people—along with companies, investors, and all levels of the government—to buy things they couldn't afford. When the housing market dipped, too many homeowners began defaulting on their loans. The mortgage-backed securities plummeted, bringing down anyone and anything attached to them, from individual financial institutions holding huge stacks of suddenly worthless paper to investors to pension funds.
"Do you remember the dot-com bubble, when people got excited and threw money at things that just didn't make sense? Well the credit bubble was the same thing," says Ted Caldwell, president and CEO of Lookout Mountain Capital, a relatively ancient hedge fund boutique based in Tennessee. Caldwell established the hedge fund business's first newsletter in 1994.
"Stocks should be justified by the income the company makes. But during the dot-com bubble, stocks for companies that had no income whatsoever, nor any prospect of making an income … just went up and up and up. Well, it's the person at the end of the line that gets stuck with it."
That the banks themselves had been the ones packaging and passing off so much of the bad debts allowed the bubble to continue unchecked for so long. By the time it burst, the problem was deeply ingrained in the financial system.
"It was a house of cards, and all it took was the right trigger," Caldwell says. "Once it started to deflate, everybody wanted to get out in a hurry, and that's why the value of these bonds crashed. All of a sudden, you don't have any buyers. And clearly the cooks didn't understand how toxic their own cooking was, because they were eating along with everyone else."
The threat came to a head in March with the near collapse of Bear Stearns. The highly respected Wall Street investment bank teetered on the verge of bankruptcy under the weight of its suddenly immovable mortgage holdings. The blow this would have struck to investors' confidence in America's financial system might have torpedoed the entire economy. In an unprecedented scenario, what had been one of the country's largest investment banks was purchased on March 16 by rival JPMorgan for a miniscule $10 a share (down from an October high of $131.58) in a deal backed by the little-used "last line of defense"—the Federal Reserve Bank of the United States.
"There was so much garbage being securitized, so many bad loans being made," Caldwell says. "Everybody was pumping out these loans to take the fee. They didn't care whether it was a good loan or not. They didn't care whether it was paid off or not. The dot-com bubble created phantom wealth. Well, this was phantom product that has now largely evaporated."
The pendulum has swung back the other way into a credit crunch, drying up the vast pools of credit and capital the investment banks had enjoyed during the recent bubble. Securitization is only inching back. Demand for loans has dropped. Supply has dropped even further. Imagine real estate brokers trying to sell a house when few people can get a loan.
Caldwell sees the market as cyclical and self-correcting, meaning the good times will return, though hopefully on more reasonable terms. This will take at least a couple of years, but it's impossible to say how long for sure.
Traditional retail banks like Wachovia and Bank of America, which make most of their money from boring things like checking and savings accounts, are better equipped to weather the ongoing storm. But both have been badly bloodied.
Wachovia announced $350 million in first-quarter losses in mid-April, largely due to its mortgage-related assets. Planned cuts of 500 corporate and investment banking jobs in New York and Charlotte began in May. On June 3, Wachovia jettisoned CEO Ken Thompson to account for all the trouble, bringing about speculation of a potential takeover. Some observers viewed JPMorgan as a potential suitor.
One second-year analyst at Wachovia calls "impending doom" an accurate description of the atmosphere at work.
"The rumor here at Wachovia is it could affect the junior ranks as much as the senior ranks," he says. "Everyone's just sitting on their hands."
Though younger employees might seem the least vulnerable, with their relatively modest salaries attracting the least attention, the ax has fallen on all rungs of the corporate ladder.
"With markets being [this] slow, there will be additional layoffs, and compensations will be depressed," says Max (his real name), a former third-year analyst who later moved to an analyst-recruiting position and now works in private equity. "Large investment banks have reduced head counts approximately 15 percent. This included firings from CEOs and group heads to first-year analysts."
In January, Bank of America announced 650 corporate and investment banking cuts, on top of the 3,000 (although not all in i-banking) it had announced in 2007. And it said more cuts will be coming. It also set aside $6.01 billion to cover first-quarter losses (banks are required by the federal government to have enough cash at the ready to cover losses—that money counts as an expense), after setting aside more than $8 billion in 2007.
"I mean, morale is definitely low," says Todd, an analyst at Bank of America who is not in danger of losing his job but saw colleagues, many of whom had only been brought in within the previous year, sent away about two months ago.
He's seen his own career options dwindle. Because of the job market's uncertainty, he put off plans to switch to private equity and expects promotion opportunities to become fewer and more competitive.
"There's not much out there," he says. "The market has dried up significantly. There are people who have been let go or are finishing up their two-year program, and they are struggling to find another job, so they're forced to explore opportunities outside the finance industry."
Job prospects for students coming right out of college look just as bad, if not worse, Todd says. Recent grads who would have received multiple offers during the bull market are lucky to get one now. Bank of America has greatly reduced its hires; even the number of interns in some groups has halved over the last year. Some firms have been rumored to be rescinding job offers.
"Recently, the percentage of analysts offered a third-year position has dropped approximately 50 percent, making it extremely competitive," Max says. "Some firms retracted summer analyst positions this winter…. They're taking fewer of everyone."
Emily, a former analyst at one of Charlotte's big banks, remembers an eerie feeling inside her department in the days leading up to the cuts. Normally driven co-workers were leaving at 4 p.m. to "go get beer." The previous fiscal year, her group had been "killing it." It lost a significant portion of its people to cuts.
She didn't expect to be let go. Why waste all the time and money that had been put into training her? When she walked into work one day, however, something didn't seem right.
"I just kind of felt it," she says.
Sure enough, the boss called her in first thing that morning.
Emily spent the next few days putting together her resume. Then she got on the phone, tapping every connection she had in the city. She landed a new analyst's position with a smaller firm within weeks.
That's a rare story these days.
A former analyst from Bank of America in New York who lost his job in January has found the severely flooded job market "demoralizing." With just two months of unemployment remaining, rent and bills to pay, and little hope for landing a comparable salary to the one he lost, he's started questioning whether the two years of 100-hour weeks were worth the price.
"You just kind of feel used, because you work so hard and it's really a thankless job," he says. "And for this to happen … maybe I should have just went to dinner with my friends on Saturday nights."
Buck orders a pint of Sam Adams Summer Ale, looking quite out of place at the pedestrian Corner Pub on Graham Street, and checks his Breitling watch. It's almost time to get back to work.
He says he's not going to lose his job, just a huge chunk of the annual bonus he'll get at the end of June. A first-year analyst makes a base salary of $60,000 (plus $10,000 just for taking the job). Last year, Buck's bonus could have reached $95,000, depending on his performance. This year, he's expecting about 60 percent of that (See So How Much Do These Kids Make?).
But for a guy about to miss out on more money than some people his age make in a year, Buck doesn't seem all that ticked off.
"When it's $20k, yeah, it sucks," he says. "But not as bad as some people, who are getting f—ed way worse…. I have no responsibilities. The only payments I have to make every month are my rent and utilities."
In fact, he's been investing more aggressively than usual of late.
"It's kind of like having a lot of money in the 1930s, when you could have stock for pennies," he says.
Buck's always had a plan. And, credit crunch or not, he's not about to change it. Slave two years as an analyst, then move on to the next best thing. He starts interviews for a private equity job later this summer, which he would move to when his two years are up next June.
He won't be able to write his own ticket this time around. There will be fewer jobs to choose from, more people to fight off.
Buck's grandfather had a way to describe a situation like this. At a wedding, beer drinkers become wine drinkers. Wine drinkers become Scotch drinkers.
"Well, it's the opposite of that," Buck says. "Trickle-down crappy-jobism."
Then he jumps out of my truck at the corner of Trade and Tryon, slams the door, and runs back up to work.
He can get by on good wine for a while.
Mike Giglio is a freelance writer in Charlotte