Banking – the ultimate dead-end job

Growing interference and lower pay are driving the smartest and most innovative people away from the once-superior banking industry in US

The transformation of banks from proprietary trading machines to pure service entities is not as straightforward as changing regulations.

Increasing interference and the desire of governments to control how and what bankers are paid mean banks may not need terribly smart people to run them. So who wants to work and lead a dumbed-down organisation? And are risk and talent so easy to dial down to a controllable level, like a volume control?

There was a time when investment bankers were opposed to making morality judgments in front of clients. As one joked, “it’s OK to tell your mainland clients that their credit ratings aren’t affected by their lack of morals”. Now bankers’ morals are being judged or embarrassed regularly in media. And it is affecting their future. Senior bankers already report that their teams are reluctant to execute some trades and take on business or clients because it is simply too much compliance trouble.

Rather than nationalise the banking system, which would promote even more hazardous attitudes towards risk, regulators are seeking to nationalise banking culture – to produce a hybrid of a profit (and risk)-oriented enterprise run by well-behaved, conformist managers.

The intentions are dubious – to rein in all speculative risk-taking activities in a risk-taking industry by restricting its rewards. Surely, this will backfire on everyone, especially the markets.

Antipathy and contempt still exist between regulators and bankers since they were forced to work together during the financial crisis.

John Thain spent US$1.2 million on a redecoration of his office suite in early 2008 when he became Merrill Lynch’s chief executive. He used a decorator whose clients included Michelle Obama, Steven Spielberg and Michelle Pfeiffer. Thain also generously paid his driver US$230,000 for one year’s work. He did all this during his tenure when Merrill Lynch suffered massive losses in the subprime real estate market.

Bankers explain these incredible numbers by describing them in the same terms of risk: “It’s all relative.” But post-financial crisis, governments morally perceive risk on an absolute rather than relative viewpoint.

While the most egregious and excessive pay and benefits packages are unlikely to resurface, arbitrarily limiting and clawing back bank pay will drive away the smartest and most innovative people away from finance.

And regressive policies are wrong for a time when growing demand for derivatives and other financial products is occurring in a volatile economy and market.

Why work for a gloomy bank when you can work for a Palo Alto company that … is trying to change the world?

Older, more senior bankers whose careers straddle pre- and post-financial crisis have few career choices and must subjugate themselves to the compliance-led and rules-driven banking culture until retirement. Indeed, senior compliance officials are being paid US$500,000 to US$600,000 a year – a huge sum for a non-business-generating position.

Even as a traditional service industry, investment banking used to beckon candidates with a sense of excitement, like you were entering an elite and exclusive club.

Popular culture used to embrace and sell that image to many graduates in movies like Wall Street, where insider trader was merely an occupational hazard. Nowadays, The Wolf of Wall Street portrays bankers as drug-addled and lap-dance-addicted fraternity boys. The public respects lawyers more than bankers.

Today’s deadening layer of bureaucracy is discouraging many new hires from spending more than two or three years in a bank before leaving the industry entirely or seeking positions in hedge funds.

Social media start-ups or technology titans like Google or Uber look more attractive to physics and engineering graduates who were regularly recruited into derivatives positions.

After all, why work for a gloomy bank when you can work for a Palo Alto company that makes robotic cars, builds search engines and is trying to change the world? No wonder senior bankers are whispering that they no longer need to recruit the smartest people.

Such scepticism would have been unthinkable eight years ago when JP Morgan Chase was defining the future of banking rather than hoping to be around for it.

Each successive remark by its chief executive, Jamie Dimon, appears more desperate in its tone and logic. He recently argued that breaking up JP Morgan’s universal banking model was necessary to defend against encroachment and domination by mega state-owned Chinese banks.

The primacy of American investment banking has come full circle.

Peter Guy is a financial writer and former international banker