Market Overview

Despite Pay Cuts, Ivy Grads Still Prefer Wall Street


At the beginning of this milennium, strong derivatives markets and a property bubble made bankers rich. In 2007, bonuses worth $39 billion went to bankers at Bear Stearns, Lehman Brothers, Merril Lynch--now part of Bank of America (NYSE: BAC), Morgan Stanley (NYSE: MS), and Goldman Sachs (NYSE: GS). In what was called a parallel pay universe, Goldman Sachs paid out even bigger bonuses in 2009 after the subprime market meltdown and a $10 billion bailout from U.S. taxpayers in October 2008.

Lately, pundits and bankers alike have been predicting the end of such heady days as pay cuts hit Morgan Stanley, Citigroup (NYSE: C), and Credit Suisse (NYSE: CS) on thin trading volumes and lower activity in equities and derviatives markets. Public outrage also contributed to a new compensation policy at Goldman Sachs, which moved to a say-on-pay shareholder vote at the end of 2009.

For some, this was the sign of a quieter, gentler Wall Street. Last week, >New York Magazine fortold the end of bankers' world dominance. With a cover story entitled "The Emasculation of Wall Street" emblazoned with a man in a black suit grabbing his crotch and writhing in pain, the rag suggested that the day of recknoing has finally come after the subprime mortgage crisis and those loathed bailouts of too-big-to-fail banks. Writer Gabriel Sherman suggested that Dodd-Frank's restrictions will keep outlandish seven and eight-figure salaries from dominating the investment banking sector. Quoting a hedge-fund executive, Sherman hints at a future brain drain for the banking industry. "If you're a smart Ph.D. from MIT, you'd never go to Wall Street now," the unnamed exec said.

Don't believe a word of it.

While Sherman hints at the end of Ivy League migration to Wall Street, more graduates are heading to the big banks. In an informal study of her own, New York Times reporter Catherine Rampell noted that finance remains the top destination of alumni from elite schools. To take one example from her survey, 35.9 percent of Princeton graduates had full-time finance jobs lined up in 2010. While not as much as the peak 46 percent ratio in 2006, it is still higher than any industry (and close to 2005's figure of 36 percent).

The runner-up industry--services--includes consulting, which probably means business consulting. Record growth at the Big Four consulting firms has driven hiring sprees as extra regulation and regulatory pressure puts companies on the defensive.

It's difficult to argue that the financial sector is losing brainpower because Ivy League grads are going to Deloitte and Accenture (NYSE: ACN) and other firms that help companies avoid taxes and optimize profitability.

Meanwhile, Ivy League institutions are fighting to stop the tide flowing towards Wall Street. While university administrators and professors urge grads to ignore the siren call of the investment banks, students keep falling into their hands. Harvard President Drew Gilpin Faust pleaded with students in 2008 that they fight Wall Street's "all but irresistible recruiting juggernaut," while Tufts University offered to pay graduates student loans if they went into public service.

Non-profits, by the way, were the destination of less than 5 percent of Princeton graduates in 2010, down from 6.3 percent in 2009 but substantially higher than the 2 percent in 2007 and 2008.

A Harvard senior quoted by Bloomberg said that he found the process of applying to Wall Street familiar. "Applying to Wall Street is much closer to that than applying anywhere else is," he said. "There are a handful of firms you really care about, they all have formal application processes that they walk you through, there's a season when it all happens, all of them come to you and interview you where you live. Harvard students are really good at formal processes like that, and they're less good at going on Monster or Craigslist and sorting through thousands of job listings from thousands of companies whose reputations they don't know."

The practice of sorting through Monster and Craigslist ads is more familiar to state school graduates, who will have a hard time getting the attention of an executive at a hedge fund or Wall Street bank, according to Elena Bajic, CEO of Ivy Exec. "Senior execs like to hire within their circle. And companies like Goldman Sachs, Credit Suisse, McKinsey, BCG, Bain and others continue to put a preference on Ivy League grads because they see them as intelligent and driven," Bajic told USA Today last year.

The fact that Goldman Sachs told a liberal art major from Harvard that "this stuff isn't so complicated, that you'll pick it up as you go along" suggests that their preference for Ivy League alumni is about something more than finding the best and the brightest, or the most qualified, or even the most experienced. It has to do with maintaining a certain culture shared between Ivy Leaguers and investment banks. "It's all about teamwork," that same Harvard graduate was told by his superiors at the vampire squid.

The close and comfortable connection between Ivy League institutions and Wall Street has not been hurt by Tufts's promise to pay student loans or Harvard president's plea to consider lower paying non-profit work over the allure of Wall Street.

Despite pushes from their alma maters, recent graduates of prestigious higher education institutions bound for New York City are still choosing investment banking over the $13,000 stipend offered by Americorps. Now that a year of tuition at Harvard costs over $36,000, can you blame them?


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