The Finance Professionals' Post

"You're Fired!" Now What? Survival Strategies

Chances, are, you saw it coming.  You no longer have a job.  Technology, globalization, and fierce competition have created a tough job market. Downsizing. Re-aligning. Right sizing. Regardless of the cold corporate rhetoric, to protect yourself you must have an action plan.

Here are survival strategies to help put you back in charge of your career.

Thoughts on Reputation and Governance in Banking

"In the end, it is probably leadership more than anything else that separates winners from losers over the long term – the notion that appropriate professional behavior reinforced by a sense of belonging to a quality franchise constitutes a decisive competitive advantage."

The epic financial crisis of a few years ago inflicted immense damage on the process of financial intermediation, the fabric of the real economy, and the reputation of banks and bankers. Even today, some five years later, little has happened to restore financial firms to their former glory near the top of the reputational food-chain in most countries. For reasons of their own, many boards and managers in the banking industry have little good to say about the taxpayer bailouts and the inevitable regulatory tightening. In the words for former Barclays CEO Bob Diamond, "There was a period of remorse and apology for banks. I think that period is over. Frankly, the biggest issue is how do we put some of the blame game behind us? There's been apologies and remorse, now we need to build some confidence.”

There have been some notable exceptions, of course. In the middle of the crisis Josef Ackermann, former CEO of Deutsche Bank and Chairman of the International Institute of Finance (the preeminent lobbying organization for the world’s largest banks), noted in 2008 that the industry as a whole was guilty of poor risk management, with serious overreliance on flawed models, inadequate stress-testing of portfolios, recurring conflicts of interest, and lack of common sense, as well as irrational compensation practices not linked to long-term profitability – with a growing perception by the public that banking was the playground of “clever crooks and greedy fools.” Ackermann concluded that the banking industry had a great deal of work to do to regain its reputation, and hoped that this could preempt damaging regulation. It was already too late for that.

Recent Research: Highlights from May 2013

"The Deeper Causes of the Financial Crisis: Mortgages Alone Cannot Explain It"
The Journal of Portfolio Management (Spring 2013)
Mark Adelson

Losses on US residential mortgage loans are too small to explain the magnitude of the 2008 financial crisis. Total losses, including both losses realized to date and those yet to be realized, should fall in the range of $750 billion to $2 trillion. The global magnitude of the crisis is significantly larger, probably in the range of $5 trillion to $15 trillion, depending on the measuring approach. This implies that losses on residential mortgage loans cannot be the main cause of the crisis. They can only be a trigger that unleashed the true causes. The failure (or near failure) of a significant number of major financial firms suggests that high leverage and strong risk appetites were important immediate causes of the crisis. However, explaining the sources of high leverage and strong risk appetites requires probing for deeper causes that developed over a longer period. This article proposes deeper causes that include securities firms' conversion from partnerships to corporations, the 30-year deregulation trend, the quant movement, the spread of risk-taking culture throughout the financial industry, and globalization.

Is There Any Point Applying for Jobs through Recruitment Firms Now?

The sands have been shifting with regards to financial services ‘recruitment channels’. Once upon a time, banks did a lot of their hiring through financial services recruitment firms. Now they don’t.

UBS is a case in point. When the Swiss bank presented its first quarter results last month, it said recruiters were used to fill no more than 10% of its jobs in 2012, down from 16% in 2011. Even William Vereker, the big-name M&A banker whom UBS has reportedly hired from Nomura, is said to have been brought on board without the intervention of headhunting firms. UBS declined to comment as to whether this was the case, but it is not the only bank to hire directly – at our recent round tables for banks’ heads of recruitment, recruiters said they do 70-75% of their hiring themselves.

Book Review: Thinking, Fast and Slow

Cogito, ergo sum.  Whether or not you agree with Descartes’ proposition, “I think, therefore I am,” is immaterial.  In Thinking, Fast and Slow, Nobel Prize winner Daniel Kahneman explores exactly how the human mind works. There are two systems that control the way we think.  System 1 allows us to make split-second decisions and is based on emotion (“fast thinking”), whereas System 2 is more calculating and logical (“slow thinking”).  Be prepared to learn exactly how much of our thought is based on System 1 (it is much more than you believe) and techniques that can be used to force our brains into a System 2 environment.  By the end of the book, Kahneman may have you believing that economic actors are not as rational as economic theory assumes.

A “Calculating” Tip for Level I and II Candidates

If you have cracked open an exam curriculum book (or clicked open the e-book version), then you are familiar with the structure of the curriculum. You know that topics are divided into study sessions, assigned readings accompany study sessions, and learning outcome statements – or LOSs – are developed for each reading. I’m not really telling you anything new here.

Photonics: The Prospects of an “Old” High-Tech Market—Part II

In Part I of this article, I discussed cutting-edge research in nanophotonics from the Kavli Institute of Nanoscience Delft in Holland, the University of California, Berkeley, and Massachusetts Institute of Technology (MIT). In Part II, I review more practical achievements, which I have placed into two categories: Lab-to-Fab, for research in need of commercialization, and Prêt-à-Porter, for currently available commercial products. I have chosen most of the technologies and devices from among Laser Focus World magazine’s list of the top 20 photonics innovations of 2012 (Wallace 2012), and from the highlights of the SPIE Photonics West 2013 conference in San Francisco. Despite the diversity of the technologies, they can be further classified according to three recurring themes: multispectral and broadband applications; terahertz technologies; and green, bio-optical, and acoustic engineering. 

The Global Access to Nutrition Index

The global Access to Nutrition Index (ATNI)—launched in March 2013—is a groundbreaking initiative designed to address two of the world’s most pressing public health challenges: obesity and undernutrition. As such, they pose a set of risks and opportunities to food and beverage manufacturers. The ATNI Global Index benchmarks 25 of the world’s largest food and beverage manufacturers’ performance on addressing obesity and undernutrition, highlighting how well positioned these companies are commercially to respond to these challenges. Recognizing the relevance of nutrition issues to this sector, 40 investment organizations from around the world, that collectively manage more than USD$2.6 trillion in assets, have signed up to ATNI’s Investor Statement.

Photonics: The Prospects of an “Old” High-Tech Market—Part I

In 2010, I reviewed six companies recognized by The Wall Street Journal in its Technology Innovation Awards (see Totty 2010 for awards and Lerner 2010 for review).

Most of these companies were in the field of optics and photonics. Since then, I have rarely touched domestic equity markets, but it is time to return to them. The defense sector is the largest consumer of electro-optic devices, and with significant cuts to the US defense budget looming in 2013, investors would be wise to look at alternative applications of photonic technology.

This time, again to avoid personal bias, I have chosen technologies from Laser Focus World magazine’s list of the top 20 photonics innovations of 2012 (Wallace 2012). I have had to omit some developments from my review due to my inability to understand the underlying technologies and the magazine’s inclusion of purely manufacturing-related advances that hold little new technological content. Laser Focus World’s list is divided into four sections: Looking around Corners, Controlling Light, Sensing Redefined, and the Photonics Toolbox (the last section deals mainly with manufacturing techniques). I have used a different classification: Cutting Edge, Lab to Fab, and Prêt-à-Porter.

Ten Routes into Banking Jobs When You’ve Failed the First Time

A lot of university students still want to be investment bankers despite the degree of banking bashing around the world. But with banks retrenching from student hiring, not many of them make it. According to High Fliers Research, there were 82 applications per investment banking job in the UK last year.  So, what do you do if you’ve applied for an entry level position in an investment bank after a university course and haven’t got in?

Here are the ten best options:

Leaders (Desperately) Wanted: Bad Bosses Need Not Apply

People today don't trust banks, Wall Street, or government. We need men and women with the leadership skills necessary to fill the leadership vacuum of our times. 

Many bosses think they're leaders. But they're wrong. They're merely bad bosses.

Recent Research: Highlights from April 2013

"A Fund of Hedge Funds Under Regime Switching"
The Journal of Alternative Investments (Spring 2013)
David Saunders, Luis Seco, Christofer Vogt, and Rudi Zagst

This article investigates the use of a regime-switching model of returns for the asset allocation decision of a fund of hedge funds. In each time period, returns follow a multi-variate normal distribution from one of two possible regimes, corresponding to periods of “normal” and “distressed” markets. The prevailing regime in any given period is determined by the value of a two-state Markov chain. The case where serial correlation is absent and returns in different time periods are i.i.d. Gaussian mixture variables is also considered. The models are tested on empirical data and compared to a benchmark, assuming i.i.d. normally distributed returns. The results show that in a mean–variance framework, the use of regime switching can improve risk and performance measures. The importance of the sensitivity of optimal portfolio weights to the estimate of the probability of the distressed regime is discussed, and methods for calculating sensitivities are presented and illustrated on market data.

Book Review: Hungry Start-Up Strategy

Entrepreneurship has become an increasingly recognized career path. Many business schools now offer courses on entrepreneurship, and have become business start-up networks. College students have created successful businesses. College graduates have gone the start-up route, instead of working for an existing organization. Business executives and academics have chosen the start-up route as a new career path. In the financial services industry, the consolidation and constant layoffs have prompted some to explore starting a business.

Forget the European Union’s Bonus Cap. Worse May Be to Come

Like a busy cephalopod, the European Union’s bonus capping law makers are putting their tentacles into places previously considered out of bounds. Asset management firms are the latest to be touched. Hedge fund managers could be next.

Sven Giegold, a German Green Member of the European Parliament (MEP) , has proposed that fund managers working at UCITS funds should have their bonuses capped as a proportion of salaries in much the same way as bankers. As reported yesterday, this implies a maximum cap on bonuses of 250% of salaries, with shareholder approval. The cap would be a step, “towards ending the gambler mentality in the investment fund sector,” said Giegold in support of its introduction.

Don’t Miss the Easiest 15 Points on the Exam!

Want to know the easiest way to lose 15 points on the exam? According to Michael Maestas, CFA, CPA, it is showing up with only a beginner’s understanding of how to use the HP12C or TI BA-II calculator. He says the difference between being a novice and a power user can easily be worth that much.