The Investment Professional - Globalization in the = Financial-Services Job Market

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In This=20 Issue
Cover Story
Wither=20 the Economy:
McCain and Obama Stake Out Differing Visions =

Features =
Tails,=20 I Win; Heads, You Lose

The=20 Seven Deadly Frictions
of Subprime Mortgage = Securitization=20

Sizing=20 Up the Underwriters:
A Five-Year Perspective on Underwriter=20 Performance

Byron=20 Wien:
Man of Many Years

Departments =
From the
Executive Director
Welcome=20 to the
Investment Professional =

Hot Zones =
Crossing=20 the Chasm:
Derivatives in the New Era

Hot Zones =
Wall=20 Street Meets the EPA:
The Expanding Dialogue on Environmental Data, = Corporate=20 Performance, and Securities Analysis

Worldview =
Tiger,=20 Tiger, Burning Bright?
Is Vietnam Another China?

Abstract =
Free=20 Lunch in Emerging Markets:
Evidence from Latin America

Careers
Small=20 World, Big Globe:
Globalization in the Financial-Services Job = Market=20

Case Study =
Brand=20 New or Old News?
The Corporate Restructuring Techniques of = Private-Equity=20
Firms and the Case of Crown,
Cork & Seal

Interview =
Commodities=20 Still Heating Up:
Talking with Jim Rogers

Book Review =
Assessing=20 the Alternatives:
Review of The Only Guide to = Alternative=20 Investments You'll
Ever Need

Final Analysis =
Greenbacks=20 for Grey Water:
Developing Business Models to Address Climate = Change=20

=20 CAREERS=20

Small World, Big = Globe=20
GLOBALIZATION IN THE FINANCIAL-SERVICES = JOB=20 MARKET

by John=20 Benson

=20

mark = andresen

Today=92s job market in financial services presents a = radical=20 dichotomy. In the developed West, many jobs in banking are disappearing. = Yet=20 many of the institutions that are shrinking their workforces in New York = and=20 London continue to expand elsewhere=97most visibly in Asia (particularly = China)=20 and the Middle East. Eastern Europe, India, and Latin America are = benefiting,=20 too. While comprehensive data on financial-sector job growth in emerging = markets=20 is hard to come by, a plentitude of anecdotal evidence suggests that = investment=20 banks are increasing their presence in those markets.

It=92s tempting to ascribe that shift simply to the = advantages to be=20 gleaned from lower labor costs, lower taxes, and less regulation. But = what is=20 actually occurring is far more complex. At least four distinct trends = are in=20 play, set spinning by a combination of cyclical and secular forces. By = and=20 large, however, the growth of financial-services employment in emerging = markets=20 is a secular development that is likely to persist regardless of how = many jobs=20 exist in Western financial capitals. For that reason, the rise of = emerging=20 financial centers like Shanghai and Dubai is a highly positive = development for=20 Western-trained professionals who are geographically mobile.

POPPING THE MORTGAGE BUBBLE

Few of the front-office jobs that banks are slashing = from their US=20 and UK operations are moving to Asia. In large part, those cuts fall = within=20 mortgage brokerage, securitization, and other areas related to the = credit bubble=20 of the past few years. Of 189,000 announced layoffs by financial firms = from=20 August 2007 through August 2008, 86%, or 162,200, involved = mortgage-related=20 work, according to the outplacement firm Challenger, Gray & = Christmas=20 (2008).

Those jobs are simply disappearing. Some will come back = after the=20 housing sector=92s next upswing. But many are gone for good. When = securitization=20 eventually revives, the process is likely to be far more measured and=20 disciplined than it was during the bubble. Care will be paid to asset = quality=20 and cash flow, and investors will be savvier about what they=92re = buying. Banks=92=20 asset-backed structuring and trading desks probably won=92t regain their = former=20 proportions for a very long time, if ever.

TIMING THE CONTRACTIONS

Another bucket of job cuts is closely tied to Wall = Street=92s=20 traditional businesses of advising merger deals and underwriting new = issues of=20 stocks and bonds. Cutbacks in these bread-and-butter functions repeat a = familiar=20 pattern in which jobs track deal flow, which typically hits its peaks = when the=20 cycle veers upward and overall business and financial conditions = recover. That=20 last occurred in 2005=962006, and it will come around again.

In the near term, however, bank employment in areas = sensitive to=20 the US domestic and global business cycle is poised to shrink further. = As of=20 mid-September 2008, there was little clarity on when the current cycle = would=20 bottom out. But institutions=92 2009 budgets will tend to be = conservative, leery=20 of following in the footsteps of Bear Stearns, Lehman Brothers, or = Merrill=20 Lynch.

A number of economically sensitive jobs are being = relocated to=20 geographies where business is more robust at the moment. As deal volumes = in the=20 US and Europe shrink, banks are transferring valued professionals out of = New=20 York and London offices with inadequate budgets. Such transfers allow an = institution to retain talent within a business segment that is expected = to=20 recover. Relocations are a subject for gallows humor on some trading = desks=20 (It=92s Dubai, Mumbai, Shanghai, or good-bye). = In fact,=20 though, the professionals who are given an option to relocate are the = fortunate=20 ones.

PILGRIMAGE TO INDIA

A third blow to US and UK professionals is the extended = movement=20 to outsource non-core functions to lower-cost locations=97primarily = India. This=20 secular trend has been underway in finance for the better part of a = decade.

Traditionally, outsourcing has been associated with = record=20 keeping, data processing, and call centers. It is now inching up the = functional=20 ladder to include junior-level analyst work that bears upon sell-side = research=20 reports and investment-banking pitchbooks.

WEALTH GLOBALIZATION AND GLOBAL BANKS

Wealth accumulation in emerging markets is taking place = on an=20 unprecedented level, and it is the primary long-term driver for=20 financial-services job growth in those regions. As the money piles up, = newly=20 flush nations are discovering a lack of institutions and expertise = competent to=20 manage the growing wealth. Major global banks are picking up that = slack.

These banks perceive the explosion of financial wealth = in China=20 and the Middle East (and, to a lesser extent, Russia, India, and Latin = America)=20 as a vital opportunity from both long-term and short-term perspectives.=20 Western-trained professionals who relocate to these regions can benefit=20 tremendously from future growth in both headcounts and advancement=20 opportunities.

Wealth accumulation in emerging markets is taking = place on an=20 unprecedented level. Newly flush nations are discovering a lack of = institutions=20 and expertise competent to manage the growing wealth. Major global banks = are=20 picking up that slack.

Anticipating the rapid expansion of corporate, = household, and=20 sovereign financial wealth in Asia and elsewhere, global institutions = are=20 locating a rising proportion of managing directors and other executives = outside=20 Western financial capitals. Citigroup moved Alberto Verme, cohead of its = global=20 investment bank, from London to Dubai in May 2008. Morgan Stanley=92s = well-known=20 chief economist Stephen Roach moved to Hong Kong in September 2007 to = become=20 chairman of Morgan Stanley Asia.

Such high-power transfers signal the international = destination=92s=20 strategic importance within a bank=92s overall structure. As Western = financial=20 institutions evolve into truly global organizations, the opportunities = to gain=20 decision-making power and advancement within their outlying operations = will only=20 intensify. But these subsidiaries will frequently be headed up by=20 Western-trained local talent.

And banks aren=92t the only players whose workforce is = taking on a=20 more global footprint. Hedge funds and PE (private equity) firms are = adding=20 staff within emerging markets. Everyone is finding that in order to keep = growing=20 they must follow the money, however far from home it takes them.

WEALTH GLOBALIZATION AND THE SWF

One manifestation of increased globalization of wealth = is the=20 proliferation of SWFs (sovereign wealth fund) with mandates to actively = manage=20 state-controlled financial assets. The largest SWFs are in Abu Dhabi, = Norway,=20 Saudi Arabia, Kuwait, China, and Singapore (Beck and Fidora 2008). Many = are=20 funded by revenue from exports of oil or other commodities. As financial = assets=20 held by central banks and other sovereign institutions have ballooned, = their=20 overseers are moving away from low-returning cash equivalents=97the = traditional=20 vehicle for foreign-exchange reserves=97and embracing riskier asset = classes such=20 as stocks, real estate, and PE.

To manage such portfolios, the funds require experienced = advisors=20 with world-class investment expertise. Besides hiring in-house = investment=20 professionals=97both expatriates and their own nationals trained within = leading=20 Western universities and financial institutions=97sovereign funds are = contracting=20 for investment-management services. That generates downstream hiring by = global=20 asset-management firms, for whom SWFs represent the fastest-growing = category of=20 new customers in decades. And the funds=92 need for a wide range of = banking=20 services, from trade execution to assistance with sourcing acquisitions, = generates jobs within the teams of global banks that cater to this = customer=20 group.

OTHER HANDS IN THE POT

Despite all the attention, SWFs do not control the bulk = of the=20 investable wealth within their respective countries. A July 2008 = European=20 Central Bank research paper estimated the combined value of SWF assets = at=20 between $2 trillion and $3 trillion. That represents at most one-half of = the=20 total foreign-exchange reserves held by central banks (excluding SWFs), = and 6%=20 of the holdings of private asset-management firms (Beck and Fidora = 2008).

Private clients make up another fast-growing business = segment=20 within emerging economies. A 2008 report from Capgemini and Merrill = Lynch=20 forecasts that the financial assets of Asia-Pacific HNW (high net worth) = investors will climb from $9.5 trillion in 2007 to $13.9 trillion in = 2012,=20 surpassing the European HNW market, which is forecast to grow from $10.6 = trillion to $13.5 trillion over that period. The Latin American HNW = market is=20 forecast to grow from $6.2 trillion to $10.3 trillion, a 10.8% annual = pace,=20 while the Middle East market is forecast to double to $3.4 trillion by = 2012,=20 growing 15% annually. The resulting demand is pushing up compensation = for=20 private-wealth managers, particularly in Asia.

IS THE GRASS REALLY GREENER?

The current cyclical downturn in developed markets has = given=20 Western financial institutions an additional short-term incentive to = accelerate=20 their push overseas, because emerging economies remained relatively = buoyant=20 during the initial months of the subprime credit crunch. Emerging asset = markets=20 continued to rally through the second half of 2007, while US and = European stocks=20 and bond markets weakened.

During the third quarter of 2008, however, emerging = stock markets=20 have underperformed developed markets, amid tumbling oil prices, rising=20 systemic-risk fears, and the anticipation of worldwide economic = contraction. In=20 mid-September 2008, there were growing indications that investments in = emerging=20 markets provide less of a short-term hedge than expected against turmoil = elsewhere, whether in terms of asset values or business generation. The = extended=20 suspension of trading on Russia=92s stock markets during September is an = extreme=20 example.

The current global downturn has triggered significant = setbacks for=20 financial services. However, the industry has adapted to shifting = conditions=20 time and again, and it is well placed to emerge from the present cycle = with=20 renewed vigor. Over the past decade, its business mix has adapted = significantly=20 to the changing marketplace, and it will continue to evolve. Emerging = markets=20 will persevere in increasing their share of that business mix, and of = the=20 industry=92s professional work force.

REFERENCES

Beck, Roland, and Michael Fidora. 2008. =93The Impact=20 of Sovereign Wealth Funds on Global Financial Markets.=94 Occasional = Paper=20 Series, no. 91. European Central Bank. (July 2008).

Capgemini and Merrill Lynch. 2008. Merrill Lynch = World Wealth=20 Report 2008. (June 24, 2008).

Challenger, Gray & Christmas. 2008. = =93Financial Cuts Could=20 Surpass 2007 Record=94 [press release and tables]. (September 15, = 2008).

John=20 Benson is the founder and CEO of eFinancialCareers.com, a leading = career=20 site for professionals in the investment-banking, asset-management, and=20 securities industries, covering 18 global markets.

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