The Economist - UK (2022-04-16)

64 Finance & economics The Economist April 16th 2022

Asiasection).Foodandenergypricesare

fuellingunrestinTunisiaandPakistan.

Severalmiddle­incomecountriesface

idiosyncraticcrises:Chinaislockingdown

tobattlea coronavirusoutbreak,andAr­

gentina continues to stagger under the

weight of unsustainable debts. But the

greatestvulnerabilityisfoundamongthe

pooresteconomies,nearly60%ofwhich

areindebtdistressorathighriskofit,ac­

cordingtotheWorldBank.Oneworryis

thatalmosta thirdoftheirtotaldebtnow

carriesa floatingrateofinterest,upfrom

15%in2005,makingthemmoreexposedto

monetarytightening.

It doesnothelpthatit isharderthanev­

ertoprovideemergencysupporttostrug­

glingpoorcountries.Inaggregatetheyowe

moretoChinathantothe“ParisClub”of

richgovernmentswhohavetypicallyco­

operated to restructuredebts. So far at­

tempts to includeChina andothernew

lenderslikeSaudiArabiaandIndiaindebt­

restructuringeffortshaveflopped.Theimf

onlylendstocountries withsustainable

debts,andtheWestdoesnotwanttoseeits

aidbeingsiphonedoffbyothercreditors.

Geopoliticalconflict ismakingthepoor

world’s economic problems worse, and

hardertoresolve.n

Workinginfinance

Talent wars

A

fter a dismaldecade,  bankers  of  all

stripes had reasons to be cheerful last

year. Eighteen months of soaring corporate

dealmaking generated blockbuster fees for

mergers  and  acquisitions  (m&a)  desks.

Their counterparts in debt advisory played

midwife  to  a  deluge  of  newly  minted

bonds.  Bouts  of  high  volatility  buoyed

traders’ revenues. Though the dealmaking

frenzy  may  have  cooled  a  little  in  2022,

lenders are licking their lips at the prospect

of sharply rising interest rates.

Yet the industry faces a talent squeeze.

Bank bosses used the last earnings season

of  2021  to  gripe  about  the  problem.  Deut­

sche  Bank’s  Christian  Sewing  was  “very

concerned”  about  a  war  for  talent;  Gold­

man Sachs’s David Solomon said it caused

“wage  inflation  everywhere”.  The  subject

seemed likely to raise its head again as Wall

Street  banks  reported  their  first­quarter

earnings after we went to press. 

A  survey  of  267  financial­services  em­

ployers, conducted in November by Hays, a

London­based  recruitment  firm,  found

that  83%  had  suffered  from  a  skills  short­

age in the past year. More than half attrib­

uted  that  to  competition  from  rivals.  This

is a sector more used to causing shortages

than  suffering  from  them,  sucking  in

would­be  maths  teachers  and  disaffected

doctors.  Nor  has  its  promise  of  riches

dimmed: average pay at Goldman last year

was $400,000. Why the struggle to hire? 

One  popular  line  of  argument  holds

that banking is the victim of a generational

shift.  Everyone  from  hiring  managers  to

university  careers  services  reports  that

young  workers  care  less  about  salary  and

more about work­life balance. Most of all,

they  want  to  work  for  a  company  with  a

clearsocialpurpose.Allof that puts the re­

cruitment  model  for  traditional  financial

firms—high  pay  in  return  for  gruelling

hours, and work with a social value that is

not immediately obvious—at risk.

These apparent preferences are hard to

square  with  the  behaviour  of  younger  ap­

plicants.  Darren  Burns  of  Morgan  McKin­

ley, another recruiter, says they are becom­

ing  more  hard­nosed  in  salary  negotia­

tions, not less. “Decent candidates will line

up  half  a  dozen  offers  when  they  used  to

only  pursue  one,”  he  says.  They  are  also

more aware of their market value. As a re­

sult, even back­office roles are having their

salaries  bid  up.  One  senior  Wall  Street

banker puts it bluntly: “They say they care

less about salary, but they absolutely care if

the bank across the street is paying more.”

Banking’s  attractions,  then,  do  not

seem to have lost their appeal. Instead the

battle for talent is driven by three other fac­

tors. Start with the scale of the demand for

bankers’ work. According to Refinitiv, a da­

ta  provider,  companies  announced  m&a

deals  worth  $5.8trn  in  2021,  64%  higher

than the year before and easily beating the

previous high in 2007. Initial public offer­

ings  had  a  record­breaking  year,  too,  with

newly  listed  firms  raising  $608bn.  And  of

the  $10trn  in  American  corporate  bonds,

42% was issued in the past two years.

All that equates to an avalanche of work

for  investment  bankers.  The  industry’s

staffing model, meanwhile, is ill­suited to

spikes in demand. “If the large banks aren’t

able to pay their best people well, they lose

them  all,”  explains  one  headhunter.  The

only way to do that and remain profitable

is to be ruthless about headcount, running

teams  with  “very  little  fat”  in  normal

times. When business balloons, as it did in

2021, those lean teams very quickly end up

working  at  full  capacity—at  which  point

the only options are to poach people from

elsewhere  or  to  turn  down  business.  The

result  is  a  fierce,  zero­sum  skirmish  be­

tween banks for skilled staff.

At the same time, the list of other firms

offering bankers eye­watering salaries has

lengthened.  Private­equity  funds  have

long  piggybacked  off  the  training  offered

by the big investment banks, luring talent

away  with  better  pay  and  slightly  gentler

working hours. Banks in America are par­

ticularly  vulnerable,  with  a  supersized

private­investment  industry  offering  just

as  supersized  compensation.  (Blackstone,

one  of  the  biggest  such  firms,  received

29,000  applications  for  100  junior­level

jobs  in  2021.)  In  recent  years,  these  have

been  joined  by  a  growing  cohort  of  deal­

makers  going  it  alone  and  taking  firms

public  via  special­purpose  acquisition

companies.  m&aboutiques,  which  advise

on  mergers  without  the  full­service  offer­

ing  of  an  investment  bank,  entice  still

more bankers away from banking.

Third,  there  has  indeed  been  a  shift  in

workers’  attitudes—just  not  one  that  re­

sults  from  them  being  unwilling  to  hack

the  hours  of  their  predecessors.  Florian

Pollner  of  McKinsey,  a  consultancy,  de­

scribes how in conversations with human­

resources  bosses,  a  theme  that  comes  up

time  and  again  is  younger  workers’  more

modular approach to their careers. Instead

of  looking  for  jobs  for  life,  they  seek  out

roles  they  can  spend  a  few  years  in  and

then leave with broader options.

That works in banks’ favour for recruit­

ing junior staff: their graduate schemes are

still seen as excellent preparation for a ca­

reer.  But  it  also  puts  pressure  on  attrition

rates in an industry already known for the

mercenary outlook of its employees.

These  forces  are  changing  the  way

The latest industry to suffer labour shortages: investment banking 

Willing to walk away