There aren’t many Alex types in banking anymore. The popular middle-aged cartoon banker, greyer and greyer since the 1980s, is regularly depicted in the Daily Telegraph gazing sagely over the heads of panicked young traders, safe in the knowledge he’s seen it all before. Older traders like him are few and far between now. Instead, Britain’s banks and investment firms have been left largely in the hands of the youngsters, a generation too used to working in an era of free money. It’s a troubling thought.
Since the 2008 financial crisis, expensive and experienced senior bankers have been cast out, replaced by younger, cheaper rivals. Credit Suisse was forced into a desperate rehiring scramble in 2021 after it was criticised for ‘juniorisation’ in the risk department. The report by Paul Weiss, a law firm, found that significant cost-cutting in recent years had led to 40 per cent of senior risk managers leaving Credit Suisse. The bank isn’t alone: Goldman Sachs, Deutsche Bank and Barclays are also staffed by younger employees, according to a 2016 report by eFinancialCareers. At Goldman Sachs, it found that only 6 per cent of staff at the New York office had been in the industry for more than 20 years and over half had less than six years’ experience. In 2017, it was reported that the average age across the bank stood at 28. According to analysis of US-based employees by Zippia, 44 per cent of current Goldman employees are aged between 20 and 30. This stands at 50 per cent for J.P. Morgan and 40 per cent for Morgan Stanley. With banks keen to cut costs while maintaining headcount, ditching the boomers was an easy way to go about it. But there’s no replacement for experience, and many in finance are finding that out the hard way.
Since the 2008 financial crisis, expensive and experienced senior bankers have been cast out
Too many of this old crop of Alexs have checked out and chosen to enjoy long retirements
Investment banking managing directors are particularly wet behind the ears. A review of the LinkedIn and public profiles of over 300 London-based bankers found that on average they began their career shortly before the financial crisis. While some managing directors completed multiple degrees and so began their careers later in their 20s, this indicates their rough experience level. A typical managing director at full-service or advisory-only banks, including Goldman Sachs, J.P. Morgan, Barclays, HSBC, Deutsche Bank, Rothschild & Co, Evercore, Jefferies and Bank of America, began their career around 2005. Few managing directors are old enough to have worked in the 80s or 90s. Even bankers of the 2008 vintage are quitting the game. But while their younger replacements have the energy and enthusiasm to work long hours, they have only ever known a world in which interest rates have been rock bottom. The situation is similar in private equity, where many began working in the aftermath of the financial crisis, the era of cheap money.
The past year, when interest rates soared, has caught many of these people on the back foot. The word ‘unprecedented’ has been wheeled out again and again to describe the successive increases in interest rates. However, it is the past 15 years – of low rates – that have been unprecedented, not the situation we’re currently in, where rates are slowly returning to normal.
On the eve of the financial crisis in 2008, rates stood at 5.75 per cent, not a million miles away from our current 5.25 per cent. But during the period when this current generation of bankers clambered into the driving seat, they were below 1 per cent. Those who began their careers earlier would have been able to tell tales of interest rates well over 10 per cent and how this impacted their calculations.
The link between experience and being able to hold the fort is well-known. It is best seen amongst the traders who, when their seniors run for the hills in August, are more likely to panic as soon as markets go down. Way back in 2016, the International Capital Markets Association said that the ‘attrition of experienced talent’ on bond-trading desks had added to volatility. Of this, we now have regular proof. Traders were criticised for panicking and causing sell-offs during the pandemic. And this time last year, the pension-fund bond sell off and sliding value of the pound caused mayhem across trading desks. Those who had begun their careers around Black Monday in 1987, or even Black Wednesday in 1992, would have remembered the turmoil in the markets. Those who began their careers around 1992 might remember a similar period in which government policy triggered market chaos. However, most of those bankers are long-since retired.
Experience is vital now that we’re re-entering a period of higher interest rates. Though markets are forecasting that rates will come back down over the next five years or so, no one is anticipating them falling below 1 per cent again. This means that trades based on a cheap cost of debt are no longer viable and meeting returns targets now requires more imagination. Previously, corporate borrowing costs were low and valuations rising. If it was possible to take out an interest-only mortgage on a house and then flip it in a rising market, pocketing the difference, imagine doing this on a company level. But with borrowing costs now sitting at around 6 per cent and valuations coming down in many markets, this trade no longer works. This means it is no longer possible to ride out the rise in valuations; in order to make returns, you’ve got to take more risks and add value to the asset.
It is no coincidence that record-low interest rates have coincided with record highs for private equity. But now the good times are coming to an end: rising interest rates have been accompanied by a pause in transactions as buyers struggle to factor in higher borrowing costs. Over the last decade, private equity firms were able to raise record sums which they then deployed passing businesses to one another in a high-cost game of hot potato. However, now those potatoes are feeling very hot indeed as the investment firms struggle to sell them on.
Advisors have also said that they’ve found some younger clients are struggling to accept losses in the current market since they are not used to markets turning against them. We can see this in real estate where, despite MSCI Real Assets reporting that more than 50 per cent are in the red, owners unwilling to accept a loss are holding on for dear life. It’s here where the lack of old timers in the city starts to bite.
It can be easy to mock the boomer bankers for their IT difficulties, obsession with being in the office and fondness for print-outs, yet their experience, and knowledge of the booms and busts of the past is invaluable. Veterans of 1987, 1992, the dot-com bubble and 2008, have seen it all before. But too many of this old crop of Alexs have checked out and chosen to enjoy long retirements. You can hardly blame them. But their departure leaves financial institutions managing trillions of pounds controlled by inexperienced senior staff. The youngsters are in charge now – at a time when financial institutions need experience more than ever.
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