It is an old business axiom that when times are tough, the easiest budgets to cut are staff expenses, recruitment and training. There can be no doubt that, in much of the financial services industry today, times are tough. Yet, thus far, there are few signs of any substantial cutbacks in either graduate recruitment or training. Indeed, many courses that deliver financial expertise are seeing surging applications.
According to a study by the London-based Securities & Investment Institute (SII), graduate recruitment at the 20 top investment banks is running at 94 per cent of the 2007 level, which, in turn, was well ahead of what it was in 2006.
The SII reckons that US banks have pared recruitment by just 4 per cent, and their non-US peers by 8 per cent, but observes that banks based in the City of London have actually increased the number of graduates they hire.
No matter where you look, the evidence points to an upsurge in both financial education and training, except in particular niche products. It will come as no surprise that UK applications for mortgage advisory qualifications have slumped while, across the pond, Kaplan Professional, a leading international training company, reports “dramatic declines in our real estate training business”.
But elsewhere in the financial industry, the training boom seems unabated. How can this be? There have already been some well-publicised lay-offs in investment banking in both New York and London. The era of cheap money, which turned financial services into an industry with $2,700bn of revenues accounting for 7 per cent of world output, is over. The market for securitised mortgages is dead in the water. Banks have been obliged to write down more than $100bn (£51bn) of assets, and many have had to raise new capital.
Furthermore, for many months, banks worldwide have been hanging onto their cash, driving up inter-bank borrowing rates so that it has become expensive for them to borrow funds from each other to lend to expanding businesses, or finance mergers and acquisitions.
Add to this a sharp economic slowdown in the US – now apparently spreading to Europe – and an inflationary surge eating away consumers’ disposable income, and the stage looks set for a contraction of banks’ training budgets.
Yet Peter Houillon, chief executive of Kaplan Professional UK, a £100m-a-year business, says of financial markets: “This is an area where you would expect there would be an instant reaction and drop-off in demand. We haven’t seen it yet. The number of students in that space has not been impacted by the credit crunch at this time.”
To understand why this is not happening one needs to look more widely. First, it is important to remember that, thus far, the write-downs arising from the subprime mortgage debacle in the US have been concentrated in investment banking. Many of these investment banks are part of universal banks that continue to see a solid performance in retail banking and consumer credit.
The financial world has also become a bigger place. Though London and New York still vie for the crown, economic growth in Asia and a flood of oil revenues into the Middle East ensure financial services there continue to see breath-taking growth.
In European capitals, regulation continues to drive a lot of growth in training. The world’s companies are still converting to International Financial Reporting Standards and Basel II banking regulations. Trading institutions are still implementing the European Union’s Markets in Financial Instruments Directive (Mifid).
And the ability of a single alleged rogue trader at the French bank Société Générale to conduct trades that resulted in a €4.9bn ($7.5bn) write-off has given many bankers pause for thought. Societe Generale declined to discuss its training policies, but it would be surprising if banks thought less, rather than more, education and training was the answer to their recent travails.
Udo Steffens, President of the Frankfurt School of Finance & Management, a leading private business school and university in Germany, argues that demand for financial education and training is being “driven by a recognition that it adds value for financial institutions, and offers competitive advantage”.
That is certainly the view at US-based global investment bank Goldman Sachs.
The company has an enormous commitment to GS University, its in-house global training and development arm.
The GS University offers 2,000 courses in a company that has approximately 7,000 employees in Europe and around 30,000 worldwide.
Julia Newall, co-head of GS University for Europe, the Middle East and Africa, says courses are arranged in six curricula or topic areas: culture and orientation, products and markets, leadership and management, professional skills, diversity and inclusion and workplace applications. One virtue of the corporate university approach is that if offers a blend of education and training, delivered by both external contractors and internal practitioners, that can be constantly adjusted to changing markets and products.
The reshaping of financial services has changed both education and training needs. Gavin Shreeve, chief executive of Britain’s IFS School of Finance, says: “If you look at a diversified financial organisation today, they will have staff from 30 or 40 different professions, spanning lawyers, actuaries, accountants and marketing. They go out and buy the best they can.”
Qualifications now need not only to be relevant, but also portable, he says.
Investment banks may be suffering some local difficulties, but Kaplan’s Mr Houillon says: “Training has been a growth market across the whole spectrum.”
To be specific, professional development for executives has been increasingly popular and overall numbers of students undergoing financial training have risen strongly. Kaplan has enjoyed robust and enduring year-on-year growth.
Moreover, when the economy slows, there is a time lag before demand for training goes the same way: it tends to be “slow in, and slow out, because you have a cohort of students going through the system”. He points to the example of accountancy qualifications, which take “two or three years of study to achieve”. Kaplan trains about 85 per cent of all chartered accountants in the UK.
Taking a broader view, Jacques Olivier, associate professor of finance and communications at the HEC School of Management in Paris, argues that “in general, business education tends to be a counter-cyclical activity”.
When financial markets cool, Prof Alan Morrison of Oxford University’s Saïd Business School says that, historically, demand for MBA courses has shown an up-tick. That’s because when bankers’ bonuses fall “the opportunity cost of doing an MBA is reduced”.
A tougher market for jobs in financial services can have a similar effect on demand for the global benchmark Chartered Financial Analyst (CFA) qualification, says Nitin Mehta, managing director for Europe, Middle East and Africa at the CFA Institute.
“People become a little more nervous about their jobs, so they try to build up their human capital.”
Any resulting increase in demand would be against a background of CFA growth already extraordinary. In 2006, worldwide inscriptions for the three-year home-study CFA qualification were 116,000. This year, 175,000 students signed up. Hal Jones, chief executive of Kaplan Professional, which prepares people for the qualification, says that in the US, registrations for the CFA June exam were up from 98,000 in 2007 to 119,000 in 2008.
The CFA market is also booming elsewhere. Mr Mehta says: “Last year, we had more candidates in Asia than we did in the US. Russia is growing very strongly, and the United Arab Emirates is also showing very strong growth for us.”
Demand for skills training, as distinct from education, is also surging in many areas. The Global Association of Risk Professionals reports a six-year compound growth rate of 23 per cent annually in the number of candidates registered for its examinations.
Meanwhile, Margaret Spong, head of qualifications development at the SII, which includes many City of London middle- and back-office workers among those it trains, says: “Our operational risk unit is currently running ahead of trend in terms of exam entries, as are our derivatives units.”
That is because, as Kaplan’s Mr Houillon notes: “There is enormous pressure on these banks to get people properly and suitably qualified, certainly in terms of compliance.”
As Ms Spong points out, changing regulations drive many course applications. But, she says, there are also signs that firms are pushing more staff to acquire, or add to, qualifications.
Combine these trends with soaring demand for financial education and training in Asia and the Middle East, where many western universities and training organisations are setting up shop, and there is reason to suppose financial training will remain a growth industry.
Already, there are signs that tensions are easing in financial markets. If education and training are now key to competitive advantage, maybe it is the old axiom, not the bankers, that faces redundancy.