Davos - As the titans of Wall Street banks gathered to
network, gossip and consider the future of their beleaguered industry in Davos
over the past week, one common worry emerged: who is going to take over when we
Some of the most ambitious minds in finance are leaving the
industry after years of losses, scandals, bad press - and perhaps most
importantly new regulations that have curbed some previously free-wheeling
The issue, executives say, is not pay, but how much scope
there is to innovate and build businesses, which is why more bankers and
traders are leaving the big Wall Street firms for Silicon Valley, joining
private investment partnerships like hedge funds and private equity funds, or
going into energy and other industries.
David Boehmer, head of financial services in the Americas
for the recruiting firm Heidrick & Struggles, said he hears this message
from Wall Street employees looking to leave the industry.
"I get people saying, 'I'm bored and I need to do
something about it - this isn't a challenge anymore,'" he said.
The problem is particularly acute for big banks such as
Goldman Sachs Group or JPMorgan Chase & Co, several senior bank chief
executives, managers and consultants told Reuters in interviews at the World
Economic Forum here.
"There is a massive talent drain in our business,"
said a senior Wall Street executive, who declined to be identified.
For some of Wall Street's harshest critics this is likely to
be perceived as good news. Former US Federal Reserve chairperson Paul Volcker
and other experts have argued for years that innovation has little place in the
financial sector, and having more conservative bankers and fewer heavy risk
takers running Wall Street will reduce the chances of another blow-up like the
financial crisis. It will also help to increase wealth generation in more
important parts of the economy, such as manufacturing and software, they argue.
The financial implosion in 2008 was partly triggered by the
best and the brightest on Wall Street engineering products that helped inflate
a massive housing bubble, and then magnified the losses that resulted. The
financial sector globally received trillions of dollars of government support
during the worst of the crisis, and new regulations are designed to ensure that
bailouts are not necessary in the future.
But many of the biggest global banks have gotten only
bigger, making them potentially even more dangerous to the financial system.
And having talented executives who understand complicated financial products
and know how to control risks will become even more important, executives say.
"It will become more of a problem five or 10 years down
the road, but ultimately someone is going to have to manage these beasts,"
the Wall Street executive said.
It isn't difficult to find examples of the exodus from big
After nearly 15 years in finance - with stints at American
International Group, Barclays Capital and PineBridge Investments -
Jacques-Philippe Piverger left Wall Street in 2011 to launch a company called
Micro Power Design, which makes solar-powered lamps. Piverger's ultimate goal
is to get the devices into the hands of poor people in developing countries
whose access to electricity is limited.
"Isn't it cool?" he asked as one of the lamps was
placed on the bar of the posh Belvedere Hotel in Davos.
Piverger was well-paid in finance but said his career had
left him wanting. His startup gives him the ability to "address business
and societal and environmental imperatives from under one roof," he said.
Another example is the Twitter-linked tech startup Dataminr,
which is staffed by ex-employees from Wall Street firms, including Mark Dimont,
who left Morgan Stanley last year to head a business development team there.
Of course, there have been previous waves of departures to
hedge funds as bankers and traders have sought to strike out on their own - or
to make more money - but this time the departures appear to be broader in
The departure of employees may force Wall Street to consider
a wider range of people for positions. Heidrick & Struggles' Boehmer gave a
presentation to a group of young professionals in Davos about his biggest
challenge recruiting for big banks these days: getting executives to think
creatively when filling positions.
In the presentation - called "Hiring an oddball" -
Boehmer described how hard it is to get bank executives to hire creative and
"quirky" leaders who do not "fit in" with the prototypical
suited-up Wall Street mold, but who could help revolutionise the industry.
Instead, those quirky types are sought by Silicon Valley,
and they may be happier there. Many prefer the laid back atmosphere, not to
mention the challenges of building a business, and the promise of lucrative
rewards at companies like Google, Facebook and smaller startups, Boehmer said.
"Banks are not getting top-level talent out of
universities anymore, so in 10 to 15 years, there could be a big problem when
it comes to leadership at the senior level of these firms," Boehmer said.
"They're seeing big gaps in talent."
Boehmer said he performed a search for a technology position
at a major investment bank, calling on candidates from Silicon Valley who might
be lured to New York with mega-paychecks. He was denied by everyone he
approached, he said.
On the flip side, Heidrick & Struggles also did a search
for a mobile-payments company on the West Coast that was looking for someone
with financial expertise but offered just one-quarter of the pay. In that case,
"we got tons of applicants," said Boehmer.
Jack Dunn, president and CEO of FTI Consulting, recalled a
recent conversation with a friend's son who is about 35 years old and works at
a major Wall Street bank.
Despite having a lucrative pay package and senior title, all
the son talked about was finding an exit strategy, Dunn said.
"When I was young and didn't know any better, I would
have thought it was a dream job," said Dunn, a former investment banker.
"It's a problem because we're going to need someone to
pick up the pieces, and a lot of the best people are leaving these firms."