“IT IS a real relief to be offered an internship with a big US investment bank. Deciding to take an MBA is a big investment and I have been counting on a summer internship to help to pay the fees,” says Elena Novokreshchenova a first-year MBA student at London Business School.

Banks have been in the headlines for the wrong reasons this year. After the collapse in the market for sub-prime mortgages, banks such as Citi, UBS, Morgan Stanley and Bear Stearns have had to write off billions of dollars in what were once deemed high-margin, acceptable-risk securities. All this is bad news for banks and possibly for MBAs looking to join them on a big salary.

The banks have been taking on employees with an MBA in growing numbers in recent years. A TopMBA.com recruiter survey last summer showed a 23 per cent rise in demand for MBAs in financial services, the fourth successive year of strong growth. The sector accounts for 40 per cent of MBA placements at some schools. If the banks switch off demand, this would leave a big gap in MBA opportunities.

What impact has the credit crunch had on the short-term outlook for banks? Negative equity in American property has lead to record numbers of low-income families and individuals defaulting on their mortgages. The resultant losses incurred by banks with large sub-prime mortgage businesses have lead to a breakdown in interbank lending and liquidity. This has resulted in a sharp cut in the finance available for not only mortgages, but also for private equity deals and corporate borrowing.

The difference between this financial crisis and previous ones is that the depth of the problem is unclear. Combined with the threat of a US recession, this has fed into equity markets, which have fallen, exacerbating the billions of dollars of losses at some banks.

Chris Higgins, of the career service at Wharton, says: “I started working at Wharton in April 2001, just in time to experience the dot.com and consulting crash. Demand for MBAs has been great in recent times, but it is cyclical and you never know what is around the corner.”

However, Diane Morgan, director of LBS career service, says: “ I see a pretty good outlook. All the banks are coming on campus and hiring similar numbers to last year.”

Claire Hudson of the career service at Manchester Business School, says: “Banking intern opportunities for this summer are as strong as ever.”

Simon Taylor, professor of finance at Judge Business School, Cambridge, says: “Much of the bad news is out. The banks are still robust and have been able to refinance to strengthen their balance sheets. However, the situation could take a turn for the worse if the US economy slips into recession.”

Morgan adds: “Banks are taking a longer-term view of MBA hiring. Several cut back in 2002 and were left with a big gap in talent when the markets picked up.”

Employers and students agree. Sarah Thomas, Standard Chartered’s head of MBA recruitment, says: “Hiring MBA graduates is critical to building our leadership.”

Sarah Crawford, head of graduate and MBA recruiting at Goldman Sachs, London, says: “Our MBA intern numbers in this summer will be similar to last year’s. We recruit MBAs to develop future leaders and directors, add value and strategic thinking, diversity, international experience and networks. We particularly value the diversity of backgrounds and nationalities we find at business schools.” Novokreshchenova adds: “I had interviews with several banks including Morgan Stanley, Merrill Lynch and Deutsche Bank and recruiters have been emphasising business as usual and their long term perspective.”

The entry points for MBAs into banks vary by firm. Novokreshchenova will join a pool and be allocated a project. However, as a rule, MBAs are hired into one of these departments: corporate finance/M&A, sales & trading, debt/equity research, structured finance, asset management, private equity, private client and back office.

According to Taylor, the areas likely to see a short-term cutback in MBA hiring, include credit derivatives, M&A, private equity, and asset management. Opportunities in credit derivatives, an area which expanded into a trillion-dollar business before causing all the current problems, are, not surprisingly, likely to see big cutbacks.

M&A often accounts for the largest number of new MBA hirings and the big investment banks enter this year on the back of record M&A activity last year. Much of the growth was fuelled by the private equity boom, which has come to an abrupt end but M&A activity is forecast to fall only 20 per cent, still above 2006 levels.

Taylor adds that if the US economy slows, banks in the second quarter will have to shed some of their existing labour force to keep down costs. But he adds: “New MBA hiring is likely to be maintained, not least because young MBAs are relatively inexpensive compared with seasoned professionals.”

The credit crunch may even lead to growth in other asset classes. For example, derivatives are a zero sum game. Jerome Kerviel’s £3.7 billion loss for Société Générale was a £3.7 billion gain for traders in other banks and market volatility will create new openings for some MBAs.

Companies seeking access to capital are also likely to issue bonds if the equity markets remain unstable and undervalued. Market risk and compliance departments may also see higher MBA hiring as banks seek greater security and control of risky investment classes.

Who are the new recruiters? Taylor says: “Banks operating in Asia are likely to be insulated to a great degree from the transAtlantic problems.” Thomas adds: “ For Standard Chartered, China, India, Korea, Singapore, Hong Kong and UAE are some of the key growth engines. We expect to increase MBA hiring to between 50-70 MBAs this year.” HSBC and OCBC (Overseas China Banking Corporation) in Singapore are also expanding rapidly and recruiting MBAs for Asia.

Banks serving Latin America are booming. In particular the Spanish-headquartered Banco Santander and BBVA are recruiting MBAs for positions throughout the region. Russian and Central European banks, especially those serving the oil-rich regions, are also hiring actively.

Unless global growth stalls, for which there is only limited evidence at present, Taylor believes “the opportunities for MBAs in the banking sector could still cool in 2008, but the prospect is for strong long-term growth.”

Nunzio Quacquarelli is director of QS World MBA Tour and editor of Top-MBA.com. The tour will bring 80 international business schools to The New Connaught Rooms, Great Queen Street, London, WC2 on Saturday.

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