Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits (11 page)

AFTER TRUDGING BACK
to her apartment from work, Deutsche Bank risk management analyst Soo-jin Park slumped down on her sofa, kicked her heels off, and grabbed for the remote. Watching TV was one of the only distractions that worked for Soo-jin, who often needed to unkink her nerves to allow herself to relax after work. In the past several weeks, she had gotten through the first two seasons of
Mad Men
, and was now finishing up the third. When she did, she planned to move on to
How I Met Your Mother
.

Since I met Soo-jin at the Women on Wall Street Conference a year earlier, her concerns about gender equality at Deutsche Bank had given way to a more quotidian set of concerns: namely, she was stuck in a dead-end job.

Risk managers, Soo-jin had been told, were crucial to the functioning of any large financial institution. They were the lifeguards of Wall Street. Before every rate swap, every big bond trade, every structured credit sale, a risk analyst would be called in to assess the bank’s vulnerability to losses and unexpected consequences—essentially, how likely the deal was to fall into the pool. The risk analyst would then give an assessment of these considerations to the actual deal makers, who were supposed to take their recommendations into account before doing anything.

But to Soo-jin’s frustration, they were often reluctant to pay attention. Three years after a financial crisis had resulted—in large part from a laissez-faire attention to risk management—front-office bankers and traders still tended to treat the lifeguards of capital with no more respect than they treated the IT workers who fixed their computers. To them, being told that a given deal was too risky to execute felt like being a kid on the playground whose overprotective parents won’t let him go on the big slide. Risk managers, at Deutsche Bank and elsewhere, were still viewed as professional killjoys. And if they nixed a deal they considered too risky, they often put their own bonuses at risk.

“When you’re in the front office, you’re trying to make money,” Soo-jin explained to me. “You’re not thinking much about limiting losses.”

The past months should have been exciting times in Soo-jin’s corner of the industry. A European debt crisis had been raging—one that started with a Greek sovereign debt scare and had grown into a Spanish and an Italian banking panic—and part of Soo-jin’s job was figuring out how much of the debt of European countries and companies the bank and its clients held. She had spent days plugging CUSIP codes, which identified individual bonds, into her Bloomberg terminal—looking up which countries the bonds were from and plugging that data into a massive spreadsheet that held all of her division’s positions. Further up the chain, that spreadsheet would be used by senior risk management executives to determine if the bank had too much exposure to Spanish banks, Italian car makers, or Portuguese mining conglomerates, and how much money it stood to lose if any of these companies defaulted on their debt.

But Soo-jin had been unable to shake the feeling that her work was just one more spreadsheet on a report that might be given a cursory glance before being forgotten entirely. She had often wandered through the trading floors at Deutsche Bank’s headquarters, where powerful men (and a few women) sat at trading turrets flanked by huge arrays of monitors. There was so much energy on the floor, she thought. And the noise! It was a cacophony of shouts, ringing phones, and announcements over the hoot-and-holler that sounded, to her, like the grinding gears of capitalism. And, in those moments, she understood the chilly relationship between risk management and everybody else. When faced with such exciting and lucrative work, who wanted to think about the possibility of a disaster?

All over Wall Street in 2011, financial firms were showing that although the crisis had changed some lines of business and consolidated the industry, the basic culture of risk taking and reward seeking was still very much intact. Banks were still taking on huge, leveraged positions in opaque and little-regulated markets. The junk bond market, which deals in high-yield corporate debt that is often issued by volatile and risky companies, was having its strongest year since the crisis. And although the Dodd-Frank act had effectively shut down the most obvious forms of proprietary trading at Wall Street firms, that work lived on under the guise of “market-making” trading desks, which were often functionally similar to their predecessors. Three years after Lehman Brothers, it was still far better to be the guy pushing the button on a billion-dollar trade than the guy hovering just behind him, warning about what could go wrong.

Soo-jin had been trying to get out of risk management and into the front office since her early days on the job. At one meeting, Soo-jin had asked the COO of her division if it would be possible.

“What would it take to move to a different part of the bank, if you don’t find what you’re doing challenging or comfortable?” she asked.

The COO wavered.

“Well, it’s a good question. The bank isn’t really set up for people to move, because we recruit you into this division.”

He continued to say that on a case-by-case basis, bank employees could, theoretically, move between divisions. But she got the sense he was just being polite. Unless there was an extraordinary exception made, once you were a middle-office employee, you were always a middle-office employee.

Banks had ostensible reasons for their elitism. Foremost among these was that traders who had worked in the back and middle offices tended to have deep knowledge of their firm’s technical systems, and could exploit them if given the chance to trade on their own. In January 2008, Jérôme Kerviel, a trader at the French bank Société Générale who had started out in the bank’s compliance department, was arrested after losing more than $6 billion in a series of unauthorized trades. In the trial that followed, Société Générale claimed that Kerviel’s knowledge of the back-end trading operations had allowed him to amass huge positions by intentionally bypassing internal risk controls. (Later, another rogue trader with back-office experience, Kweku Adoboli of UBS, would be arrested after causing $2.3 billion in losses using a similar scheme.)

Soo-jin knew that the reasons she was trapped in the middle office were somewhat legitimate, but they still didn’t satisfy her. With her route out of risk management narrowing, Soo-jin had started applying to other jobs. She’d gone for informational interviews at Google and Charles Schwab, and had done a lot of hard thinking about industries other than finance that appealed to her.

At her college reunion that spring, she’d caught up with a number of her Wellesley friends, many of whom were working in politics, education, or the nonprofit sector. When she told them about her Deutsche Bank role, they nodded their vague approval but hadn’t been able to say much else. They had no idea what a risk management analyst was, or how it differed from being a front-office trader with a big portfolio and a massive P&L. All they knew was that it was a Wall Street job, and that it was probably paying a lot more than their work.

But Soo-jin wasn’t satisfied with making money or seeming important. She wanted to prove herself in a job that would allow her to interact with clients and do real, meaningful work. She wanted to show Deutsche Bank that she wasn’t just content defending against risk and leverage. She wanted to play offense, too.

THE LANKY, BROWN-HAIRED
young man got off the plane at LaGuardia, heaved his bags into a yellow cab, cued up “Empire State of Mind” on his iPhone, and directed the driver into Manhattan. It was June 11, 2011, and small-town Wisconsinite Derrick Havens was New York City’s newest resident.

Several weeks earlier, Derrick had left his job at Wells Fargo in Chicago, and accepted a job offer with a Manhattan-based private equity firm. The new firm, an arm of a larger investment management company that was headquartered in a lush skyscraper on Park Avenue, had made him what seemed like a generous offer: a base salary of $80,000, with a bonus estimated at another $80,000, plus every cent of his moving costs to New York and his own expense account.

The offer came at the end of a rocky year for Derrick. He’d spent much of it trying to patch things up with Erica, his long-term girlfriend. They’d recovered from their massive fight during his first year of banking, after Derrick promised her he would do better at prioritizing their relationship over work, and after her college graduation, she’d moved into his Chicago apartment with him. But during Derrick’s second year, the fights kept coming, and pretty soon Erica had seen enough. That spring, she dumped him, and moved out of the apartment they shared. Derrick was wrecked.

As a coping mechanism, Derrick worked himself like an ox. He used Adderall and Red Bull—his preferred office nourishments—to stay up all night doing deal work, sometimes multiple nights in a row. One week, he stayed at Wells Fargo’s office from Sunday afternoon until late Thursday night—working 110 hours in a row, without setting foot outside the building. His stress boiled over late one night that year, when an associate came to his desk at 2:00 a.m. and tossed a pitch book at him.

“Fix this,” he growled, then began walking away.

Derrick—who bristled at being condescended to, especially by an associate who was no more than five years older than him—freaked out. He stood up, picked up the pitch book, and threw it at the associate’s feet.

“Jesus!” the associate said. “What the hell is wrong with you?”

Derrick leaned in, until their noses were almost touching, and said slowly and deliberately: “If you ever talk to me like that again, I’m going to break your fucking nose.”

After returning triumphantly to his cubicle, Derrick’s pride gave way to remorse. Threatening to punch an associate over a small mishap seemed completely absurd in hindsight. Who the hell was he pretending to be? How had he let two years of a stressful job turn him into Scarface?

In May, when the private equity offer came, Derrick realized that it was his chance to escape the Midwest and leave the job that seemed to be changing him for the worse. He didn’t know anyone in New York, knew nothing of the city’s neighborhoods or culture, and felt anxious about moving hundreds of miles away from his friends and family. But he needed a change, so he signed on the dotted line. He gave notice at Wells Fargo in late May, went home to Wisconsin to see his parents, and slept for thirty-six hours straight to make up some of the sleep deficit he had accumulated. Then he packed his bags and flew east.

Derrick took solace in the fact that his new job would be much less hierarchical than his old one. The private equity firm had only fifty total employees, and only eight other people at Derrick’s level. That gave it a flat, intimate structure—and it meant fewer people who were able to boss him around.

For an analyst, the substance of the work in private equity is largely the same as in investment banking—making pitch books, building models, and valuing companies. But the goal is different. Derrick’s firm used the money it managed for clients to buy not individual stocks and bonds, but entire companies. The classic private equity deal was a leveraged buyout, in which a firm borrowed millions or billions of dollars in order to acquire an entire company. Once it had acquired the company, the private equity firm’s job was to make it more efficient and profitable, and either bring it public again or sell it to another company. The basic process was akin to trying to take the least popular girl in your high school class, give her a makeover and a new wardrobe, introduce her to the varsity quarterback, and get her voted prom queen. Sometimes it worked, and the private equity firms made a killing. Other times, it didn’t work, and the private equity firms still generally made out fine, thanks to the up-front fees they took from clients whose money they managed. As business models go, it was one of the most ingenious ones on earth.

Derrick was unsure at times about whether private equity came by its fortunes honestly. He was often reminded of his mom’s advice, years earlier, that money wasn’t everything.

“I grew up in a small town where people work hard,” he once said to me. “Sitting in an office in New York, pulling strings that affect so many people, it’s just…I don’t know, man. It just feels fundamentally unfair.”

For the first three weeks of his New York life, Derrick spent most of his time trying to get settled in. He leased a walk-up apartment near Union Square, where his roommate, another recent college grad who was working as a paralegal, had a divider wall installed in their eighth-floor apartment, turning what had been a roomy one-bedroom into a diminutive two-bedroom. Derrick lived in the bigger of the two rooms, which had a large closet and a view out to Fourteenth Street. He had no furniture yet, except for an air mattress, which he would sleep on for the better part of a month.

But despite his spartan surroundings, he felt good. After years of dreaming about moving to the city, he was a real New Yorker now, and he wanted to experience everything the city had to offer. He wanted to stroll through Central Park, see concerts at Madison Square Garden, eat at Nobu and Per Se and get bottles at exclusive clubs like 1Oak. I saw a lot of Derrick that summer, and each time, he would relate another breathless story about one of his paradigm-shaking “only in New York” experiences.

“All the things I heard about this place are true,” he told me. “Every time you walk down the street, you have the choice between looking at the most beautiful girl you’ve ever seen and the craziest thing you’ve ever seen.”

Derrick knew that to many people, working on Wall Street looked about as morally defensible as being a drug lord. He knew he wouldn’t be able to explain everything he saw in New York’s financial industry to his family and friends back home without raising their hackles. And he felt nauseous every time he thought about his dad’s grocery store chain back home, and imagined how much help was needed. But he consoled himself with the thought that New York was a stepping-stone. In the big city, Derrick would learn how to operate the levers of power and capital that drive the global markets. He would work hard, get valuable skills, and save up money. And then, when he was ready—after he had amassed the tools of the trade and a sizable nest egg, but before he had become a total creature of Wall Street—he would move back home to start the rest of his life.

A week before coming to New York, Derrick had taken several pieces of cheap furniture from his Chicago apartment—most of which were leftover futons and chairs from his college dorm—and burned them in the open field next to his house. At the time, it had seemed like innocuous trash disposal—he knew the furniture wouldn’t survive the trip east, and nobody in Waupaca wanted it.

But now, Derrick let the obvious metaphor roll around in his head. Here he was, in New York City, at the center of the world, making more money than his parents, his college friends, and anyone he knew in his hometown. He was young, healthy, and gainfully employed at a reputable firm in a lucrative, prestigious industry. It was almost, he thought, like his past had gone up in smoke.