In the past two years, more than 300,000 U.S. finance jobs have been lost. Bear Stearns and Merrill Lynch have been merged into larger players. Goldman Sachs and Morgan Stanley are commercial banks. Lehman Bros., after 158 years in business, is gone. The U.S. government has become a major force in the financial system, with billions pledged in bailouts.

Wall Street is forever changed after decades of relative stability and bubbly periods of boom that lured the top students in class after class at Wharton into careers as bankers, traders, and financial engineers. International finance centers, from London to Hong Kong, are also suffering as finance jobs slip away.

“Markets have ups and downs, and the economy has ups and downs, but this is an exceptional down,” says Allen Levinson, W’77, WG’78, founder of the hedge fund manager Credit Risk Advisors, LP and a member of the Wharton Alumni Club of New York’s Board of Directors.

“The finance industry is going to suffer in a fashion that is pretty significant and it will take a while to come back,” he continues. “And no question, when it comes back it is going to look different than it did previously.”

Dean Thomas Robertson has a similar view. “In the short run there will be contraction, but the need for financing and financial expertise is not going to go away,” he says. “The need for capital to run businesses will not disappear. Every problem is an opportunity for someone to make money.”

The Call to Network

Wharton graduates in finance are tapping their personal networks and reaching out to friends, former coworkers, and other alumni in search of a lifeline. Kenneth Beck, WG’87, president of the Wharton Alumni Club of New York, is promoting the club’s program “Take the Call,” encouraging all alumni to at least accept any call from fellow Wharton graduates looking for a job. In New York, and other financial centers around the world, smart and successful banking and investment professionals have updated their resumes and online profiles. They are also stepping back and searching their hearts to see if they might rather take their careers in some other direction.

Alumni say that, for the most part, younger graduates should come through the slump in relatively good shape. They have time to retrench and can afford to take a step back in their careers. Graduates who have been on Wall Street for 20 years or more and have reached senior levels at firms may take enormous hits to their annual bonus and company stock holdings, but if anyone should have his or her personal financial house in order, it is likely to be a Wharton graduate. The alumni most at risk are those who are midway through careers and face the strong possibility of job loss and reduced expectations about compensation even though they may have taken on debt to support mortgages and a lifestyle built on a rosier premise.

“The world for our students and for hedge fund managers and bankers has changed even from a few months ago. In a very short time, the job market in finance is very different and life will be very different,” says Christopher Geczy, a Wharton finance professor who is academic director of Wharton Executive Education’s wealth preservation program for high net-worth investors.

At the same time, Geczy stresses that financial intermediation will continue to play an important role in global markets. Perhaps more than ever, new ideas and innovative models will emerge as business and governments cope with the current financial meltdown.

“We have not seen an Armageddon. Human capital will still have value. Our alumni and students have a lot to distinguish themselves in those markets,” says Geczy. In the meantime, Wharton MBA Career Management and Alumni Affairs have put programs into place to support both new graduates and alumni. “It’s not that this has been a surprise to us,” says Dean Robertson. “The form is a surprise, but at least six months ago we saw the downturn coming and created new strategies to prepare.”

Ready for a Downturn

Bill Feingold built his entire career on the high-stakes edge of finance, trading derivatives, and options at a series of investment banks and hedge funds including Lehman Bros., Paine Webber, Credit Suisse, Clinton Group, and FrontPoint Partners. Last stop, Goldman Sachs where, in July, he was downsized out of his job trading convertible debt. At 45, with a wife, two small children, and a house in Westchester County, NY, Feingold, WG’91, is now among tens of thousands of Wall Street financial services professionals dislocated by unprecedented shocks to the global markets.

When Feingold was a second-year MBA student at Wharton, he was captivated by a course on speculative markets. He knew he wanted to work with options and was able to do just that as Wall Street developed new, increasingly sophisticated financial instruments that grew in importance to investors throughout his career. Looking back, Feingold says that overall he had “good stretches and not-so-good stretches” as a hedge fund manager.

Feingold believes the recent collapse in share prices will ultimately prove to be a once-in-a-lifetime opportunity for investors. At the moment, however, there is enormous pain on Wall Street, especially for mid-career finance professionals who had become accustomed to the megabonuses and the luxe lifestyle Wall Street has provided its people for most of the past 30 years.

“Having the Wharton network is clearly an advantage in good times and now,” says one young out-of-work New York hedge fund manager who earned a Wharton undergraduate degree. He resigned from his job in July as it became clear that he would be let go soon anyway. His strategy was to try to get in the door somewhere before the crush of year-end layoffs increased the competition. Within weeks he had sent out 632 e-mails to people in his own personal network and contacts passed on from his boss. He got through to about 70 people and had done 15 interviews in his first round.

Penn Wharton Connections

Rosette Pyne, associate director of career services at the University of Pennsylvania, has worked with Penn alumni, including Wharton graduates, at a special counseling session in New York City. “We discussed options within their current career field and other options they might not have considered,” says Pyne.

Michelle Antonio, director of Wharton MBA Career Management, says alumni and graduating students have not experienced a wholesale collapse in hiring this year. Internship and full-time job offers for the Class of 2008 were honored, except for some Lehman jobs in the London office, when Barclays acquired the firm’s assets.

“We’re reaching out to people not just in New York, but we are offering virtual, or telephone advising sessions for people in Asia, Europe, or the West Coast,” she points out.

As Wall Street contracts, some alumni are looking to export their careers overseas. Yet international financial centers are suffering. London is expected to lose 50,000 finance jobs this year or next, while banks in Hong Kong and Tokyo are also contracting. Robert Boyd, WG’92, vice president of business development at Boston Street Advisors, recently returned from London.

“London is suffering with the same problems we have,” he said. “Iceland is essentially bankrupt because that economy was based on financial services.”

Antonio says her office is hearing about opportunities in finance in the Middle East, China, and India, where she says alumni are energized and eager to attract new financial talent to their markets. The Wharton Alumni Club of India, for example, has established a mentoring program which is getting 20 to 25 requests a week on its web site, mostly for jobs in financial services. The program has 50 mentors and is expanding into healthcare and media and entertainment.

Antonio says Wharton was prepared for the possibility this time would come. After the last downturn in 2002 her office set out to build relationships with companies and industries that don’t always recruit at Wharton. From January through the summer of 2008 the office reached out to 330 companies and 300 alumni in 25 cities and 12 countries.

“We realized the value of continuing to maintain those relationships even when investment banking and consulting picked up and we had a boom in hiring the past few years,” explains Antonio. “We kept those relationships warm to generate jobs and spread the word about our MBA talent. That’s why you don’t see us scrambling.”

Brighter Spots Amid the Gloom

Wharton management professor Peter Cappelli says the near-term outlook for financial jobs is mixed. “In the short-term, entry-level jobs are drying up and will probably be dried up for a year or two,” says Cappelli, but adds that within the broader reaches of the finance industry there will be “explosive” demand for certain skills.

Cappelli says investors will turn to highly secure investment vehicles, such as treasury bonds or annuities, which will require some trained professionals to accommodate the shift in demand away from more speculative portfolios. New regulation that is likely to come down on the finance sector in response to the current meltdown may generate jobs for alumni in consulting, just as passage of the Sarbanes-Oxley legislation created new demand for corporate oversight, according to Cappelli.

“There will certainly be churning going on in investments and certain skills will fall out of favor,” he says. “But new ones will be more favorable and those jobs will be hot.”

Kenneth D. Moelis, W’81, WG’81, a former UBS president, is one Wall Street veteran who is seeking out opportunities. He founded Los Angeles-based Moelis & Co. in July 2007 and has been busy hiring ever since. In just about 15 months, it has recruited more than 150 people, including some 100 bankers, besides opening offices in Chicago, New York, Boston, and London.

Moelis believes that striking out on his own at the peak of the market turned out to be a boon. “We’re well-capitalized, we are a partnership, we have no bad debt on our books, we don’t have to feed a distribution machine,” he told Knowledge@Wharton. “In this market, show me a person with a five-year plan and I’ll show you a fool, but we are on our way to becoming a full-scale investment bank. I still believe that investment banking is the greatest career there is. I work with some of the smartest people in the world, and sitting across from the table with them is like going back to school.”

The U.S. government, which in the past few months has inserted itself into the global financial sector in a major way and which will see a large turnover as a new administration takes over, is another potential port-in-the-storm for alumni with finance credentials.

Boyd points out that veterans of the Resolution Trust Corp., which was created by the government to deal with bad assets in the 1980s’ savings and loan collapse, have gone on to successful careers as workout artists in the private sector.

“The question is, ‘Has the government taken out Wall Street? Will the jobs be in New York or Washington, DC?” asks Boyd. “Wherever, there will always be a place for smart financial people.”

Pyne says alumni seem reluctant to consider government work even though it presents new opportunities. “Working for the federal government is not going to pay what an investment banker made in a good year, but it didn’t seem that money was the driving factor. It was more a question of ‘Would I enjoy doing this?’ And that is the right attitude to have.”

The broadening economic calamity that has moved beyond the financial sector to companies in everything from retail, to industry to business services will require firms to hire people with strong finance experience to help them solve their current problems, says Wharton management professor Daniel Raff.

“The lack of liquidity we see in the financial market now is likely to have bad consequences for the viability of the many firms in the economy that depend on commercial paper and short-term borrowing,” says Raff. “When it is apparent the crisis has passed there’s going to be quite a lot of work in restructuring and corporate reorganizations. This is a line of work in which many of our alumni are involved and have been involved in the past.”

Boyd says alumni should consider financial positions beyond Wall Street. “What surprises me is the silo vision in New York,” he says. “Once you get into the central part of the country those people are still making things and selling things. Smart people always migrate to where there is opportunity.”

Boyd says that while Wharton graduates traditionally gravitate to the top-paying businesses in the financial sector on Wall Street, today’s job seekers should consider taking operations positions within corporations. In the future, he contends, banks and consulting firms may be more interested in hiring finance people with some experience in operations because they will have a better understanding of the challenges their customers face.

MBA Applications on the Rise

Others are planning to apply to graduate school, a strategy that is always popular during economic downturns. “In times like this we see admission applications go up from people who have been laid off or know they won’t move up,” confirms Antonio.

As for the young former hedge fund manager, he’s determined to remain in finance, though he is open to leaving New York. “I can’t see doing something else, but that’s probably not the case for everyone,” he says. “If you just do the math there’s going to be thousands — tens of thousands — of jobs lost and not that many new jobs in finance. By default you will see a lot of people who went into finance because it was lucrative leave because they didn’t like the work to begin with and there’s no work anyway.”

He says he has friends who went into finance mainly because they were attracted by the big money. Many of them are in no danger of losing their jobs, but may also begin to rethink whether they want to remain on Wall Street.

“Their companies aren’t going up in flames but maybe this is going to be the catalyst for them to realize they’re not going to make $10 million in a year and that they should really enjoy what they are doing,” he says. “I think this period is going to remind people that you just don’t go to Wharton and go to Wall Street and make a lot of money to be happy. You really have to love what you do. You can’t just go into finance because everybody else is doing it.”

Next for Wall Street

In the wake of the year-end financial cataclysm, many have been prompted to ask: Is the dominance of Wall Street over?

“The go-go years are certainly over,” responds John Challenger, chief executive officer of Challenger, Gray & Christmas Inc., an employment consulting firm in Chicago. “I equate what we saw in the last few years to what we saw with the dot-coms. We created extraordinary new kinds of instruments that were technologically dazzling. We created markets that were heavily deregulated. It was a free-for-all of extraordinary opportunity, but the pendulum is swinging back towards more regulation and transparency and that will reduce the opportunity to make the extraordinary sums of money that came out of the industry in the last five to 10 years.”

Base salaries on Wall Street, ranging from $80,000 to $600,000, are not expected to decline. Those salaries, however, are only a small part of compensation which includes annual bonuses of $1 million or more for star performers. Compensation consultants say Wall Street bonuses for 2008 were expected to drop by $18 billion, or about half, with top managers taking cuts of up to 60 percent to 70 percent.

“The interesting question is whether the firms will change the way they operate, particularly with respect to compensation and the big payout packages,” says Cappelli. “Will they go away? I think the answer is ‘No.’”

Levinson says the financial collapse may turn out to be a good thing for students currently in business school or in the first five years of their career. “If you are able to make it through this type of environment, think of it as an education. Many people who came onto Wall Street in the last 10 to 20 years never really experienced a negative market. They’re in senior jobs and unable to cope because they don’t have the background.”

He repeats the finance slogan. “Don’t confuse brains and a bull market.”

Levinson fears retaliatory regulation will stifle the kind of innovation on Wall Street that Wharton graduates so often deliver. He says there will always be a role for innovation in financial instruments, despite heaps of blame for the current financial crisis raining down on derivatives and other financially engineered products. The products were not necessarily the problem, he says.

“There was bad risk management and inefficient regulation and a general level of disregard for the need for everybody in the process to engage in the highest level of fiduciary responsibility,” he concludes. “A lot of firms deluded themselves into believing they were making money when in reality they were taking risks they didn’t understand.”

Cappelli says the future of careers in finance will depend heavily on how Wall Street approaches compensation and its culture of rich reward for high risks going forward. He argues that Wall Street firms overemphasize individual performance and bonus-based compensation, which results in an environment prime for excessive risk.

The Wall Street cataclysm of 2008 will continue to lead to finger-pointing, especially in the direction of highly compensated hedge-fund managers and other financial high-fliers. “My sense is the initial reaction will be to punish people,” says Cappelli, who also expects firms to make some efforts to increase training in ethics and risk management. “But I’m cynical. I don’t expect we’ll see any change in the short term in the way these companies manage their employees.”

Corporate Culture Evolution

Cappelli says financial firms need to build a new type of corporate culture and change the management metrics they use to reward individual employees for outsized performance. Wall Street companies should instead encourage more partnerships and collaborative work if they are to remain viable businesses that serve their customers, according to Cappelli.

Surveys of incoming Wharton MBA students show that managers in finance, particularly investment banking, are especially harsh and ineffective, Cappelli notes. Finance managers provide little feedback and require employees to put in long hours without much concern for the toll on personal lives, which erodes loyalty to the firm. Huge bonuses are supposed to compensate for all that suffering, Cappelli contends. In essence, he says, bonuses take the place of basic management skills and corporate leadership.

“The problem is that the investment industry relies so heavily on individual rewards and individual performance it creates incentives for people to take imprudent risk and do things to maximize self-interest as opposed to that of the overall firm,” he says. “These folks need to be managed as employees who are part of an organization rather than independent contractors with one or two benchmarks to hit.”

Early last year, the chairman of Deutsche Bank, Josef Ackermann, promoted the idea of multi-year, risk-adjusted bonuses for investment professionals to encourage more long-term thinking at the firm. In the 1990s, Nomura Group and Salomon Brothers attempted to enact similar reforms with little impact. Cappelli isn’t holding his breath expecting finance managers to do away with the current compensation structure weighted heavily toward performance bonuses, even following the recent stock-market dive.

“I don’t think the industry believes it did anything wrong, frankly,” says Cappelli. “It will depend on whether government and the outside community — or maybe their boards — lean on them to do things differently.”

The Long-term Horizon

In counseling alumni in New York, Pyne emphasizes the financial sector’s collapse can be viewed as an opportunity to switch gears and find a new line of work that will be more fulfilling, and possibly more lucrative, over the long run. Many graduates, she says, are so busy with their work lives that they never take the time to step back and evaluate whether they actually like what they do. For better or worse, getting laid off provides time to take a breather and explore new options.

Those caught up in the current financial meltdown are looking into opportunities overseas and the possibility of opening their own business. Some alumni have started down a completely new path from the highly for-profit financial world to explore the nonprofit sector, volunteer for political campaigns, sign up for the Peace Corps, or teach in stressed urban schools. “People are saying, ‘I’ve always wanted to do something to help others,” according to Pyne. “Here’s a good opportunity to do that.”

As for Feingold, even before he lost his job at Goldman Sachs he had been thinking he would quit Wall Street in a few years. Now, oddly enough, the carnage in the financial sector may actually draw him back in. Why? He sees too much opportunity in today’s beaten-down markets that the trader in him will simply not be able to resist a return to Wall Street.

This time, however, he hopes to work for an organization with a long-term horizon, possibly a nonprofit institution or a college endowment. Feingold is frustrated that hedge funds can never deliver on their potential to outperform other asset classes because they are still ruled by short-term, quarterly results and vulnerable to sudden liquidation as the markets have so recently demonstrated.

“I think this is an incredibly exciting time,” says Feingold. “I think there were a lot of problems in the financial world that are being fixed. I think the country and the markets are going to come out better for it.”

Writer Susan Warner is a frequent contributor to Knowledge@ Wharton and other business publications.