Sean George kneeled in the Church of St. Paul the Apostle in Manhattan. He wasn’t praying. A gash below his right brow bled into his eye and down his nose. Then a knee to his groin sent him to the floor. George, 39, head of credit derivatives trading at Jefferies Group (JEF), was making his Muay Thai kickboxing debut at the church on June 22. His eye was swelling shut by the time he lost in a split decision. It was the happiest he’s been all year, he says. “Right now at work I’m making less risk decisions—and I enjoy taking risks,” says George, who headed investment-grade credit-default swap trading at Deutsche Bank (DB) before he joined Jefferies last year. “If you’re in it for the game and the fight, the game’s over and the fight’s over.”
Wall Street set pay and profit records half a decade ago by wagering billions of borrowed dollars on lightly regulated products that didn’t exist a generation earlier. The rewards, which swelled even after the financial system almost collapsed in 2008, have been replaced by restrictions and malaise, according to interviews with more than two dozen current and former bankers and traders. Some, like George, are seeking their kicks in less regulated jobs. Others say their view of the industry is turning gloomy as bad news piles up. JPMorgan Chase (JPM) is being investigated for trades that caused at least $5.8 billion in losses, Goldman Sachs Group (GS) reported its worst first half since before Lloyd Blankfein became chief executive officer in 2006, and Barclays (BCS) was fined a record £290 million ($450 million) for trying to rig global interest rates.
Banks are facing new regulations designed to prevent another global credit crisis. Limits on proprietary trading, or bets with firms’ own money, and rules requiring them to hold more capital make it more difficult to use borrowed funds to boost returns. As global economic growth slows, clients are refraining from the kinds of deals that power Wall Street profit. “There’s no sexiness, there’s no fun, there’s no intellectual intrigue, either,” says Ethan Garber, who ran proprietary credit arbitrage portfolios for Credit Suisse Group (CS) and Bear Stearns. “A lot of my friends who actually lingered for the last four years are all now getting fired anyway.” Today, Garber, 45, is CEO of IdleAir, a company that provides electricity at truck stops.
Risk is what drew George and the colleagues he respects to Wall Street, he says. At his peak, he could bring in millions of dollars in a single month. Trading was intense: During one credit-default swap deal he smashed a phone against his desk, sending part of it three rows away—“one of the records for the best break,” he says. Sam Polk, 32, who traded credit derivatives at Bank of America (BAC) and King Street Capital Management, a New York hedge fund, described the lure of Wall Street before he left in 2010: “You could be a twentysomething trader three years out of school, able to go to any restaurant or club or ballgame on any night that you wanted, and it was totally paid for,” he says. “It was a tremendous feeling of power.”
Robert McTamaney likens the shift on Wall Street to a “dulling down of the colors.” He helped run Goldman Sachs’s equities trading business in Asia until he left last year. “The socks are higher, the skirts are longer,” he says. “It’s like styles: They change, and you’ve got to change with it or be left behind.”
Another former Goldman Sachs partner, Robert Jones, mourned the loss of experimentation. “You’re not going to be able to attract the same kind of creative people that are looking to develop innovative new strategies in an environment where innovation is frowned upon,” says Jones, 55, who helped found and lead the bank’s quantitative equity fund management unit before leaving in 2010. Increased regulation, he says, “has taken a lot of the fun out of the game.”
McWelling Todman, a professor of clinical psychology at the New School in New York, says restrictions frustrate risk takers. “If you’re essentially telling them to be like everybody else and to follow rules, you’re amputating a large part of who they are, who they consider themselves to be,” Todman says. The response to curtailed risk is similar to chemical withdrawal, according to Leo Goldberger, an emeritus psychology professor at New York University, who studied stress. “It would be like a drug addict not getting what he has to have,” he says.
“I understand their frustration, but we can’t go back to a world of vast risk-taking,” says Eugene White, an economics professor at Rutgers University. “You have individuals who take risks and get the private gains, whereas if their gamble fails the cost is socialized.” Even as compensation costs have declined at Goldman Sachs, the firm paid each employee an average of $225,789 for the first six months, five times what a starting New York City firefighter would make in a full year. U.S. unemployment has been stuck above 8 percent for 41 consecutive months.
For George, the Muay Thai fighter, fulfillment is less about the money than the excitement. “People are sad,” he says of his colleagues on Wall Street. “They don’t have any risk. There is nothing to be stressed about.” George says he likes working at Jefferies, which is less regulated than the biggest banks. Even so, he says, Wall Street is “not the same industry that drew me in.” Two years ago he opened C3 Athletics, a martial arts training center in Stamford, Conn. And he has already scheduled another fight. “I’m excited about that,” he says.