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EVANSTON, Illinois (Reuters) - At business schools around the United States, where recruiting season is in full swing, this year's crop of graduates are facing a tough climate -- layoffs on Wall Street and a contracting U.S. economy.
Job offers are scarcer this year, and some employers are telling students they must wait until after the dust from the financial storm settles before they can start work. Investment banks, some gravely wounded by the financial crisis, are still interviewing but recruiting only half the usual number, students and administrators say.
"If I was a second-year student I wouldn't be too optimistic," said Dan Waters, who was recruiting at a job fair at Northwestern University's Kellogg Graduate School of Management. Waters, himself a graduate of Kellogg, was looking for one or two interns for business development company Smallbox Industries LLC.
Kellogg, in the Chicago suburb of Evanston, is among the elite business schools that funnel Master of Business Administration (MBA) graduates into executive tracks at top companies. In this year's dance between employers and students, the employers are leading.
"It certainly favors the companies to be more selective, which they're going to be in this environment because everybody's being more conservative in their hiring targets," Kellogg Assistant Dean Roxanne Hori said.
Across town, at the University of Chicago's Graduate School of Business, Wall Street's plight was a major concern.
With Bear Stearns, Lehman Brothers, and Merrill Lynch gone or absorbed by other banks and some of the survivors reducing head counts, Wall Street will lose 45,000 jobs in the downturn, according to the state of New York.
"We've seen firms go away, and the level of M & A activity is down," said assistant dean Stacey Kole. "But there is still a lot of demand for these folks."
The University of Chicago's Graduate School of Business has a reputation as a Wall Street training ground, as do Columbia University's Graduate School of Business, MIT's Sloan School of Management, Harvard Business School, and the University of Pennsylvania's Wharton School.
"It's a tough time to be graduating now," said Kurt Kraeger, president of Wall Street recruiting firm Robert Walters. "You could make an argument that we now have a lot of hedge funds that weren't around then, but now a lot of those places have gone belly-up. The landscape has really changed, it's so consolidated."
In addition to fewer job openings, newly minted MBAs may find themselves in fierce competition with people who graduated a few years before them and who are now back in the job market after losing their jobs in the downturn.
Despite the carnage on Wall Street and a tightening job market in the wider economy, investment banks are still recruiting, albeit at lower levels.
Jamie Obletz, 27, a second-year student at Columbia's business school, said he has accepted a six-figure offer from an investment bank.
"It's new blood. It's cheap labor. A lot of these banks are starving for students fresh out of MBA programs versus someone five or 10 or 15 years out who may not be so current," Obletz said. Wall Street bankers and brokers commonly earn $400,000 a year.
Smaller, boutique investment banks are poised to pick off top candidates, and there are still opportunities in places like Hong Kong and Dubai.
"The financial services industry is not going to disappear, it's reshaping itself and it may be smaller. It is still going to need good, bright, smart individuals ... unless you assume we're all going to go back to raising vegetables and barter," said John Benson of eFinancialCareers, which runs a website listing global financial services jobs.
According to eFinancialCareers, 7 out of 10 business students who had banked on a career on Wall Street have shifted their focus, mainly to consulting or corporate finance, a phenomenon that perplexed some in the financial industry.
"I am surprised at the herd mentality of people moving toward consulting," said Peter Kies, managing director of Milwaukee-based wealth management company Robert W. Baird.
As is often the case in tough economic times, applications to business school have jumped, in spite of the cost of about $50,000 a year. Business schools offer a haven from a poor job market and promise higher salaries in future.
The banks themselves want to preserve the two-year MBA programs, where they will be looking for people to renew a profession stained by criticisms that bankers' excessive greed and poor judgment led to the financial crisis.
And, across the economy, companies don't want to repeat mistakes made in the last recession when they rescinded offers to graduates or stopped recruiting altogether and were left with a gap in talent when business rebounded.
Like some law firms, some companies are delaying start times for new associates fresh out of business school.
"I can respect that because it's better to (be told to wait) than be given an offer now and have it revoked in the springtime when they realize they don't have the budget to do any hiring," said Todd Rakow, a student at MIT's Sloan School of Management, who is weighing an offer he would not disclose.
At the Kellogg job fair, students said they were glad that their focus, and Kellogg's, was on corporate careers rather than Wall Street.
"There's definitely an impact for people who wanted to go into investment banking and that market has dried up," said second-year student Jenny Fong. "But Kellogg doesn't focus heavily on that."
First year student Ngaio Palmer was more resigned.
"Most will have a job offer by the time they graduate, but it may not be their preferred company and it may not be their preferred location. But at this point, beggars can't be choosers," Palmer said.
A few doors down from Kellogg's job fair, this year's Nobel economics prize winner, Princeton University's Paul Krugman, was giving a guest speech, in which he warned students of a long, deep recession ahead. But Krugman, too, was confident that the cycle would turn.
"Some of them look young enough that they'll be all right by the time they get out (of school)," Krugman said afterward.
Reporting by Andrew Stern; Editing by Michael Conlon and Eddie Evans