35% pass rate on the December CFA Level I exam.

The results for the December 2008 CFA Level I exam (offered twice a year) were released yesterday, with 35% of candidates sitting for the exam passing it.   This is down from 39% a year ago.  

Interestingly, 25% more people took the exam too.  It is not surprising that more people took the exam due to the high level of industry uncertainty, nor is it surprising that the pass level declined. More importantly, as I am preparing for the June 2009 exam, I don't find this the least bit discouraging.  

I heard a statistic in college that has stuck with me since then.  It said that 90% of students who attend class 100% of the time receive either an A or B grade in the class.  Clearly, you could assume that students who attend class are also completing homework and studying too, but those are pretty high success odds just for showing up in class every day.  

No doubt the CFA exam is the same.  More people took the exam this year, including many more unprepared candidates.  The CFA Institute recommends a minimum of 250 study hours, and the curriculum covers 18 different study topics broken down into about 75 different readings. A shaky job market means more people attempting to translate their past experience to join an elite club providing industry clout.  

The CFA exam maintains its reputation as elite through its rigorous process and relative scarcity of successful charter holders versus applicants- to complete all 3 exam levels requires a minimum of 3 years, assuming all levels are passed on the first try.  I've invested about $1500 so far on level I for study material and test registration.  Cheaper than an MBA, but much harder to graduate.  

Also, the time commitment is tough.  Like many others, I work full-time in the financial industry.  And in capital markets, "full-time" is not the government's definition of a standard 40 hour work week.  Spending all day Saturday and Sunday drilling down theoretical bond yields and diminishing marginal utility is not easy.  

If the exam were easy and anyone working in the financial industry could just show up and pass, then the pass rate would be higher.  It remains low because the test is in fact challenging, but also because it requires a great deal of preparation and a deep knowledge of a wide range of financial and accounting concepts.  

For example, 2 people I know who took the exam both studied finance and economics in college and assumed they had a leg up.  One ended up passing his exam, eventually plowing through all 18 study sessions, but overall in far less than the recommended 250 hours.  Another passed, but also incorrectly assumed she could skip the economics unit study guide entirely because she studied it in college.  

Don't forget that I am also part of the "you're special" generation- a group who has been overly showered with praise, inflated grades, and evolved to assume we're entitled to success, happiness, an A, a job, a bonus etc, because we're "just that good."  Over confidence leads to under preparation.

So far, I've realized that nothing in itself seems particularly difficult- some things more complicated than others, of course, but even with a liberal arts background and meager capital markets experience, no topic is over my head.  The difficulty lies in the scope of the material though.  I've heard that the exam is quite qualitative, which tests understanding and application of a concept over memorization of a formula.  

If we go back to the class attendance statistic, 90% of ALL students certainly do NOT get either an A or a B.  (Actually, probably more accurate to say "earn" rather than actually "receive" after adjusting for grade inflation).  

Even though the CFA pass rate is only 35%, I would bet money that that the pass rate is much higher for candidates who study 100% of the recommended study material.  At least, my plan of attack is pure preparation.  

Carnage on Wall Street hits close to home

I've been at BNP Paribas now for 3 1/2 months, after Bank of America decided to sell my group, Prime Brokerage.  We had layoffs at BNPP last week- no one in my immediate group (now Strategy & Corporate Development) was let go, but many of the people I used to work with were laid off.  That is hard to see.  And at the same time, part of me almost feels guilty that I didn't loose mine.  I don't have kids or a family to support (just a mortgage), and I'm young enough and relatively flexible enough in my career that I could rebound if something did happen.  

Right after BofA sold my group, they bought Merrill Lynch.  Or from my new perspective, BofA threw itself in front of a speeding train to save a solid gold baby, only to find that the baby is radioactive and highly toxic.  

As a loyal employee and shareholder, I was looking forward to exercising my voting rights and voting the proxy.  I accidentally shredded the official voting form, and after 4 hours and double-digit attempts to get a new voting card, I never did get to vote anyway.  

The deal went through January 1st.  We heard today that Merrill employees were paid bonuses on December 30th (totaling ~$4 billion).  And on January 15th, Merrill disclosed a $21 billion operating loss.   That is convenient.

Ken Lewis, BofA CEO claims he only knew how severe ML's losses were in mid-December, but rather than disclose this to shareholders (who might vote it down, or demand new deal terms), Lewis claims "the government made him go through with the deal."  The government promised $138 billion to help absorb ML's losses because not going through with the deal would be too devastating to the economy.

So instead, BofA shareholders are surprised with Merrill's $15 billion net loss (talk about dirty baggage).  And BofA employees... are the ones getting laid off.  Financial Times reported on Tuesday that BofA expected to lay off 4,000 people in  Capital Markets (where I used to be) this week alone.  The catch--the majority of people were expected to be legacy BofA employees.

I spoke with a friend from college this afternoon at BofA and could not believe how entire groups were simply disappearing... all of the former BofA teams were just slashed.   She said first year analysts (she had taken a year off to take a Fullbright Scholarship), were let go with 3-moths severance pay plus 2 weeks.  And no bonus.  

Three months after BofA sold their Prime Brokerage to BNP Paribas, BofA bought an entire investment bank, including.... more Prime Brokerage.  Today I am counting my blessings that I actually made it out of BofA in a single piece and as of today still have a job.   Keeping a job (forget performance, as in not getting laid off) is the new "crushing it" on Wall Street.  This is really tough.

"Dear BofA.  Thanks for saving our butts and not letting us go bankrupt like Lehman Brothers.  We promise you won't regret it.  Thanks for taking care of that little mess we left under the carpet too.  It's a jungle out there- we're so lucky you care enough to make sure we all still get our jobs and our bonuses this year.  Make sure you don't let the door slam on your way out.  F***K you, ML."