Best and Brightest Turning Away from Wall Street?

Wall Street has taken a beating in recent years, so does that mean the quality of recruits has taken a beating as well?

People inside Bank of America (NYSE:BAC) are saying that a higher percentage of the incoming class of investment bankers this year failed their entry level exam than in previous years, perhaps as high as 40% compared to 30% in the past.

People at other big banks are seeing similar results. All of which begs the question:  Is the banking business now attracting less-qualified people?

Banking executives say the lower-quality recruits may be the result of Wall Street’s battered image since the 2008 financial crisis. In addition, post-financial crisis reforms have squeezed once hefty paychecks.

The result has been that the best and the brightest are increasingly looking at other industries such as technology, science and private equity, where they can make good money and feel good about themselves, banking executives say.

“The Street has lost a lot of its glamour since the financial crisis,” said Richard Lannamann of consulting group Spencer Stuart. “Many people are wary of going to the Street due to lower job security and pay,”

Bank of America, which received billions of dollars in government bailout money following the 2008 crisis, has been among Wall Street’s most troubled institutions since the 2008 crisis. Regulators have forced the bank to shed billions of dollars of assets to improve its balance sheet, and while shares have more than doubled over the past 12 months, the firm faces multiple investigations into its business practices.

Bank of America spokesman John Yiannacopoulos said people inside the bank are exaggerating the test-flunk rates. But he would not provide exact numbers, and would not deny that the failure rates are growing year-over-year.

What makes the growing failure rates particularly worrisome for Wall Street managers is that the test itself measures basic financial knowledge. The specific exam being discussed is known as the “Series 79,” which covers broad investment banking issues such as mergers and acquisitions, buyouts, and financial restructurings.

Some firms put their new hires go through several weeks of training before taking such entry level exams, while new hires at Bank of America take the exam before the training period.

The pass rate on the exam is not made public, but people at other firms such as Goldman Sachs (NYSE:GS), Citigroup (NYSE:C), JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC) have said that they were surprised by the low caliber of incoming hires in recent years based on their poor test scores.

“If the 40% figure is correct, something is wrong with recruiting process and their training procedures are weak,” said Dick Bove of Rafferty Capital Markets. “They should have a success rate that is much better.”

Press officials at Goldman and Wells Fargo did not comment. Press officials at Citigroup and JP Morgan did not return requests for comment.