(FORTUNE Magazine) – AN ENTIRE generation of the most sought-after graduates of the top U.S. business schools is getting snookered by a handful of investment banking firms temporarily overburdened with profit. In unprecedented numbers these young stars are stampeding to Wall Street, lured by jobs that pay, for starters, $80,000 to $110,000 a year in salary and bonus. Probably no more than 1,000 such jobs come open every year, but shock waves from the stampede to them are rumbling across the country. Baby-boomers who didn't go to Wall Street look at their paychecks with chagrin. Regional investment banking houses, national consulting outfits, commercial banks, even law firms find themselves compelled either to offer more money to the young talent they seek or to settle for less impressive candidates. A spokesman for Hicks & Haas, the Dallas investment banking firm, sums up an observation increasingly common among employers who want the best talent: ''New York drives the market.'' Not forever, maybe not for much longer. The astonishing and much publicized wealth of the prior generation of investment bankers, men and women now in their 30s, has encouraged new MBAs to regard a job offer from a Wall Street firm as a sure ticket to financial hyperspace. What many don't realize is that comparisons with that earlier generation are deceptive. The newcomers are in for a jolt. Wall Street types with longer memories could -- but usually don't -- tell them that in the mid-Seventies investment banking was recovering from a crushing downturn. The young people who took banking jobs then, many of whom never went to business school, accepted low starting pay and uncertain prospects. They worked like navvies, helped transform a fusty business into a marvel of growth and profitability, and received outsize rewards as investment banking boomed. Today's latecomers, mostly MBAs from highly selective schools, will also work brutally hard, but they will find fewer openings at the top, diminished entrepreneurial opportunity, and other dismaying evidence that the best years for getting into investment banking have already passed. Senior bankers increasingly fear that another downturn might well hit the business + soon, with potentially appalling effects for old and new hands alike, the sort of people pictured in the photographs that illustrate this article. Like many top bankers, Brian Young, a 32-year-old mergers-and-acquisitions superstar who joined the business in 1976, believes newcomers today are arriving too late to replicate the successes of his generation. ''There's a lot less opportunity for anyone entering investment banking now,'' he warns. ''The smart people will be out looking for the new scam.'' Young represents what business school grads new to the Street aspire to be. Stocky and quietly brash, he cheerfully admits he was lucky to get in early. Put off by Harvard Business School, he came to Wall Street with his silly Harvard B.A. in philosophy back when investment banking didn't look nearly so inviting. Paid at the same rate as a secretary -- $12,000 plus overtime -- he was the fourth professional to join First Boston's nascent M&A group. Now 160 strong, the group is a longtime winner in a drag race of a business fueled by profit margins as high as 80% of fees. Young won the exalted rank of managing director at 29, and played a key role in engineering such huge deals as U.S. Steel's $6-billion acquisition of Marathon Oil in 1981. Accustomed to earning over $1 million a year at First Boston, where he was part of the coterie that set the group's dealmaking strategy, he left the firm in January for Odyssey Partners. Odyssey, with hundreds of millions in capital, invests in leveraged buyouts and securities. Young is one of four principals who share in the firm's considerable profits. By FORTUNE's estimate, Young stands to make millions of dollars in annual earnings and capital appreciation.

For bankers who haven't got as far as Young, concern about the business's future takes on a more personal note. David Wittig, the man pictured on the cover, is, at 31, a senior member of Kidder Peabody's mergers-and-acquisitions group. Nine years ago, fresh from the University of Kansas, Wittig joined H.O. Peet & Co., a small investment firm in Kansas City, for a salary barely over $9,000 a year. ''When I came into this business, I didn't know what I wanted to do with my life,'' he says. ''It was an opportunity to make money. My goal in life was $50,000 a year.'' Kidder Peabody acquired Peet in 1978 and made Wittig a vice president in December 1983. His current annual income: an estimated $500,000. ''My compensation has gone up every year,'' he says, ''but + I don't think that's necessarily going to continue. The business is due for a downturn.'' A DOWNTURN could dramatically reduce Wittig's net worth. Since his firm, now 80% owned by General Electric, invited him to become a shareholder in 1984, he has invested the bulk of his earnings in Kidder Peabody stock. So far the total return on the shares he holds has been over 25% a year, but in a slump, the value of Kidder stock could drop markedly. Wittig would like to change careers by the time he's 40 -- his dream is to eventually become chancellor of the University of Kansas. But he doesn't count on retiring from the Street a rich man. Says he: ''I try not to let the business go to my head.'' More typical of the newcomers is a 29-year-old associate, as entry-level professionals are called, at a major investment bank. Like most of the junior bankers interviewed by FORTUNE for this article, he insisted on anonymity. Major firms, still smarting from a series of insider-trading scandals and a rash of press reports characterizing young bankers as greedy yuppies, commonly prohibit all but their senior professionals from discussing their jobs with the press. A spokesman for Salomon Brothers curtly notes: ''People at the firm are told all the time not to talk about compensation if they value their continued employment here.'' The 29-year-old has been an investment banker ever since graduating from Wharton in 1983. He earns nearly $200,000 a year, most of it in bonus pay based largely on the firm's annual profits. So far his bonuses, like those of most of his peers, have increased substantially every year. When he first joined the firm, it hurled him without further training into corporate finance, the business of designing and issuing the debt and equity securities companies use to raise money. Underwriting was deregulated a year before he arrived and much of it has since become a breakeven business of stamping out routine securities issues. ''It was pretty straightforward, cookie-cutter work,'' he recalls. After 15 months he switched to the more profitable specialty of mergers and acquisitions. With a bit of experience, he has gained responsibility for executing elements of strategies devised by his bosses at the firm; vice presidents handle more crucial parts. In the course of workweeks predictable only in their 70- to 80-hour duration, he meets frequently with financial staffers at corporations, pitching new deals and ironing out the details of deals in progress. He also oversees the efforts of less senior professionals at his firm who prepare the bulky prospectuses required by the SEC for public financings and who compile the reams of data -- from cash-flow analyses of target companies to charts of stock performance -- that investment bankers require. Next year the 29-year-old will be up for promotion to vice president. That advance seems likely, but he confesses to some uncertainty about his long-term prospects in the business: ''It's very hard to draw conclusions from past years, because the big classes of MBAs began to arrive on Wall Street only the year before I did. And most of us are still associates.'' Many young bankers, however, seem profoundly unworried about the future. Consider, for example, a Harvard MBA who, at 34, has already become a vice president at a big investment banking house. A risk arbitrager, he has a base salary of $100,000 a year, sweetened by annual bonuses that can range from $200,000 to the high six figures, depending on his performance and the firm's; he's eagerly looking forward to his first million-dollar year. ON A TYPICAL DAY, you can find him hunched close to three other arbs at a trading desk crammed with computer monitors, keyboards, and multiline telephones. His job is to help the team invest a few hundred million dollars of his firm's capital in companies involved in takeovers that have been proposed but not yet completed. He spends most of his 11-hour workdays talking and sometimes shouting into the phone as he gathers information and orders trades. ''The fear of losing millions of dollars makes the job intense,'' he says. This young investment banker enjoys his wealth, but wants more. He dresses in stunning tailor-made suits and each year takes his wife on what he calls ''a very luxurious vacation,'' usually for two weeks. They always fly first-class to exotic resorts, including one out West that guests reach by helicopter. Of his work and its rewards, he says, ''It's a lifestyle where you feel you can spend anything.'' Still, while he has no qualms about spending ''a couple thousand dollars'' on a whim, he is careful to store away most of his earnings in municipal bonds. Remembering his parents' eight-room house surrounded by tall trees, he complains that he cannot match the lifestyle his father once achieved in a small city on a salary of $15,000 a year. The banker figures that the Manhattan equivalent of his sylvan childhood home would be an eight-room apartment on Central Park West, which he worries he can't prudently buy until he has accumulated perhaps $2 million. The number of young people destined to confront such worries appears insignificant, considering that 69,000 MBAs graduated from U.S. universities last year, but fewer than 1,000 of them annually join investment banks in New York at anywhere near the $100,000-a-year level. And far fewer find similar jobs in Chicago, Los Angeles, Dallas, San Francisco, and other big cities. To recruiters from the top investment banks, the term MBA generally means a graduate of one of ten or 20 nationally known schools -- a list that would usually include Stanford, Harvard, Wharton, MIT's Sloan, the University of Chicago, Northwestern, the University of Virginia's Darden, Dartmouth's Amos Tuck, Columbia, and Yale. These ten together produce only about 4,000 MBAs annually. OTHER fine schools exist, of course, but it is primarily to these elite institutions that the banks, which can afford to indulge in elitism, send their sleek young recruiters dangling the keys to paradise. Largely by offering more than twice what companies such as Procter & Gamble pay, investment banks snared close to 25% of the graduates of the ten schools last year, the largest percentage to enter a single business. According to Carl J. Rickertsen, 26, a second-year student at Harvard Business School, he and his contemporaries have come to regard investment banking as a ''fire-packed environment, the top gun of jobs.'' Having seized control of the high end of the MBA market, the major investment banking houses and the lesser Wall Street firms that compete with them have fostered a nationwide inflation in the financial expectations of MBAs and even undergraduates. Business school placement officers and corporate recruiters see a trickle-down effect: Increased demand for the best graduates means that more of the garden variety will start off at $40,000 to $60,000 than would otherwise be the case. Even these middling types are looking for the moon. Perrin Long, who follows Wall Street companies for Lipper Analytical Securities Corp., lectures every year at Wharton. Last year he asked the students he was addressing how many of them expected to earn $250,000 a year three years after graduation. Every hand went up. Only consulting firms have kept pace with the investment banks' starting pay. Even so, salary inflation is spreading. The big New York law firm of ! Cravath Swaine & Moore, in part responding to hiring forays by banking houses, this year raised the starting pay of its new associates nearly 25%, to $65,000. First in New York, then in Los Angeles, Washington, and other cities, law firms that compete for talent with Cravath raised their starting salaries in turn. Companies unable to keep up fear that their long-term prospects may be dimmed. The big accounting firms are among the hardest hit, says Arthur Young & Co. recruiter John Prendergast. His firm, which has a long history of recruiting Harvard MBAs, offered starting salaries of up to $40,000 last year, yet failed to snag a single new Harvard MBA. Closing the compensation gap -- forget about closing the glamour gap -- would require revolutionizing pay scales for the firm's 6,400 professionals. Instead Arthur Young is turning to what Prendergast calls ''second-tier'' schools such as the University of Texas, whose graduates get median starting pay 30% lower than, say, Wharton MBAs get. At the center of this turbulence is a small group of investment banks so very rich, so lustily competitive, and so hungry for fresh bodies that they behave as if they simply don't care what they pay. According to the Securities Industry Association, pretax profits in the securities business, which also includes many brokerage firms, topped $5 billion during the 12 months ended in June, compared with $979 million in 1976. Nearly 40% of those earnings are sopped up by ten New York investment banks -- a group that includes First Boston, Goldman Sachs, Kidder Peabody, Morgan Stanley, and Salomon Brothers.

TO KEEP growing dramatically, firms require constant infusions of clever young people in their two main lines of business. Corporate finance includes highly profitable mergers-and-acquisitions work along with the underwriting of corporate securities. The other primary line is trading, the volatile game of buying and selling hundreds of billions of dollars of securities every day. Trading supplies over half the profits at some firms; at others, mergers-and- acquisition s is the major profit producer. In a business where brains drive profits, employers compete desperately for the best. Says Frederick H. Joseph, 49, Drexel's chief executive: ''We all end up wanting the same kids.'' Asked whether most new associates are worth their $100,000 a year, a veteran managing director at a leading bank snorts, ''Absolutely not.'' But he adds: ''In an environment of phenomenal profits and unprecedented fees, what difference does it make? The difference amounts to a rounding error.'' Those first fast bucks are matched as a lure by the banks' reputation for promoting people rapidly. ''It's a real meritocracy,'' says an enthusiastic 24-year-old at Morgan Stanley. But a major reason young people have risen to prominence over the past decade is that there weren't enough older people on hand when business started to boom. At 40, Francois de Saint Phalle, a blond, comfortably plump managing director at Shearson Lehman Brothers, has been a senior banker long enough to be regarded as an ancient. As a young man ahead of his time, he fled Columbia without an undergraduate degree during the dimly remembered student riots of 1968, to join Lehman Brothers. ''There aren't many people older than me around,'' he muses while contemplating his cigar. ''It's really weird. It's scary.'' The 26-year-old MBAs joining the business these days will find plenty of not-much-older people above them. Wall Street has come to resemble a clean- shaven Woodstock largely because the fast-growing banks have been rapidly adding to their bottom ranks. Salomon Brothers, for example, hired 46 MBAs in corporate finance this year, 24% more than in 1985, five times more than in 1976. Ambitious kids also love Wall Street because banking jobs seem almost risk- free -- a peculiar attribute for a business widely considered entrepreneurial. Says one young banker: ''The word on the Street is that no one gets fired, except for dishonesty or something like that.'' Just about the only young professionals who don't get ahead are the so- called analysts -- not to be confused with security analysts who evaluate the performance of publicly traded companies. The new analysts, B.A. graduates hired as investment banking interns, came on the scene in the late Seventies. Inexpensive by Wall Street standards at $35,000 to $70,000 a year, they have taken on much of the grunt work formerly performed by junior associates, crunching numbers with computers and proofreading documents until 3 A.M. in windowless bullpens. Given little guidance and demanding deadlines, they learn a lot in a short time. ''People who portray this job as glamorous are lying,'' says one analyst who nevertheless values the 60- to 90-hour-a-week experience. At the end of two-year terms, they are expected to move on, presumably to graduate business schools. A cruel irony: Since most top business schools are determined to maintain diverse student bodies, analysts' chances of admission have become slimmer as their numbers have increased. ANALYSTS aside, banks have been promoting their junior professionals in virtual lock step. At the big investment banking houses, associates usually become vice presidents in three to five years. Increases in pay vary somewhat more. At most major Wall Street firms, however, a typical vice president with five years' experience will earn around $250,000. Wall Street headhunters are always waiting to snatch experienced bankers whose golden handcuffs are loose. Senior bankers agree that generally no more than 10% to 15% of a class, and often less, washes out along the way to vice president. Either the banks' recruiters are nearly infallible or some bozos are getting ahead. Says a banker who has doled out his share of big salary increases: ''You have loads of vice presidents, people who are really mediocre, getting $500,000 a year by virtue of where they are.'' Why? ''You give them that because it's easier. It's a pain in the neck to have dissatisfied people around.'' The selection process gets more serious as vice presidents begin to near the rank of managing director or partner, Wall Street's equivalent of entering heaven without the inconvenience of dying. Managing directors earn the really serious money, usually over $1 million a year at top firms. Relatively little of that -- $150,000 or so -- is salary. For Alan ''Ace'' Greenberg, chief executive of Bear Stearns, base salary accounted for less than 4% of the $4 million he earned in the first half of 1986. Managing directors at many banks also receive invitations to buy underpriced equity stakes and to invest in deals and special funds managed by their firms. When Morgan Stanley sold just 20% of its stock to the public last March, some top partners saw the value of their holdings rise to $40 million each. The firms' eagerness to hand out stupefying sums to all comers in the past is not, however, a guarantee that new associates will eventually become so rich. Sobering lessons from not-too-distant history suggest they may not. Throughout this century, the business of investment banking has been subject to frequent cyclical downturns. The most stunning aspect of the business's recent good times is that they have lasted so long: The last major downturn struck in 1973 and 1974. Since then a rare combination of economic forces has propelled the banks to , prosperity: growing, high-volume markets for securities; lower interest rates; and especially the lucrative takeover boom. The banks have made the most of the opportunity, exploiting ingenious and hugely profitable ''products'' like junk bonds and mortgage-backed securities, risking ever more capital on the huge inventories of securities they hold for customers or trade for their own accounts, and flogging their services relentlessly to corporations. THE GOOD TIMES can't last forever. No one knows just when the next downturn will come, though an uneasy sense that the business is peaking has already spread through the upper echelons of Wall Street. Referring in part to the proliferation of junk-bond-backed takeovers, Sherman Lewis, 49, a 22-year veteran who co-directs investment banking at Shearson Lehman Brothers, says, ''There is excess in a few areas. In the past whenever there have been periods of excess there have been corrections, sometimes of a rather severe nature.'' Many of today's prospering young bankers were still in college, or high school, when that last plunge hit in the early Seventies. The securities industry as a whole suffered a loss of $72 million in 1973, compared with a profit of over $1 billion in 1971. One old-timer who remembers the consequences of the 1973-1974 unpleasantness is Herbert A. Allen, 46, chief executive of Allen & Co. Inc. ''MBAs were driving taxicabs,'' he says. ''When you have a bad market everyone goes.'' Allen's slightly exaggerated explanation helps account for the mysterious rarity of investment bankers his age. Downturns are no fun at all. Weak firms -- remember du Pont Glore Forgan? -- go under or are swallowed by stronger ones. Bankers' bonuses, which have risen without interruption for years, can be cut severely. Bonuses of managing directors are cut most radically, even to zero. Because of their equity stakes in their firms, top-ranking bankers have a compelling incentive to quietly accept the punishment while waiting for the value of their shares to recover. For those lower down the ladder, the business's abnormal attractions simply disappear. Performance evaluations become grueling, and bankers who flunk them lose their jobs. Headhunters stop calling. Promotions wait. A new possibility has arisen with the introduction of those analyst-interns. What if, as a cost- cutting measure, banks simply stopped hiring them? In two years all these helpful assistants would be gone, without a drop of MBA blood spilled. Their departure would degrade the jobs of many who remained, pushing the grunt work back up the hierarchy. Even if the next downturn never comes, investment banking newcomers still face dimming prospects. The banks have already become too big to sustain their awesome earnings growth. ''We can't keep growing at 80% compounded forever,'' says Chief Executive Fred Joseph of Drexel, the fastest-expanding major bank on the strength of its unmatched expertise in junk bonds. As earnings growth slows, so must the growth in compensation. In other words, the kid making $100,000 today may not be earning $1 million by next Friday. GETTING BIG is bad in many other ways. Although the dealmakers and traders who rise to the top in investment banks are mostly reluctant managers, they are adding bureaucratic systems out of necessity. Inevitably, once fluid hierarchies are growing more rigid. ''This business is no longer 12 people sitting around a table at the Links Club making decisions,'' says Geoffrey Elliott, 47, a managing director at Morgan Stanley. With the increase in bureaucracy, superstars -- those bankers who could set forth alone into the jungle and return dragging a multimillion-dollar fee by the scalp -- are gradually going out of style. ''The culture is changing as firms get bigger,'' says Austin V. Koenen, 45, a former submarine engineer -- one of Rickover's boys -- who now serves as a managing director in public finance at Shearson Lehman Brothers. ''Now we're looking for team players instead of superstars. The superstars hurt as much as they help, because they screw up the culture.'' Some lower-ranking professionals say they wouldn't dream of speaking up unbidden in the client meetings they attend. ''If something important was being overlooked,'' says one banker, ''I'd whisper into the partner's ear.'' Given less chance to fly solo, people are finding it harder to attract attention to their abilities.

If someone does come up with a glittering achievement, it may count for less than those of his predecessors. Explains Brian Young: ''At First Boston I used to bring in a $5-million fee and the chairman would come into my office and tell me what a great job I was doing. But you get to a certain size, and a $5-million fee hardly makes a difference.'' Young also believes junior people have become less confident: ''As the number of people at the table gets bigger, people think, 'I can't afford one mistake, it'll be my career!' We never used to worry about career paths. We had high-class worries, like, 'Do I spend enough time with my kids?' '' The really horrifying change, though, is that the banks are becoming more efficient. Despite their massive additions of staff and lavish pay, the productivity gains of the top ten banks are impressive. Pretax profit per employee -- calculated after payment of bonuses and including low-paid clerks, secretaries, and gofers -- has surged 60% since 1980, to $65,500. Huge investments in computers account for a lot of the improvement. Inexperienced analysts using a spreadsheet program like Lotus 1-2-3, for example, can now quickly polish off much of the number crunching that higher- paid associates performed laboriously by hand just a few years ago. Technology also helps explain why firms like Drexel are increasing the number of junior employees per managing director. ''As technology gets more advanced we need more junior manpower,'' says Paul Higbee, a Drexel recruiter. The Drexel hierarchy includes a layer of first vice presidents below managing directors. A decade ago, Higbee says, the number of corporate finance bankers at the two top levels was about equal to that of professionals below them. Now there are 2.5 junior bankers for each one at the top levels. That means the new entrant is 2.5 times less likely to win a place atop Drexel than someone who joined the business in 1976. Predicts Higbee: ''This trend is going to put tremendous pressure on organizations as the MBAs we've hired try to move up the ladder.'' WITH their long-term prospects so shaky, young people considering investment banking careers might be wise to dismiss the visions of dancing sugarplums conjured up by recruiters. A decision should rest, instead, on answers to two simple questions: How much is the money I'll be getting now worth to me? Will I enjoy the work? Money counts even to senior bankers who have lots of it. Says 14-year-veteran Jeffrey L. Berenson, 36, an accomplished managing director at Merrill Lynch's banking unit: ''Anyone who says they're in it for the intellectual stimulation is full of sh--.'' To an MBA with $40,000 in education loans to pay off, a $100,000 annual income is probably worth considerable sacrifice. But anyone entering investment banking now should be prepared for a precipitous drop in income in the years ahead. A surprising number of investment bankers, however, seem to sincerely believe that money isn't everything. Says Shearson's Koenen: ''You've got to like it. The quality of life (in banking) is terrible. If you don't like it, get out quick, because if you stay for the money you'll be a rich, unhappy person.'' The banks pay a lot, and they expect a lot in return. ''It's like a high- stakes poker game,'' says Robert L. Smith, 48, president of Johnson Smith & Knisely, a headhunting firm that works Wall Street. ''You can't get in unless you have a big bankroll, and in this case the bankroll is your life.'' Trading and corporate finance demand different sacrifices, partly because they parcel out daunting amounts of work in very different ways. Traders work with frantic intensity during the day, but get nights and weekends off. Successful traders can earn more than corporate finance bankers in their first few years, but they tend to burn out young and thus may accumulate less over the long term. Moreover, complains one arbitrager who counts himself as one of them, traders get no respect. ''On the trading floor,'' he says, ''there is no prestige, no travel, no glamour, no office, no secretary, no privacy, nothing.'' Corporate finance is ruled by the fact that it's a service business, dependent on the whims of clients, who usually pay fees only if a deal closes. The constant need to court clients and scare up more fees makes it hard to set limits on the seemingly infinite amount of work the job demands. Investment bankers often work on 15 prospective deals at a time, hoping at least one won't fall through.

''The main thing I remember is service, service, service,'' says a former associate at Salomon Brothers who went on to prosper elsewhere. ''You never had enough time to do the job correctly. You were always being interrupted, always going to meetings, and always having a sense of inadequacy.'' Many bankers experience every deal lost as a personal failure. Veterans agree that the most agonizing aspect of corporate finance is not the long hours, the waiting until midnight for meetings to begin, or even the constant anxiety. It is, instead, the disorienting, even enslaving loss of control over one's time, a condition that generally persists at least until bankers become managing directors. Always on call, even while vacationing, they constantly find themselves canceling personal plans at the last minute, or making no plans at all. An associate who isn't dating anybody right now explains why: ''You have to find someone very understanding, and the only person who really understands is someone with the same kind of schedule. For one deal I flew to the West Coast with an extra shirt and ended up staying three weeks -- I had to buy an extra wardrobe.'' An older banker worries that his young son, well-behaved when with his mother, always pushes daddy to the limits of his patience. ''I think he senses my guilt,'' says the banker. YEARS OF FOCUS on a very narrow set of problems turn even some of the best- intentioned bankers into fairly narrow people. Their jobs may not be entirely at fault: ''I would be working this intensely no matter what I did,'' says one associate. Fair enough, but bankers report that their outside interests often do fall away. A former arms-control activist laments that he is doing nothing to save the world. An analyst who values friendship sees little of his friends and fears losing them. A former marathon runner glumly observes the deterioration of his physique. A woman who wants marriage and children realizes that her Salomon Brothers job probably represents a choice to forgo both -- one of the people who interviewed her for a job there warned her that the work was incompatible with motherhood.

These dangers are most evident to senior bankers. A managing director, who can do strategic work over the telephone, sometimes even from poolside, may finally have enough leisure to contemplate the choices that have shaped him or her. A few, having mastered the craft of banking, begin to find their jobs repetitive. Rare are the senior bankers who don't talk earnestly about the need to create balance in their lives; some of them even achieve it. More than money, power, or prestige -- the three motivations business school professors traditionally raise for students to consider -- a dominating need to fuel the fires of self-esteem seems to drive the bankers who enjoy their jobs most. For people so constituted, perhaps only for them, investment banking can be a thoroughly gratifying profession. For others, including many of the young people flocking to Wall Street today, investment banking looks like a baited trap.