The buttoned-up ranks of predominantly straight white men who run the banking world are making more room for their gay and lesbian colleagues. But as is common with the industry's other diversity efforts, this one still falters somewhere between the soaring rhetoric and the on-the-ground realities.

On the positive side, big banks have made significant strides in shutting down the frequently overt discrimination gay and lesbian employees once faced, bankers say. Many companies provide benefits for same-sex couples, and senior executives from Bank of America (BAC) to Goldman Sachs (GS) have been among the corporate world's most vocal supporters of same-sex marriage and other equal rights.

Even so, there are limits. No big-bank chief executives are openly gay, and rank-and-file bank employees say some gay and lesbian workers still hesitate to come out. That is less a function of overt discrimination than of conservative cultures that prize conformity, they say.

"It's still challenging in many aspects, but the industry really is at the forefront" of change, says Mark Stephanz, the vice chairman of the global financial sponsors group for Bank of America Merrill Lynch, who came out at work about five years ago.

Stephanz was speaking on the sidelines of the third annual "Out on the Street" conference, an event devoted to lesbian, gay, bisexual and transgender equality on Wall Street. Goldman CEO Lloyd Blankfein presided over this year's event, which by coincidence took place on the same day that Jason Collins of the National Basketball Association became the first active male player in a major sport to come out.

The conference, and the largely positive reaction to the news from Collins, reflect the extent to which attitudes about homosexuality and acceptance of openly gay and lesbian people have changed in the financial world and beyond.

The cheerful, nametag-filled atmosphere at Out on the Street last week seemed light-years removed from the turn of the century, when networking groups of gay Wall Streeters kept members' names secret. A top Merrill Lynch analyst at the time told New York Magazine that she didn't know of any gay colleagues in her 10,000-person offices.

Banks in the Lead

Banks still face the occasional lawsuit for allegedly discriminating against gay employees and customers. More broadly, however, financial services companies have received much-welcomed positive publicity for being among the best places for lesbian, gay, bisexual and transgender people to work. Only law firms outrank them, according to the Human Rights Campaign Foundation.

The nonprofit's Corporate Equality Index measures companies' nondiscrimination policies, domestic-partner benefits and public commitment to LGBT issues, among other criteria; its 2013 report gave perfect scores to JPMorgan Chase (JPM), Bank of America and Citigroup (NYSE:C), among others.

"Through my career things have changed greatly. The number of visible LGBT in general has grown, and financial firms' support of LGBT people has increased dramatically," says John K. Barry, a director at PNC Capital Advisors, a subsidiary of PNC Bank, who previously worked for Harris Bank and JPMorgan Chase.

Barry, who is based in Chicago and gradually came out at work in the 1990s, says many "glass walls" have fallen in banking over the past 15 years.

"There were certain areas where you could be gay and thrive, and there were certain areas where you could not," he says.

An Industry Divided

When LGBT members laud the banking industry for creating a welcoming environment, they're usually talking about big institutions. Several senior executives at big banks have come out in recent years, and straight CEOs have publicly supported LGBT rights.

At JPMorgan Chase, for example, chief spokesman Joe Evangelisti says that about 10% of the bank's top 50 executives are gay or lesbian. Evangelisti, who is gay, adds that CEO Jamie Dimon "goes out with me and my partner, he comes to the [bank-sponsored LGBT] events … it's not tolerated to be unfair to any group of people."

Outward acknowledgment and acceptance of LGBT employees appears to have been far slower at smaller banks, in less metropolitan areas and among lower-level employees.

"In my entire time in the industry, 20 years, I never met another gay bank CEO and rarely met another gay senior executive," says Bill Donius, the former chief executive and chairman of Pulaski Bank in St. Louis. He came out at work in 1994, became CEO in 1997 and retired as chairman of the now $1.4 billion-asset company in 2011.

Donius points out that banking's CEO ranks are notably lacking in female and minority members, as well as those who are openly gay. The industry is losing out on talent and well-rounded governance in the process, he argues.

"If you have diverse leaders, you're more likely to inspire others to move into management and stay in the industry as opposed to leaving the industry for one that's less conservative," Donius says. "You can have a policy and you can say things [about nondiscrimination], but that doesn't necessary mean it's reflected in the workplace and the day-to-day operating environment."

Among the 20 largest U.S. banks only KeyCorp (KEY) is run by a woman. The financial companies American Express (AXP) and MasterCard (MA) are run by men of color, but the most prominent nonwhite bank CEO in recent years, Citigroup's Vikram Pandit, was replaced by Michael Corbat, a white male, last year. The lack of leadership diversity is apparent in many industries. Among Fortune 500 CEOs in 2012, only 4% were women, 3.6% Asian, 2% Latino and 1.2% African-American, according to consultancy DiversityInc.

Promoting LGBT diversity is "the same journey we've been on with women's issues. You've got the right tone at the top, but … much of this is unconscious bias, much of it is discomfort. I think this takes an enormous amount of dialogue," says Beth Brooke, a global vice chair of public policy for Ernst & Young and one of the most visible lesbian senior executives in corporate America.

More than half of all LGBT corporate employees are still closeted at work, according to the Human Rights Campaign. The organization also found in a 2012 study that 81% of non-LGBT workers agree that gays and lesbians "should not have to hide who they are" in regular conversations about their social lives. Yet fewer than half of those respondents said they'd feel comfortable hearing LGBT colleagues talk about dating, and over 70% said "it is unprofessional" to talk about sexual orientations or gender identities in the workplace.

"There's definitely progress, in terms of policies, benefits, Wall Street leaders … but the sort of day-to-day mixed bag is, 'OK, I know you're gay, I just don't want to hear about it,' " says Deena Fidas, the deputy director of the HRC's Workplace Project.

In more than a dozen interviews with gay and lesbian employees, their straight chief executives and other industry members, bankers offered suggestions for gays and lesbians who want to come out and still feel comfortable at work. Namely, it pays to work at a large company in a major city — and if possible to rise to a senior position. They also suggest considering investment banking over retail banking, despite the stereotype of the former's testosterone-fueled trading floors.

"I think the major challenges are still focused on subtleties rather than overt discrimination," says Todd Sears, a former banker for Merrill Lynch and Credit Suisse (CS) and the founder of Out on the Street.

The organization is composed of Wall Street bankers who hold the rank of director or above. Several attendees at the 300-person conference last week said their companies are still struggling to get their CEOs' messages about diversity and inclusiveness to trickle down.

"The permafrost at the middle can kill anything," Irene Dorner, the CEO of HSBC's U.S. unit, said during a panel discussion.

Dorner also said that despite Wall Street's reputation as intensely macho and hostile to any differences, these days she worries more about her gay and lesbian retail bankers.

"I had it put to me quite strongly by my retail colleagues that they [did] not feel that they could be out at the branch," she said.

There's more potential for unpleasant interactions at the branch "the closer you are to the public, and the public you've never met and don't know," she added in an interview. "The difference with Wall Street guys and gals is that they are of a certain educational level … they mix with each other, they're competitive, it's a severe meritocracy. ... So they're going to find support, or if not support, less un-safeness."

Shelley Freeman, who started her career at Lehman Brothers in the 1980s and now runs Wells Fargo's (WFC) Florida retail and business banking operations, has made it a priority to encourage gay and lesbian employees to be out in the branches.

"No one should be afraid to come to work every day as who they are, and no one should have to check who they are at the door," Freeman says. "That's why I came out when I came out at work, very early in my career."

She also praised the announcement by the NBA's Jason Collins: "That basketball player saved lives," she says. "I'm not helping save lives. I'm just letting tellers know they could be a Florida regional president someday."

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