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Investment banking Q&A
I include below some of the questions (in bold) that people who are interested in working in banking have asked me over the years as well as my answers
1. Did you always know that you wanted to work in Investment Banking, what factors led you to choosing this field.
I wanted to work in an industry where you work with people, and as time went on this desire expanded to working on deals (I love the idea of working on something that really changes an industry, but that has a clear start and finish, and I also like the risk of non completion - keeps you on your toes). Also I like working with smart people (it pushes you to deliver better and better results). Furthermore, the potential to attend a few client meetings early on is a huge plus - I have been in the job a few years and have something of a relationship with the CFO of one of our clients and the VP of corporate development of another due to regular meetings and calls
I get why you got there i.e. went in to investment banking, it must be a kick getting into probably the most sought after sector for graduates, but now that you are there do you see yourself working as a banker in the long haul. Is the alleged burnout more a myth or reality?
I’m still deciding whether or not to go in for the long haul. Burn out is very real in the first few months, but once you’ve been here a couple of years, it’s less relevant. You know you can hack it already, and the worst is over, so it’s just a question of whether you _want_ to continue to hack it
Do you honestly have a lot of women working in IBD, I mean talking about diversity is one thing but do you see it in practice especially in the 30 something age bracket where people have kids etcetera
Not so many, especially at the senior level, but certainly more than there were on my course at university. At the bottom of the pile (analyst level) it’s not quite 50:50, but it’s not so far off. As you go up the chain though, more and more are gone, mostly because of the reasons you mention I believe.
2. Why did you choose your bank? I am sure you must have had multiple job offers so why did you choose your bank instead?
I wanted to work at this bank because while it is a bank and there is some arrogance, there is less arrogance than you would find at many of the American banks. Within the European banks, I think this bank is the most ambitious in terms of global initiatives - we have a pretty strong US franchise compared to most of these other players. Also we have a genuine competitive advantage in our leading global equity platform
So it would be safe to assume by your statement that xx and yy are your main competition, have you dealt with North America is the banking culture very different from Europe. I worked with a hedge fund over the summer and found Americans a lot more focussed than continental Europe.
xx and yy are our main competitors in Europe, but yy probably less strong in the US. We compete with all of the US bulge bracket banks on their home turf. The US culture is very different and is more hierarchical. They also tend to take more of a shotgun approach with their pitch materials, where as in Europe we are a bit more targeted. I would not want to work there as a junior. I’m not sure what you mean by focused - Europeans work fewer hours probably, but at a junior level there’s not a lot in it (in terms of difference in hours) I would say
I was referring to the fewer hours, I spent the better part of the summer trying to contact clients on a Friday it was impossible! But thank God for being in the UK I guess then, I know most people complain about the education system here but its not all that bad!
3. How does someone like me, who comes from a non-financial background learn technical skills that are required of a first year analyst joining your team? does your bank provide on job training or a condense classroom effort before?
Many if not most people who join are from a non-finance background, and this bank provides an extensive training programme when you join as a graduate (c.8 weeks), or an intensive but less extensive (1 week) training programme when you join as an intern. This is important as you need to get everyone up to about the same level when they join, however the real applied training/learning takes place ‘on the job’
On that note do you recommend any specific math courses or more importantly computer programs that come in handy?
Not really. I would get to grips with excel, but that’s the only important one you’d be able to practise before joining. I would be more focused on learning about valuation if I were you. The maths is pretty straight-forward. I guess it would be useful to be good at doing arithmetic/long division in your head, but it’s not essential by any means (you might get asked a relatively simple mental maths question -or two- in interviews though). As long as you have something of an analytical background you should be fine (and you’d probably be fine even if you didn’t).
Ok got it, I was going to do a week long internship at Citigroup overseas over the winters but I think might just go back to my old employers and polish up a bit on my excel skills and learn a thing or two about valuation
I would do the week long internship at Citigroup if I were you, unless your old employer is more relevant. Experience in a bank is almost certainly more highly valued than excel skills in terms of recruitment. It’s just that excel skills help you along the learning curve once you’ve joined. You can brush up on valuation separately maybe, although just having a very basic understanding should be sufficient if you’re coming from a non-finance background.
Thanks any suggestions for any book etcetera from which I can pick up valuation?
I really ought to write something simple to summarise the basics of these in a very concise fashion with a few examples. If only I had a bit more time….
Basically it’s a case of getting to grips with the concepts of DCF and multiples (both listed comparables and precedent transactions). There is also the LBO, but this not really a ‘pure’ valuation metric.
I haven’t seen a short book that details these things, but there’s probably some info on the internet. If you want a long book from which you can pick chapters to peruse, Brealey and Myers: Principles of Corporate Finance is an excellent reference book for DCF (and lots of other things related to investment banking). I cannot remember whether it covers multiple-based valuation though.
4. Could I ask what the high point of this job has been so far?
The nature of the job is such that there are many highs and lows. The lows are usually when your hard work on something doesn’t get used for some reason, or when you make a mistake and/or get shouted at, or when you realise it’s 3am and you have a lot more to do and you haven’t had a day off in a month. The highs are when you win a mandate or complete a deal, when you over-deliver and/or deliver on time in the context of a tight deadline, and the genuine appreciation of the deal team or client, when you help someone out and they’re grateful. There is also the more general satisfaction of putting together a great book or a great model. I think for me the appreciation when I do a good job on something important is pretty near the top.
5. Did you get any kind of lucky break that helped you land a great [training contract/analyst/trainee] position, or did you find the whole process of getting hired pretty easy?
Not a lucky break so much, more a series of fortunate happenings plus a lot of preparation and work. I first got a placement in technology, in which I was given a series of opportunities to work on IT problems for some senior bankers. This gave me the opportunity to get to know them a bit and hopefully impress them. Then the following year I applied in the normal way for the IBD internship and asked the guys I had worked for the previous year to put in good words for me. Then in the interview I also discussed working with some of these guys on specific projects, some of whom were renowned throughout the organisation as being difficult - I think this helped me win respect.
6. Every morning when you wake up to get to work, is the thought exciting? Do you still the buzz that you did when you started a year ago?
I wouldn’t say I wake up every morning thrilled (sometimes I even am waking up in the afternoon), but it is true that the thought of doing something else is difficult, as most things feel like a step down in terms of the responsibilities they offer and the challenges they pose. I don’t have the same buzz I had when I started, but I think that’s a good thing because the buzz I had at the beginning was unhealthy (at the end of my internship I gave a presentation about the experience I had had, and one guy said to me afterwards that he thought I was too enthusiastic for it to be genuine).
Do you foresee going back to school to do an MBA? I know that most banks in the states are very pro a MBA, what’s the scene like in UK.
It’s one option, but it’s not so important in Europe. If you want to be a banker for life, then you don’t need it, you can just move forward. If you want to do something else, you can usually just go do that too. I think it’s mostly just US companies that put a high value on it. From the European perspective, I think it’s more used as a CV filler when you want to get out and spend some time taking stock (particularly handy in a downturn!) but it’s certainly not a critical part of a European banker’s career.
I guess its a good break for some, but here’s to hoping that the market remains looking upwards!
7. How many weekends do you work, and if not what does a typical weekend involve for you? Again this is not meant to be an intrusive question I just wanted to know what kind of people am I likely to be working with if I get an internship
I work about half or two thirds of all weekends on average (only counting weekends in which I work more than half of the waking hours). This is worse than it sounds because working weekends tend to bunch together around deals and because you tend to feel pretty lethargic in your free time. However it is also better than it sounds, because half of your waking hours isn’t necessarily that much (a lot of the time I sleep in late on weekends, come in and do 4 hours work, then go out to the cinema or dinner). I mostly spend time with my girlfriend when I’m not working on the weekend.
You make it sound not that bad which is commendable because I know of some other people who work in IBD in London and they are always crying about how miserable their working hours are.
8. What annoys you about internees and fresh recruits? And what impresses you?
What impresses me is when people come in with a quiet confidence, check their work (in particular with numbers it is important that they benchmark against something to make sure their answers are not ridiculous, rather than just checking their inputs are correct. Also look for outliers, providing explanations or at least flagging them) and can deal with pressure. Quality is paramount at the beginning though - you need to build a reputation as a safe pair of hands. Personally, I try not to ever get openly frustrated with someone who is new, but you do need to work the hours, and you do need to avoid giving anyone anything without sense checking it first. Mistakes are the thing which most irritate people, especially when combined with arrogance.
Also, with mature analysts there can be another issue because they sometimes feel like the things they are doing for the first couple of years are a step down - processing mark-ups of pitch books for, or being corrected by people who are younger than them, whereas in a previous job they had people of that age working for them. There is no age discrimination, but that can sometimes be perceived as a problem. However from what I have seen, when the team is right it just feels to everyone that they’re all working _together_ anyway and it’s not really an issue.
Well I understand completely what you are trying to say, and thanks the number advice is really helpful because quality control is essential in all sorts of work. I am a mature student I was working overseas before I started at university and I understand where you are coming from about mature students but my reaction generally is that I feel wow people my age have been working here for 2-4 years what have I achieved its more the wow factor than anything else.
I remembered you are a mature student and thus was trying to think about what would be most relevant for you to think about (in relation to what is not so productive for new joiners). It’s by no means always a problem, just something to keep in mind when you’re thinking about joining a bank at the bottom of the pile. The other points are much more important (quality of work etc)
I agree completely the main thing is a positive attitude so trying my level best to maintain that.
I would appreciate it, if you could give me a general idea on what you do working as an investment banker daily. Also, I am curious as to what would be the most beneficial to study undergrad in college. What can I do now that would give me a jump start or will help me better understand the investment banking world? Is there a magazine or newspaper that would be particularly beneficial?
In terms of what I do on a daily basis, it has changed greatly over the past 4 years. Your activities and your hours are very much dependent on the team in which you are working.
So for example, in my first team (the UK country coverage team) I spent about 6 months working from about 9am until about 2am pulling together data and basic analysis for presentations to clients, and pulling together information packs to brief our senior bankers. Not many weekends off there either (although hours were better on weekends). During this time, I was also given the opportunity to work on advising the management of HIT Entertainment (the company that owns the rights to childrens’ TV shows such as Bob the Builder, Thomas the Tank Engine and Barney the Dinosaur) on the buyout by Apax Partners, where we put together a Leveraged Buy-Out model to show the management team the way Apax would be looking at the valuation of the business.
After that I went to work in the capital goods sector team, a team which covers companies manufacturing heavy goods including machinery, cars, planes etc. I worked there for about 2 1/2 years largely doing valuation work (comparable companies analysis including public market valuation analysis and precedent transactions analysis) which is very time consuming and detail-focused - lots of going through public company filings and picking out key pieces of information for the analysis. There were periods of a month or more during which I didn’t get home until after 2am except for weekends (when the hours were better, although I was still working most of the time). The transactions I worked on there included the acquisition of a UK gas sensors business by Honeywell, the US industrial giant, the IPO of a Russian tire company and the sale of a German extruders manufacturing business.
I also spent a great deal of the time preparing pitches for new capital goods business, including presentations to most of the major companies in the capital goods universe in Europe (Siemens, Schneider, ABB, ThyssenKrupp) as well as many of the smaller ones. In pitching, I was working on a lot of comparable companies analysis, as well as some valuation modelling (discounted cashflow) and Leveraged Buy-Out modelling, and of course writing the presentations themselves. By the end of my time in the team, it was remarkable how much responsibility I was given - I was in a position of being given a brief about a week before a meeting, doing the analysis and writing the pitchbook (presentation) and then providing it to my seniors just a day or two before the meeting; processing a few comments they may have, and then printing for them to bring to the meeting.
My most recent team, where I have been working for the past 12 months is Leveraged/Syndicated Finance, where we are working in a role more similar to a traditional banking role (as opposed to an investment banking advisory role). We basically lend money. Where it differs from a traditional banking role is that it is almost entirely ‘transaction driven’ i.e. there is an acquisition of a company involved, a lot of debt (leverage) is put on the company, and that we sell (syndicate) the debt afterwards to other institutions in smaller pieces, but keep most of the fees (so that we get a good return on our capital).
The day-to-day work here varies immensely, but is generally more intense for a shorter period of time. I probably only work past midnight here 2-3 nights per week, and I have had almost all of my weekends off since I joined. Also, over the past 6 months or so things have got even less painful because I now have people working for me who do a lot of the analysis. The analysis we do centres around two items: an LBO model and a credit paper. The LBO model is a standard model (although it often needs to be customised a little bit) which shows how well the cash generated by a company supports the payment of interest and repayment of the debt that we intend to lend. The credit paper lays out the details of the transaction, an overview of the industry in which the company operates (written by the relevant sector team), an overview of the company itself and its specific business model (written by the relevant sector team), and a discussion of the strengths/weaknesses/risks/mitigants of the company from a credit perspective (i.e. the ability of the company to pay the interest/repay the debt in the future). Our day-to-day work before the credit crunch was primarily running these models and putting together these papers.
I joined the latest team in March 07, so just a few months before the credit crunch (caused by irresponsible mortgage lending practices). This crunch has had a knock-on effect across the banking industry, but I managed to get involved in a couple of smaller transactions before things got really bad. Things are looking up a bit again for our business, but there will be some headcount reduction before our market starts growing again and banks start hiring in leveraged finance again.
In terms of degrees, in Europe there is much more flexibility in terms of what you study, but where you study is very important. I know quite a few people who studied things like history, geography or languages at Oxford or Cambridge who work in banking.
However, I do believe that an analytical degree puts you in good stead - similar to many other banks we have short written numerical and logical reasoning tests as part of the interview process, and if you’re handy with numbers and logic this is very beneficial. Also, once you get in, the first two years of the job in particular are very numbers-focused, so again it helps there. So in short, you don’t have to study economics/finance but if not, it helps to study something with numbers (maths, physics, computer science, engineering etc.).
In terms of reading, I think it’s difficult to get what you need from reading the papers, however the two key papers are the Wall Street Journal and the Financial Times (out of which the FT is my preference). If you are reading the FT, just read the front page of the paper (particularly the left-hand column summarising the events and the bottom showing price of oil etc), the front page of the companies and markets section (again the left-hand column is helpful) and the lex column (back page of one of the sections - I think it’s the back of the main paper). Just to keep track of a few companies and what they are doing, and have a feel for what’s going on in the markets.
I think even more important than this though is to understand valuation. I’m actually going to try to put something up on my personal website at some stage on this, because I’m often asked about this and I can’t really point to a good concise overview of valuation techniques anywhere. Until then, Brealey and Myers principles of corporate finance is a huge book, but has a few chapters that are really worth reading on this. What you want to know about is trading comparable companies analysis, precedent transactions analysis and DCF (NPV/IRR/WACC) - and the differences between them.
So in short, hard work including producing a large number of pitch presentations, lots of modelling and analysis (much of it mundane/repetitive after a while) but some amazing opportunities as well, and a great deal of responsibility early on.
What ethical conflicts faced by investment banks do you come across when providing your banking services?
There are many different kinds of conflicts that can arise. Most of my experience relates to M&A so that is the area I will mostly focus on.
The most common conflicts that I have seen are conflicts of interest between banks and their clients based on fees. This is particularly acute in larger banks offering a wide range of products at different costs. So for example, IPO underwriting and financing transactions can sometimes provide much higher fees than M&A. In those cases, banks may be tempted to advise a client to list their business on the public market rather than selling it, even if selling it could (in that case) provide a better outcome for the client (strong strategic fit with potential acquirers so likely high valuation in a full sale, client looking for a full cash out rather than a partial exit, cyclical industry at the top of the cycle so exiting now is a good idea etc).
There are also conflicts that arise when a potential buyer for a client company is a firm with which a bank has an existing strong relationship. For example, many large banks have strong relationships with the large private equity players (KKR, Blackstone, TPG etc). If one of these private equity players is looking at purchasing a company that the bank is selling, the bankers may be tempted to provide more information to that private equity buyer than they are providing to other parties (which might not be in breach of takeover code rules provided the target company is not a public company, but isn’t necessarily ethically justifiable for their client, who just wants the highest price coming out of a fair auction process). This can equally happen with “trade” buyers.
There are also conflicts that relate to the trade off between deal certainty / timing and
valuation. These can be specific internal timing requirements (need to make certain level of revenue by a certain time to achieve a certain bonus for the year) or simply be related to the general desire to get paid now (rather than wait and maybe get paid later). Typically, sell-side M&A advisory is done under a ratchet fee structure where the banker earns more if the business sells for more which reduces potential conflicts. However, it is slightly tougher to price buy-side M&A advisory fees, because the adviser should be paid more for bigger deals, but should somehow be incentivised to help their client pay less. Typically these transactions carry a fixed fee for the adviser, but in some instances I have seen a percentage of the acquisition price (which actually provides an incentive in the wrong direction!).
Another very kind of conflict is when an individual banker has been asked to work on an industry that he/she objects to from an ethical perspective (e.g. aerospace and defence, tobacco, mining / forestry). They may not actually *want* the transaction to happen / be a success. Another similar kind of conflict is when they are asked to work on a transaction that will result in huge job losses / social issues. For example a colleague of mine was asked to work on the merger of two elevator manufacturers (some years ago) that would have resulted in the loss of literally thousands of jobs.
And then there are the more basic conflicts you run into in your day-to-day job. A large part of your job as a banker is effectively a sales job - you need to present the companies you are selling in as positive a light as possible, while not lying outright, to potential buyers. When someone asks you to do something that is outright lying, you have to speak up.
These are just a few examples. There are a huge number of different kinds of conflicts that arise, and for the most part you have to address them on a case-by-case basis.
This is a very good question. If people are not being treated fairly because of conflicts you are not managing appropriately, then that damages your reputation which is the most important long-term asset that a bank (and a banker) has.
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