Industry Spotlight: Investment Banking
So you want to be an investment banker?
Investment banking is a great career choice especially for a summer internship or when you’re fresh out of college… but how much do you really know about it?
A lot? A little? Nada? Take a deep breath, it’s ok! We’ve got you covered.
What is investment banking?
What is a bank and what do bankers do?
First off, an investment bank has 3 main parts: investment banking (IB or IBanking), sales and trading (S&T), and asset management. If you want to be an investment banker, obviously you’ll be focusing on the first.
In a nutshell, investment bankers advise their clients (mostly corporations) on financing their business and managing assets. Examples of what investment bankers help companies with are: when are the best times to make a public offering (IPO- this means the company now has stocks in the market that investors like you and me can buy), when/why should I sell an asset, when/why should I buy another company, and what’s the best way to raise money for a deal.
Why do people do investment banking?
There are many different reasons, but 2 main ones are the $$$ and great exit opportunities (i.e private equity, hedge funds, business school). Also, if you like taking an in-depth micro look at individual companies, their finances, and management, then you might find investment banking very interesting!
How do investment bankers provide the best advisory to their clients?
Excel, excel, excel.
Yes, obviously you need to excel to be a good investment banker…. But, what I really mean is EXCEL SPREADSHEETS!!! (haha). Yes, they will be your best friend. You’ll be creating different valuation models and taking an in-depth look at balance sheets to determine the value of the companies involved in the deal you’re working on.
Let me give you an example of a deal:
Company A wants to buy Company B, but it needs capital to complete this acquisition. This is where the investment banker comes in. Company A will come to the investment banker for help. He/she will run a bunch of models and determine what’s the best way to go about this deal. For example, he/she might conclude that the most time and cost-efficient strategy is to issue an IPO to raise the money.
One Step Deeper
Now you need to know a few things!
What’s the difference between a bulge-bracket bank and boutique bank?
Bulge-bracket banks are the world’s largest and most profitable multi-national investment banks. They include: Bank of America (Merill Lynch) (US), Barclays (UK), Citigroup (US), Credit Suisse (Switzerland), Deutsche Bank (Germany), Goldman Sachs (US), JP Morgan (US), Morgan Stanley (US), and UBS (Switzerland).
Any investment bank that is not a bulge-bracket is considered a boutique bank. They vary in size, but can be categorized into 3 different types: those that specialize in M&A and Restructuring (i.e. Lazard, Greenhill, Evercore, and Gleacher), those that specialize in one or more industries like healthcare, telecom, media, etc (Cowen & Co, Allen & Co, and Berkey Noyes), and those that specialize in small or mid-sized deals and small or mid-sized clients (i.e. Houlihan Lokey, Jefferies & Co, William Blair, Piper Jaffray, and Robert W. Baird).
Product vs. Industry Group?
An investment bank is divided into product and industry groups. When you recruit, sometimes you will apply to a specific group. Other times, you apply as a generalist and after you are accepted into a firm, you undergo group selection/placement. Group selection/placement is a period where you have additional interviews for specific groups - you preference your top group picks and the groups preference their top candidates.
Product groups always work on a specific deal type, such as M&A or debt, across all different industries. Common product groups include: Mergers & Acquisitions (M&A); Leveraged Finance (LevFin); Restructuring; Debt Capital Markets (DCM); Equity Capital Markets (ECM)
M&A refers to the consolidation of companies or assets through various types of financial transactions. If you’re working in an M&A group, there are two types of deals you’ll work on: sell-side M&A deals and buy-side M&A deals. In sell-side deals, your client will say, “We want to sell our company and make a lot of money – can you help us?” In buy-side deals, your client will say, “We want to buy a company. Can you help us do it / help us finance it?”
The LevFin group is responsible for providing advice and loans to private equity firms and corporations for leveraged buyouts.
The DCM group is responsible for providing advice on raising debt for acquisitions, refinancing of existing debt, or restructuring of existing debt. Debt is often used in to fund transactions as it is usually cheaper than financing through equity and can add diversity to funding.
The ECM group is responsible for providing advice on equity, equity-linked and equity derived products, including shares, futures, swaps and options. The group will work closely with a client to organize transactions, structure the equity offering, and to improve valuation.
With industry groups by contrast, you work within one industry but on many different types of deals – equity, debt, M&A, and so on. Common industry groups include: Healthcare; Technology, Media, & Telecom (TMT); Consumer & Retail;, Industrial; Financial Institutions Group (FIG); Natural Resources; Natural Resources; Financial Sponsors.
The main difference is that industry groups focus more on knowledge of the industry, what different companies are doing, and building operating models (3-statement models) for companies. Product groups, get to know specific transactional models – merger models or LBO models – really well, but won’t do much outside that and won’t learn an industry in as much depth.
So how do I get hired?
When is recruiting?
The recruiting process can differ year to year and firm to firm. Based on the timeline for 2019 recruiting, you can expect some firms to begin interviewing candidates up to a year prior to the internship (i.e. employers were interviewing candidates beginning in the spring of 2018 for 2019 internships). Many firms choose to begin interviewing candidates in the summer or early fall. However, we don’t recommend you wait until September to begin thinking about recruiting. Seeing as investment banking is a business based on relationships, an important part of the recruiting process is networking. These relationships take time to build, so plan ahead!
What are insight programs?
A great way to get a head start with the recruiting process is participating in a firm’s insight program (if they offer one). These are 1 or 2 day events that are usually hosted at the firm’s headquarters (travel and lodging expenses are usually covered by the firm). Insight programs are a great way to get an inside look at a firm and network with its employees. Some even offer the opportunity to accelerate the interview process!
Most insight programs are quite selective and entail their own application process. The programs are usually held in the months leading up to the opening of the application process for summer internships (e.g. spring of 2019 for 2020 internships). Applications for insight programs open as early as October, so keep an eye out for these in the coming weeks!
What do the interviews look like?
Interviews for investment banking are usually pretty similar for both bulge-bracket and boutique banks. One caveat is that boutique banks tend to focus a tad more on technical questions rather than fit questions.
Specifics: Usually, investment banks have 3 rounds of interviews, give or take.
Round 1: The first round is usually held on campus or through the phone. The interview is mainly get-to-know you/fit questions. This is a good time to let the interviewers know about you and your interest in finance.
Round 2: The second round of interviews is mainly technical questions. You should know basic accounting, financial statement analysis, and a few other concepts. Check out the guide attached to this email for the most commonly asked fit and technical questions.
Final round: Your last round of interviews is usually a Superday. A Superday is a day of back-to-back interviews. It will usually take up a good half of the day. You will interview with a large cross section of the firm: from junior Associates all the way up to senior Managing Directors. Questions will be a mix of fit and technical questions. This final round is not only a way for the firm to get a holistic view of you as a candidate, but it’s also a good way for you to really get a good sense of the culture and people of the firm since you are meeting such a wide array of employees. Remember to be genuine and trust your preparation!
How do I prepare for an investment banking interview?
Download The 400 Guide and know it backwards and forwards. The interview will consist of technical and fit questions, both of which are outlined in the guide. Practice with a partner who knows what they’re doing, has done recruiting before, or even better who works in the industry. Make flash cards, Quizlets, whatever works for you.
Our tips to ace ANY interview:
Know why you want to work in the industry and why you want to work for that specific company.
Mock interview your brains out! The only way to do well in interviews is to practice practice practice! Ask a friend, relative, or fellow WIB member to help!
Be yourself. Let your personality shine through—would they want to be stuck at an airport with you?
Please note that this is just an introduction to investment banking and there are so many more fun and exciting aspects to it, but to include all of them here would be wayyyy too long. If you think this is something you’re interested in, we highly recommend you reach out to WIB members who have done investment banking. And begin your search on our Alumnae Database!