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INVESTMENT
BANKING
Functional Description
Skills and
Requirements
Job Descriptions
Corporate Finance
Mergers and Acquisitions
Project Finance
Structured Finance
Salaries
Officers'
Email Addresses
Additional
Research and Information
Functional Description
The investment
banking industry spans a wide spectrum of capabilities, industries, and
product lines. Investment Banking Professionals specialize in capital
markets (equities, investment grade debt, and high yield securities),
corporate finance, financial restructuring, mergers and acquisitions, and
private equity. Industry specialists work closely with analysts, traders,
and sales professionals to create financing alternatives that are
innovative and effective. Through the process of "underwriting"
Investment Banks facilitate the issuance of both corporate and government
securities providing essential capital to both groups. In addition they
help investors purchase securities, manage financial assets, and trade
securities. One of the most highly public roles of an investment bank involves
the strategic financial advisory services they provide to companies
involved in merger and/or acquisition deals and in the divestiture
("spinning off") of various company assets or businesses.
The leading
investment banks include Merrill Lynch, Salomon Smith Barney, Morgan
Stanley Dean Witter, Goldman Sachs, JP Morgan Chase, Credit Suisse First Boston,
Bear Stearns, UBS Warburg, and Lehman Brothers. Many of these banks are
said to have acquired bulge bracket status. This is a distinction given
to those banks consistently listed in the top tier of the "league
tables", which report on deal volume and firm revenues. Other
investment banks are regionally oriented or situated in the middle
market. These banks include Dain Rauscher, Piper Jaffrey, Robertson Stephens, A.G. Edwards, First Union, and Bank of
America. Others are small, specialized firms called boutiques, which
might be oriented toward bond trading, M&A advisory, technical
analysis or program trading.
Skills and Requirements
Investment banks want
employees with a combination of strong analytical and interpersonal
skills. Some jobs lean more towards one skill set than another (e.g.
brokers need to be mainly sales people). A typical job of an equities
analyst requires both analytic and interpersonal skills. The skills
involved include:
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People
skills:
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High
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Sales
skills:
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Medium
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Communication
skills:
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High
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Analytical
skills:
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High
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Ability
to synthesize:
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High
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Creative
ability:
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High
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Initiative:
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Medium
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Work
hours:
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60-120/week
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> Commentary
- Investment banking is a
high work, high risk, and high reward profession. As you begin your
career your hours will typically be long but the work can be
exciting. Be prepared for moments of frustration where you are
stretched too thin and moments of exhilaration where everything
clicks.
- It's relatively hard to
break into investment banking. You need to be prepared to pursue
firms on your own after you have thoroughly prepared yourself.
Networking is a large part of the recruitment process and will give
you opportunities. However, overall knowledge, skill, and the
ability to confidently convey your desire and expertise are the most
critical factors in gaining employment.
- Investment bankers are
often the subjects of social scorn in movies like Bonfire of the
Vanities, and Wall Street. Keep in mind that they play a crucial
social role of helping to direct capital to companies allowing for
growth and development in many business areas.
- The portrayal of
investment bankers in movies may also portray a glamorous and sexy
lifestyle. To be sure, there is a tremendous amount of business
exposure and significant amounts of money to be made in this field.
However, when considering this career, be aware that 100-hour weeks
are commonplace and you are expected to sacrifice all of your
personal life when work needs to be completed. Staying at the office
all night long and right through weekends is the norm and will be a
regular part of your early years in this type of a career. There are
real and challenging limitations put on maintaining personal
relationships and the work-to-life balance is far from ideal. To put
it simply, you must have a very strong work ethic and be willing to
put in extremely long, stressful, and tedious hours working on tasks
that are important but not glamorous.
- Many college graduates
and MBA's begin their careers in investment banking in an
analyst/associate position. To succeed in these positions you need
to be extremely dedicated, have good spreadsheet skills, and be
analytically fluent.
- In mid-career, your
success usually will depend on your ability to communicate with
clients and get deals done. At this level it is also important to
have a good understanding of market trends, the political and
macroeconomic environment, and deal mechanics.
- The ability to analyze
accounting information is critically important in investment banking
positions. Valuation calculations are heavily reliant on financial
statement analysis, which requires a strong understanding of
accounting techniques.
- Most large firms operate
out of New York. Even if you are
interested in working in another location, your general interviewing
activities are likely to be centered there. Other places you should
look at include Hong Kong, Tokyo, London, Moscow and Singapore. If you go looking for a
job in investment banking using informational interviews, it is
crucial that you make several trips to New York.
- A crucial success factor
in investment banking is teamwork. The ability to work well with
others and add value to a team is highly prized by investment
banking recruiters. Having documented experience in a results
oriented team atmosphere is mandatory for pursuing a career in this
area.
- As mentioned earlier, one
of the important aspects of breaking into investment banking is a
good network of contacts. You may already be blessed with such a
network, but if you don't have one, you can start to develop one by
going on informational interviews, attending industry conferences,
finding alumni from your school in the business, etc. Keep in mind
that your network might not really "pay off" for some
time. If you are young and haven't gone for an MBA degree, try to
get into the best possible school and then go for quantitative and
analytical coursework.
- Starting off in an investment
bank, you are usually responsible for getting projects done well and
on-time, whether it be writing reports, running spreadsheets,
trading, doing research or coding programs. Performing timely and
mistake free work under pressure is expected of all investment
banking employees. As you progress in your career, you will get more
personally involved with clients and will be expected to produce
ideas for generating revenue. Bringing in business and accompanying
revenues is greatly rewarded.
- At higher levels (usually
Director, Managing Director and up) you are exposed to much greater
risk. At this level, people are often fired for non-performance,
whereas at lower levels you may not be scrutinized as closely.
Job Descriptions
Corporate Finance
In a corporate finance position you will work to help companies raise the
capital needed for new projects and ongoing operations. You would work to
determine the amount and structure of the funding needs of a client
whether it be through equity, debt, convertibles, preferred, asset-backs,
or derivative securities. As a starting analyst in corporate finance you
would usually work on a client team and would have responsibilities to
prepare registration statements, attend road shows where investors are
sold on securities etc. Merrill Lynch and Salomon Smith Barney are
acknowledged powers in corporate finance. Sometimes jobs in corporate
finance are referred to as investment banking positions. When you hear
phrases such as IBD or IBK people are referring to corporate finance.
Mergers and Acquisitions
Setting up deals where one company buys another is an important source of
fee income for many investment banks. Work in this area involves playing
a role within a team which acts as an advisor to a client, values transactions,
creatively structures deals, and negotiates favorable terms. Goldman Sachs and Morgan Stanley are the recognized leaders in
M&A advisory. Investment banks have increasingly participated
directly in LBOs, spin-offs and bridge loans, often by taking their own
investment stake (known as merchant banking). Your duties could involve
analyzing the appropriate form of participation. Expect to start running
lots of valuation models on spreadsheets and gradually get more client
focus as you progress.
Project Finance
The field of project finance is booming. Typically project finance
involves funding infrastructure and oil capital projects off of a company
or government's main balance sheet. Banks like CSFB and Deutsche Bank are
active in this area. Project financed deals have been some of the first
significant conduits of foreign capital into countries such as China, Yemen and Indonesia. When other sources of
borrowing dry up, project finance is generally still there.
Structured Finance
Positions in structured finance involve the creation of financing
vehicles to redirect cash flows to investors (known as asset-backed
securities). Typical asset-backs securitize credit card receivables, auto
loan receivables or mortgages. This market is likely to grow considerably
in the future. Other growth areas include asset-backed commercial paper,
collateralized bond obligations (CBOs), and repackaged asset vehicles. It
would be beneficial to have a solid combination of spreadsheet,
accounting, and legal skills. Most students coming out of school know
very little about this area; so you can get an edge through educating
yourself by reading articles from publications like Standard and Poors CreditWeek and picking up lingo like
"early-am risk" from talking to market participants on
informational interviews. Standard and Poors rates $2 trillion worth of
securities and has 800 analysts. These agencies are highly profitable and
grade the credit quality of companies and sovereign entities accessing
the markets. Most revenue comes from issuer fees. There is high demand
for persons who can rate structured finance and corporate bonds
intelligently. "We are not auditors and we don't use lie detectors,
so it's up to our analysts to be smart enough to ask the right questions,"
says Edward Emmer, executive managing director
and head of S&P's corporate ratings department.
Salaries
Starting salaries in
investment banking positions with a bachelor's degree after bonus
(assistant or junior analyst position) range up to $80,000. Starting salaries
with an MBA degree range after bonus (associate position) range up to
$250,000. These salaries vary with firms and with the region of the
country. Bonuses typically would be 50 to 100% of salary to start and can
move to three times salary or more later in your career. Lately, salaries
have increasingly included an equity component, which may not be liquid
for up to three years, although as an analyst you would typically be
sheltered from this. This is good for the banks because it makes it much
harder for people to move around. Generic salary advice: Some firms tend
to pay less than others because they can get away with it. You might
actually be better off taking less. Obviously don't give yourself away
but at the entry level, the quality of experience you get and the
strength of the people you will work with are far more important than how
much you get paid. You are trying to maximize the present value of your
future earnings and enjoyment. This may involve taking lower pay now. Or,
if you're lucky, it might not. Most banks are competitive and pay the
same across the entire Street.
Officers' Email Addresses
Please feel free to
contact either of the two Vice Presidents for Investment Banking at the
UMBS Finance Club with questions or comments.
Patty Yang
pcyang@umich.edu
Ben Johnston
bjohnst@umich.edu
Additional Research and
Information
Investment Banking Interview Questions
Mergers and Acquisitions Guide
Directory of Banks
http://www.yahoo.com/Business_and_Economy/Companies/Financial_Services/
Financing/Corporate_Finance/Consulting/Investment_Banks/
Business Websites
http://www.wallstreetcity.com/
http://www.cnnfn.com/
http://www.bloomberg.com/welcome.html
http://www.briefing.com/
http://www.businessweek.com/today.htm
http://www.vault.com
http://www.wetfeet.com
http://www.thedeal.com
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