A Career in
Investment Banking
Lafayette College
Easton, PA
November 8, 2013
Career Path / Education
2011 – Today

BMO Capital Markets (Bank of Montreal)
2007 – 2011

Banc of America Securities / BAML
1992 – 2007

Citigroup Investment Banking (Salomon Brothers)
1991

MBA, Finance, NYU – Stern
1987 – 1992

Bank of New York, Strategic Planning
1984 – 1987

KPMG Peat Marwick – CPA (NY)
1984

Lafayette College, A.B., Economics
1
Investment Banking Job Description
Assist
Companies
(the client)
in:

Buying other companies (or merger)

Selling businesses

Raising money (stock and bond offerings)
2
Investment Banking
Clients Pay Fees for Products and Services
Financial
advisory (Buy / selling companies; M&A)
Source idea (pitch)
 Negotiate transaction (execute)
 Valuation analysis (fairness opinion)

Underwriting
/ Capital Markets (Raising money)
 Assume the risk of distributing securities to investors
 Structure the security
 Market and sell to investors
– Valuation
3
Underwriting / Capital Markets
Objective:
Raise $
Cash $
Company
XYZ
Cash $
Investment
Bank
Security

Coordinates
between Issuer
and Investor

Determine
appropriate
size / price
Issuer Options:
Borrow
Sell
(Bond)
ownership (Stock)
Hybrid
(Convertible Bond)
4
Investor
Security

Owner of
security
How a Security is Priced
Traders
Issuer

HIGH price

Underwriting
Commission
Investor
Investment
Banker
Capital
Markets
Salesforce

LOW Price

Sales commission
Research
Analyst
Investment Bank Determines
Market-Clearing Price
5
Investment Banking Careers

Corporate Finance
Investment Banker

Trading
Trader

Sales
Bond / Equity Salesperson

Research
Research Analyst
(FI and Equity)

Product Specialist
Capital Markets
6
Career Path / Education Requirements
Investment
Banking Entry
Level Position
College

Business Degree
 Finance
 Accounting


Mathematics
Liberal Arts
 English
 History
 Economics
Go to
Business
School?
Financial
Analyst

Crunch numbers

Long hours

Great learning
experience
Earn MBA
Career Choices:
No


Yes
Program lasts 2–3
years

Select group promoted from
Analyst to Associate
Other finance jobs, eg,
hedge fund, private equity
Return
to investment
bank as Associate
Private
Equity
Hedge
Fund
Economist
Strategic
Planning
Accounting
7
The Path to Success

Highly analytical
 Comfortable with math
 Make the complex simple

Marketing / sales
 Idea generation / “break new ground”
 Make the simple interesting

Attention to detail
 Pitch books
 Prospectuses

Persistence / teamwork
 Maintain client relationships
 One out of ten pitches may land an assignment
 Competitive "fire"
8
Rewards of the Job

Creativity is encouraged

Every day and every deal is different

Meet interesting people

You see the results of your work in the newspaper

Travel
9
Challenges of the Job

The client is always right

The client has many “friends”

Long hours

“Roadmaps” don't apply
 Answers / agenda often not obvious

Travel
10
Companies That Provide Investment Banking
Traditional Investment Banks
Universal Banks
Include Other Banking Services and Other Businesses (Credit Cards)
11
BMO Target Market
Fee Share by Firm, TTM: % of Market, Companies with
EV $200MM – $5Bn (incl. Loan Syndications)
42.58%
5.67% 5.66% 5.57%
Companies with EV $200MM – $5Bn
Total IB Fees, TTM = $17,818MM
Firms outside of the top 9
competed for $6.3Bn
remaining IB fee wallet in F13;
~2x size of Canadian market
5.38%
3.26% 3.19%
2.75%
1.35%
0.91%
Top 5
Wells
Fargo
MS
Deutsche
Bank
Citi
Jefferies
RBC
UBS
BMO
Stifel
0.67% 0.60%
0.53%
Macquarie Raymond
James
Baird
0.39% 0.36% 0.30% 0.29%
0.24% 0.16%
Houlihan
Lokey
William
Blair
Piper
Jaffray
Nomura
Sandler
O'Neill
Oppenheimer
ECM
43.43% 4.80% 7.72% 5.13% 6.90% 2.78% 2.57% 2.39% 0.85% 1.92% 0.17% 1.56% 1.56% 0.02% 0.93% 0.95% 0.06% 0.33% 0.48%
M&A
38.52% 1.51% 6.31% 4.43% 5.44% 3.83% 1.81% 2.24% 0.41% 1.77% 1.15% 0.60% 0.49% 1.87% 0.52% 0.27% 0.30% 0.70% 0.11%
DCM1
43.29% 7.47% 5.30% 7.30% 5.94% 3.92% 4.41% 3.16% 1.41% 0.31% 0.55% 0.40% 0.10% 0.05% 0.04%
LOAN 43.83% 7.70%
YoY
(bps)
+291
-24
4.04% 5.74% 4.05% 3.01% 3.82% 3.11% 2.17%
-94
-32
+25
-17
-50
-2
-
-9
-15
Source: Dealogic, US IB Fees incl. Loan Synd (DCM, ECM, M&A, LOAN); TTM as of October 30, 2013
1. DCM excludes investment grade issuance
12
0.80% 0.02%
-12
-2
-
0.32% 0.07% 0.09%
-
-
-
-
0.44%
-
-
-2
+5
-7
-9
+9
-5
-3
My Lessons Learned
1. Understand before being understood
2. Make the complex simple; and make the simple interesting
3. Consider the source
4. Ask the second question
5. Sleep on it
6. Lead by example, not by cloning
7. Don’t oversell familiarity
8. Engage in face to face
9. Everyone’s allowed to have a bad day
10. Think different
13
Appendix
14
Issuing Common Stock (Ownership)
Today
Ownership of Company
Earnings of Company
100%
$10
Sell Ownership
Earnings
$2.00
20%
$8.00
80%
15
Issuing Debt (Bond)
Today
Ownership of Company
Earnings of Company
100%
$10
Ownership
Pay Interest
$1.00
$9.00
100%
16
Borrow Versus Sell Ownership Comparison
Earnings
Today
Company's Earnings Next Year
$10.00
ZERO
$1.00
$10.00
$20.00
($1.00)
ZERO
$9.00
$19.00
Bondholder:
$1.00
$1.00
$1.00
$1.00
You Get:
ZERO
$0.80
$8.00
Shareholder:
ZERO
$0.20
$2.00
Borrow
$10.00
$9.00
$1.00 Interest
You Get:
Sell Ownership of 20%
$10.00
$8.00
17
$16.00
$4.00
DECS: Debt Exchangeable into Common Stock
U.S. West
Owns
Interest
Choice to
Exchange
Interest for
Stock
FSA Insurance
18
Investor