Vault Career Guide to Investment Banking, Second Edition
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Introduction
I never set out to work at an investment bank. Truth be told, I had no idea
what investment banks did as I was selecting a college major and thinking
about potential career paths. I am fortunate to have parents who gave me the
most important gifts a child can receive: they loved each other and they loved
me. We never had much money growing up, but I believe I had one of the
most blessed childhoods I can imagine. My mother was a school teacher and
my father found his inner voice as an entrepreneur when I was about 12 years
old. He opened a pizza shop, and eventually owned rental real estate. My
father’s passion for business and his willingness to include me in his
decision-making process sparked my own interest in business. Neither of my
parents knew much about the world of high finance, but they planted the
seeds that would eventually grow into my passion for investment banking.
I majored in economics at Texas A&M University because I gravitated
towards quantitative studies and had an interest in how the world fit together.
Yet, I had no real idea of what people with economics degrees did for a
living. One day the chief economist for Texaco came to campus to talk about
his job. Listening to him, it struck me that there could be a world of
interesting applications for economics, and I decided to go to graduate
school.
One master’s degree later and still wondering what I could do with an
economics degree, I had my hands full with a new husband and baby son, and
the only economics I was focused on were of the home variety. After having
another son, the necessity of contributing to the family income drove me to
teach classes at the local university—which turned into doing some
consulting, and then some political consulting, and then my own radio show.
Life was interesting—not very lucrative, but very interesting. It was in these
early days of saying “yes” to the interesting professional opportunities that
came along that I established what eventually became my motto in life:
always remain curious, always push out of one’s comfort zone to try new
things, and always say “yes” to new opportunities for growth. This motto,
more than anything else, has been the root of my professional success—as I
define success as being fulfilled and enjoying the work that I do. I also see
my father, a fearless entrepreneur, as the role model who stands behind me,
despite his passing away decades ago. He gave me the courage not to worry
about the “right” career move but rather to focus on what brings me joy and
what I can bring passion to every day.
At the age of 30, I found myself living in Tulsa, Oklahoma, and applying for a
job on a commodities trading floor. I knew nothing at all about commodities
but my academic background had given me solid training in derivatives
pricing as well as programming. I found a job opening for someone who
could price the embedded options in physical oil and gas contracts, and then
code these models for the traders and risk managers to use. Not at all put off
by my lack of knowledge of the oil and gas industry, I set about to learn what
I could. Before long I was running the structuring desk for oil, gas, and
power, markets that had just been deregulated. I found that I loved working
on a trading floor—the pace and the challenge every day was invigorating.
But I missed personal interaction. As I learned more about the deals I was
structuring, I realized I wanted to work directly with clients. I wanted to
collaboratively find beneficial solutions to their financial challenges. So at
the age of 33, with two young children in tow, I moved to New York City for
my first job at a bona fide investment bank. And from that point on, I grew
from structurer to deal originator, from energy to all commodities, then to
running larger groups and managing traders, then to living abroad and running
yet larger teams focused on new regions, to eventually where I am today—
running a commodities, foreign exchange, and emerging markets platform in
the Americas.
I loved my job! That same curiosity, that ability to learn something new every
day, and that drive to solve problems was present in the work, every day. My
colleagues were some of the smartest people I knew, and every day we faced
a blank canvas, armed with nothing but our ideas. It could be humbling and it
was always challenging. Yes, I was lucky at times, but I am also a firm
believer that luck favors the prepared, and that I, indeed, worked hard to be
prepared. The following is what I have learned about how to be successful:
1. Work hard. Work harder than anyone else. Everyone you work with is
smart. So, work harder than you think you can—and then work harder
than that. If you don’t like working hard, be honest with yourself and
pick a different career.
2. It can’t be about the money—that will never sustain you. Do your job
because you really and truly think it is fun. If you aren’t waking up in the
morning saying “I can’t wait to get there,” do something else with your
life. Realize that every day, regardless of your profession, will have its
ups and downs, but if there aren’t more “ups” than “downs,” take stock
and find your passion.
3. Don’t be afraid. Who cares if someone thinks that your lateral career
move isn’t impressive? Who cares if you try and you fail? You may
even get fired. Learn from it. And you know what? Tomorrow is another
day. You can’t live in fear and you can’t regret not trying. Be bold. Do
what feels right in your heart about the decisions you make. Speak the
truth. Feel good about saying that you gave it your all.
4. Stay away from office politics; they are a cancer that will eventually
consume you. Remember the golden rule and treat everyone the way you
want to be treated. If coworkers gossip, stay above the fray. If there is a
“power play” in the office, make it clear that you are a professional and
are going to work with all your colleagues.
5. Really, really, really listen to feedback. We all hate to be criticized. Try
to learn to love it. Hear it. Think of negative feedback as a type of
training. Be honest about your weaknesses; we all have them. When you
are giving feedback, be lavish with praise when it is deserved and be
measured in your criticisms—again, the golden rule.
So how do you become an investment banker today? Most banks do the
majority of their junior hiring from their internship programs, so finding out
what the application process is like is key. Being very proactive about
getting an internship is still the most important step. Here are some tips on
landing an internship:
1. Be a great student—no kidding, grades matter.
2. Network, network, network: with LinkedIn and other tools that exist
today there is no excuse for skipping this step. Contact bankers who
graduated from your school, develop a dialogue, and ask for advice.
3. Get involved on campus and in life outside of school, with activities
that will make you a good employee (e.g., sports, military service,
community service, a passion for entrepreneurship, technological
innovation, the list goes on). But “box checking” exercises can be
spotted a mile away. Genuine engagement is required.
4. Learn about the bank you want to join and about the industry. Again, so
much publicly available information at your fingertips makes this a nobrainer. You are competing against people with a deep passion for
banking. If you don't have this, figure out what you are passionate about
and do that instead.
An internship is an extended interview, so never forget that you are being
evaluated for the job during every day of that eight-week program. You can
move laterally into banking from another profession, but that means even
more vigorous networking and mapping your skills to a need you can
proactively market.
We stand today at a time of great flux in the world of investment banking. I
strongly believe that we will look back in a few years and say, “That is when
it all changed.” These trends include massive regulatory changes, increased
electronification of trading platforms, pressure on profit margins, and the
financial crisis calling into question the very purpose of banks. But there is
also great reason for optimism! The pressures on investment banks have
created greater alignment between the services that clients—and by clients, I
mean society in general—need, and what banks deliver. To survive, banks
need to be client-centric or go the way of the dinosaur, a change that is long
overdue. Furthermore, the banking industry today has to solve many
challenging problems to make the equation of costs, capital requirements, and
revenue result in adequate profitability for shareholders to be willing to
invest. Today, investment banking is at the forefront of innovation. The
advent of fintech (financial technology) and the adoption of other potentially
game-changing technologies like blockchain are just the beginning of a new
revolution in the industry. So, I continue learning. I am not sure what
investment banking will look like in 10 years, but I am honored and
privileged to have a front row seat! If you have what it takes, there just may
be a spectacular future ahead for you in investment banking. Good luck!
—Catherine Flax, Advisor, Board Member, Leadership Coach
About the Authors
Catherine Flax is a Managing Director at CRA, Inc., focusing on providing
leadership coaching to executives in financial services, fintech, commodities,
professional services, and the nonprofit sectors. She brings decades of
expertise in business and strategic growth, innovation, talent development,
regulatory affairs, diversity and inclusion, and more. Prior to this, Catherine
was the CEO of Pefin, the world’s first artificial intelligence financial
advisor, and before Pefin, she was the Managing Director and Head of
Commodity Derivatives, Foreign Exchange and Emerging Markets Sales and
Trading for the Americas at BNP Paribas; she has occupied many other
leadership roles as well, including Chief Marketing Officer of J.P. Morgan.
Catherine has been a leader in financial services, serving on the boards of
many organizations. She currently is on the advisory board of Jai Kisan
(India), Darisami (Mauritius), Parameter Insights (Canada), and the Living
Centerline Institute (U.S.). She was formerly on the board of the Securities
Industry and Financial Markets Association, as well as of Digital Asset
Holdings, a market leading blockchain company. She also advised Pefin for
two years in matters of marketing, regulation, business development, and
international growth prior to becoming CEO.
Catherine has won numerous accolades, including the honor of "Most
Influential Woman in European Investment Banking" in 2012 and a spot on
the list of the "100 Most Influential Women in European Financial Markets"
in 2010 and 2011. A longtime champion of diversity, she has also served on
the J.P. Morgan Investment Banking Inclusive Leadership Council, as well as
on the J.P. Morgan Chase Diversity Council.
Service to the community has always been a priority for Catherine, who has
worked with a number of significant nonprofit organizations. She is currently
on the board of Cristo Rey Brooklyn, a college preparatory high school
serving residents of New York City who come from families with extremely
limited economic means. Catherine is on the Wall Street advisory council for
the Texas A&M University Mays Business School. Her contributions led her
to being inducted into the Academy of Women Leaders by the YWCA.
Catherine has a bachelor’s degree in economics and finance from Texas
A&M University, and a master’s degree in economics from Brown
University. She lives in New York with her husband and has three sons and
one beautiful granddaughter.
Andrew Morkes is the founder and editorial director of College & Career
Press in Chicago, Illinois. He has written about college- and career-related
topics for more than 25 years. Andrew has written and edited many books for
Ferguson’s, including the Encyclopedia of Careers & Vocational
Guidance and many volumes in the Careers in Focus, Discovering
Careers, and Career Skills Library series. He is also the author
of Nontraditional Careers for Women and Men: More Than 30 Great Jobs
for Women and Men With Apprenticeships Through PhDs; College
Spotlight newsletter, and They Teach That in College!?: A Resource Guide
to More Than 100 Interesting College Majors, which was selected as one
of the best books of the year by the library journal Voice of Youth
Advocates. Andrew is the author and publisher of “The Morkes Report:
College and Career Planning Trends” blog. His poetry has appeared
in Cadence, Wisconsin Review, Poetry Motel, Strong Coffee, and MidAmerica Review.
The Basics
Overview
What is investment banking? Is it investing? Is it banking? Really, it is
neither. Investment banking, or I-banking, as it is often called, is the term
used to describe the business of raising capital for companies and
governments and advising them on financing and merger alternatives. Capital
essentially means money. Companies need cash in order to grow and expand
their businesses; investment banks sell securities (debt and equity) to
investors in order to raise this cash. These securities can come in the form of
stocks, bonds, or loans. Once issued, these securities trade in the global
financial markets.
Investment banks acts as intermediaries between an issuer of securities and
the investing public, distributing an offering through their dealer networks or
direct sales to clients. Services offered, in addition to underwriting, typically
include asset securitization, structuring corporate mergers and acquisitions,
and arranging private placements of debt or equity securities. When working
with clients, an investment banker offers his or her expert advice and
counseling on pricing securities to be offered for sale, filing the registration
documents with government agencies, managing the sales distribution
syndicate, and communicating periodically with the investor community.
Investment banks, in addition to the services mentioned above, have an array
of investment products and services which they offer clients through private
banking or wealth management divisions, or through their broker-dealer
networks. Clients have a wide variety of investments to choose from,
including mutual funds, separately managed accounts, private equity, and
hedge funds.
Investment banks, too, see their fortunes rise and fall with the rhythm of the
economy. An investment bank’s lifeline is its ability to gauge the market
cycle months, if not years, in advance to keep its deal pipeline flowing. The
largest banks have a competitive advantage because large transactions
require the financial muscle that only a handful of deep-pocketed investment
banks can offer.
In the largest investment banks, typically called the bulge bracket banks
because they are active players in every part of a new securities offering,
there are several distinct career fields: equity research, fixed-income
research, sales and trading, capital markets (the classic mergers and
acquisitions area), and asset management for retail (individual) investors and
institutional clients (pension funds, governments, etc.). Boutique I-banks,
smaller firms that specialize in one or more fields, will concentrate in two or
more of these functional areas. Some of these positions offer plenty of
mobility, most often from analyst positions into capital markets or asset
management.
Careers in investment banking can be extremely lucrative. New graduates
with MBAs can earn $100,000 to $300,000, and they also receive healthy
bonuses. Managing directors earn minimum base salaries of $500,000 (but
many earn millions of dollars a year) and annual bonuses of $250,000 to
$500,000, according to WallStreetOasis.com, a financial industry career
planning Web site.
The U.S. investment banking industry includes about 3,400 companies with
combined annual revenue of about $40 billion in 2018, according to
Dealogic, a financial markets platform. Worldwide, investment banks
generated $81 billion in revenue in 2018. The 50 largest firms generate more
than 90 percent of the industry’s revenue, according to Hoover’s, a business
research company. Major investment banks include Goldman Sachs, Lazard,
Bank of America's Merrill Lynch, Morgan Stanley, and Jefferies.
The investment banking industry is facing increased disruption as its
traditional profit centers are eroded by competition from financial technology
companies, which use technology to provide some investment banking
services to customers; increasing regulations (in some countries);
competition from dedicated investment management firms such as Vanguard;
and other developments. “From initial public offerings, to mergers and
acquisitions, to research and trading, investment banks are getting smaller,
leaner, and scrambling to keep up with innovations,” according to Killing the
I-Bank: The Disruption of Investment Banking, from CB Insights, a
company that “analyzes data on private companies in emerging industries to
provide predictive intelligence.”
Primary Products and Services
Investment banks raise capital for businesses. They make the capital markets
more efficient by arranging the exchange of money between different
economic groups. Also they help corporations and government agencies raise
capital by selling securities to investors, and on the other side of the
transaction they help investors find vehicles where they can safely invest
their capital in the most efficient manner and at the lowest cost. Investment
banks are experts at creating financial instruments that match up the opposing
interests of issuers and investors.
Investment banks provide a wide range of services from underwriting a
public offering of securities and trading in securities, to advising
corporations on mergers, restructuring, acquisitions, and divestitures. Most
of an investment bank’s income is earned from fees or commissions earned
on the sale of securities and also from trading activities.
Once limited to arranging the public sale of debt or equity securities through
underwriting, investment banks have a vastly expanded role today. In recent
decades the activities of investment banks have come to include advising
corporations on mergers and acquisitions, risk management, wealth
management, private placements, and proprietary trading.
Primary activities of investment banks still fall into three different
categories: corporate finance, capital markets, and wealth management for
private clients. The bread and butter for most investment banks, or where
they make their money, is mostly in their trading activities and securities
underwriting by managing an issuer’s initial public offering (IPO) or followup offerings of additional securities. Underwriting an IPO for a hot new
company—Facebook is a good example—gets a lot of headline-grabbing
attention, but most IPO’s are routine affairs that don’t attract anywhere near
that amount of interest.
Wall Street firms are extremely creative in coming up with new products that
slice and dice a securities offering and carve out entirely new markets for
these offerings. Years ago, a bright line distinction existed between debt and
equity securities. Today that distinction is fuzzier as many classes of
securities, convertible bonds, or certain types of preferred stock for instance,
have both debt and equity features. Structured finance deals, which pool
large portfolios of home mortgages, credit card loans, and even commercial
mortgages, are a big part of the business today. This is generally done by
creating marketable securities that pool assets, allocate the liabilities into
different investment pools (called “tranches”) with different risk
characteristics, and sell the securities through an independent legal entity.
The securitization process makes possible better allocation of capital and
distributes ownership risks through a larger group of investors. Investment
bankers see the structured finance/securitization business as a lucrative
source of fee income, largely from the advisory fees charged to the issuing
companies, the investors in structured finance deals, or both parties.
Mergers and acquisitions (M&A) are front page, headline-grabbing deals.
The huge takeover battles of the late 1980s—the RJR Nabisco hostile
takeover by KKR put M&A deal making in the spotlight—but it’s not all
hostile tender offers and defensive battles. Most M&A deals are friendly
affairs arranged on terms amicable to both sides. Investment bankers seek
ways to optimize transactions—that is negotiating the best price everyone
can live with. That price may not be the highest price sellers are willing to
offer or the lowest bid price but something in between. Investment bankers
search out, facilitate, and price leveraged buyouts by private equity firms,
arrange the restructuring and recapitalization of companies exiting lines of
business, and reorganize troubled companies emerging from bankruptcy.
Financial advisory service is another big segment of the investment banking
business. Advisory services have grown dramatically along with the growth
in hedge funds and private equity funds managed or advised by investment
banks. Advisory services include raising capital for investment funds,
financing acquisitions, and handling the initial public offerings of portfolio
companies owned by hedge funds or private equity funds. Investment bankers
like the advisory business because the deals generate hefty fees and the deal
pipeline in private equity transactions can stretch out for months in a major
investment bank.
Other important investment banking services are risk management, merchant
banking, and proprietary trading of debt and equity securities. Risk
management involves taking hedging positions in interest rates, foreign
currencies, commodities, and financial instruments through swaps, options,
and futures. Swaps are negotiated in the over-the-counter market or traded
through an organized futures and options exchange. These transactions work
because the parties to a deal often have dissimilar credit ratings and
financing needs. Both sides can effectively structure a deal that meets their
financing requirements and risk tolerance. An investment bank’s risk
management group applies its expertise in many different financial
instruments to develop a hedging strategy best matching a client’s needs.
The trading desk in an investment bank is a sizable, though volatile, profit
center. There is huge upside potential when a shrewd market bet pays off. On
the other hand, profits can evaporate overnight in a market sell-off. Trading
profits are made both from commissions from trading on behalf of clients and
also from capital gains from securities held in the firm’s own account (also
known as “proprietary trading”). Investment banks can work as brokers (who
buy or sell according to client instructions), dealers (who act as principal
and take an ownership stake), or market makers (who try to maintain stable
prices in a security or market, depending on what’s being traded).
Besides stocks and bonds, investment bank trading desks actively trade
money market instruments, precious metals and commodities, junk bonds,
credit swaps, and so forth—almost any product where they can find a buyer.
The explosive growth of alternative investment—private placements, hedge
funds, and similar investments—opened entirely new trading opportunities in
the last 10–25 years.
Investment bankers are especially talented at taking off-the-shelf, plain
vanilla securities, tweaking them a little, and whipping up customer demand
through their trading desks or broker-dealer affiliates. A good example here
is the zero-coupon mortgage bond. By “stripping” off the interest coupons
from ordinary bonds, the banks came up with an entirely new class of
securities. These IO (interest only) or PO (principal only) strips appealed to
investors who wanted to own either bond interest payments or bond
principal, but not both, depending on their outlook on interest rates and
market trends.
Finding new market opportunities like IO or PO strips plays on one of the
investment bank’s most visible strengths—its securities analysis and research
team. Many investment banks use their research group’s stock-picking and
research expertise to develop underwriting, private client wealth
management, and money management businesses. The research team also
plays an advisory role in the mergers and acquisitions side of the firm.
Typical subdivisions are Global Equity and Fixed Income research. Today,
an investment bank’s research units maintain an arms-length relationship with
the finance and sales side of the bank—the so-called “Chinese wall”
between corporate finance and investment research to avoid the appearance
of any conflicts of interest. Numerous scandals dating to the dot-com bust of
2000 and the Great Recession (December 2007 to June 2009) and subsequent
prosecutions require investment banks to vigorously enforce this in-house
compartmentalization.
Wealth management is a burgeoning business sector, an outgrowth of the vast
accumulation of private wealth over the last 30 years. Wealth management
units service the needs of big institutional clients (pension funds,
endowments and foundations) and also very wealthy individuals. The
departments serving private clients are typically referred to as the “private
banking” or “private client” units of the bank. Wealth management units
compete for market share with trust companies, trust departments of
commercial banks, and investment management firms. Billions of dollars are
at stake in this business.
Beyond the borders of the U.S. domestic market is the international
investment banking market. Globalization is a watchword in the world of
multinational corporations, development banks like the World Bank, and
emerging market countries. Growth is highest in the emerging markets in Asia
and South America, which presents extensive M&A and underwriting
opportunities. All major investment banks have a presence in the developed
markets (Europe, Australia) and the developing markets around the world.
Uppers and Downers
Uppers
Exciting, fast-paced work environment. You’ll get a chance to work on
demanding, but interesting, deals.
Financially rewarding. New graduates with MBAs can earn $100,000
to $300,000, and have the potential to receive lucrative bonuses based
on their performance and the performance of their firms.
Excellent training programs. Most investment banks provide quality onthe-job training and continuing education programs that will help you to
hone your skills and obtain experience with high-profile transactions.
Many potential career paths. Skilled and experienced investment
banking professionals can either advance to managerial positions at
their firms or move on to work at private equity, venture capital, or
financial consulting firms, or launch their own businesses. Even if you
find out that the world of investment banking is not for you after a few
years, the experience you obtain working at a high-profile company will
look great when you apply for finance-related careers at corporations,
nonprofits, or financial regulatory agencies.
Interesting coworkers. Investment bankers are typically extremely smart
and multi-faceted. Although work hours can be long in this business,
many investment banking pros cite the chance to work as a member of a
team of like-minded people as one of the most rewarding aspects of the
industry.
Downers
Entry-level opportunities in top-tier firms may be limited to those with
outstanding credentials as firms continue to trim operating expenses to
meet profitability goals.
The work week in investment banking is long, often exceeding 50-60
hours (including weekends), limiting opportunities for social activities
outside the working environment. New hires should expect to have
projects that are due at 9 a.m. the next morning assigned to them as they
are literally walking out the door at the end of the day. Higher-level
workers will be expected to jump on a plane or train at a moment’s
notice to help close a deal.
Lack of geographic freedom. Job opportunities are centered in New
York City and a few other money centers in the world such as London
and San Francisco. If you don’t already live in one of these cities, you
may have to move to land a job.
Demanding work environment. Investment banks can be a tough place to
work, with unforgiving bankers and expectations through the roof.
Although decreasing, stories of analyst abuse run rampant and some
bankers come down hard on new analysts simply to scare and intimidate
them. Entry-level workers should expect to do a lot of grunt work—
booking meeting rooms, organizing client dinners, photocopying, and
fetching coffee.
Diversity issues. Investment banks have had a long reputation of being
unfriendly to minorities and women (especially in terms of providing
opportunities to advance to executive-level positions). Minorities
should expect to be trailblazers at some companies, although the larger
firms such as Goldman Sachs and Credit Suisse have launched diversity
programs to increase the number of women and minorities in the field.
History
Background
Investment banks as we know them today have their roots in the merchant
bankers of the 19th century. The merchant bankers dabbled in foreign
exchange trading for clients, but also handled project financing, pooling their
own capital alongside contributed funds from wealthy individuals. The
merchant bankers of that era, inspired by their counterparts in Great Britain
and Europe—Barings Brothers, Morgan Grenfell, and the Rothschilds—
financed the building of the Erie Canal, the early railroads, and other
infrastructure projects. Investment firms like J. P. Morgan & Co., Dillon
Read, and Drexel & Co. were major players in raising and deploying
investment capital.
Later, in the post-Civil War era, the modern investment bank began to take
shape, led by financiers Jay Cooke, J. P. Morgan, and others. A new business
model came on the scene. Companies interested in raising capital began
selling securities in the public markets. Investors holding common stock had
a fractional ownership interest in the issuing company and the right to sell
their stock shares to other investors through an organized securities exchange
like the New York Stock Exchange. The financial firm became an active
partner of the issuing company: acting as underwriter of the financing,
distributor of the resulting public offering, and a jack-of-all-trades attending
to the miscellaneous transaction details. Firms like Goldman Sachs, Lehman
Brothers, Salomon Brothers, and Bache & Co. became household names
during this period. Some firms, like J. P. Morgan & Co., ventured into
commercial banking. These banks accepted deposits from bank customers
and made business loans.
The early 20th century witnessed some huge financings and mega-fortunes on
Wall Street. In 1901 J. P. Morgan astounded the financial world by cobbling
together a number of steel manufacturers, creating U.S. Steel Corporation in a
billion-dollar merger. Creation of the Federal Reserve System in 1913,
following the banking panic of 1907, gave the nation a strong central bank for
the first time in U.S. history.
In the early decades of the 20th century, investment banking grew
tremendously, riding the surge in stock ownership by the investing public. By
the 1920’s stock prices had reached unsustainable “bubble” heights. The
stock market crash in 1929 and the Great Depression that followed
convinced many in government that the financial marketplace, lightly
regulated through much of its history, needed stronger supervision to protect
the interests of average Americans.
In the 1930s, financial market reforms fundamentally reshaped the industry,
with investment banking formally separated from commercial banking by the
Glass-Steagall Act of 1933. Today, the very largest banks in either category
compete directly with one another for business. Additionally, the Securities
Act of 1933 became the blueprint for how investment banks underwrite and
distribute securities to the public.
Banks on the investment side of the business helped finance the post-World
War II industrial boom. Among these were Morgan Stanley, Goldman Sachs,
First Boston, and Lehman Brothers. On the commercial banking side, First
National City Bank (later Citibank), Bank of America, Chase Manhattan, and
Wells Fargo were the leading players.
In the last half of the 20th century investment banks gradually shed their
stodgy “white shoe” image. Banks that started out as private firms owned by
senior partners switched to public ownership to tap the surging equity
markets. The repeal of fixed-price brokerage commissions in 1975 was a
turning point for the industry, accelerating the adoption of a new business
model: the integrated investment bank. The integrated bank combined sales,
trading, research, and investment banking—all under one roof. The 1980s
and 90s were heady times, capped by an eye-popping number of initial price
offerings in 1999—548 IPO’s, many by start-up Internet companies.
The first decade of the 21st century witnessed another surge in investment
banking activity, followed by a bust—the 2008 financial crisis, which is
considered the worst financial crisis since the Great Depression. The
Depression era Glass-Steagall separation of commercial banking from
investment banking was finally removed in 1999. In more recent history,
though, the defining event is the financial crisis of 2008 and its aftermath.
Pure investment banks like Goldman Sachs and Morgan Stanley converted to
bank holding companies—at the expense of more supervision by banking
regulators—to get government bailout money.
Following the events of 2008, investment banking is in the midst of a
transition period. Some banks have retreated from their trading activities,
instead focusing on expanding their wealth management divisions. Fintech
companies and dedicated investment management firms are competing with
investment banks for business. As a result, employment of investment
bankers, sales workers, research analysts, and traders has declined, but new
opportunities have emerged for quantitative analysts, machine learning
engineers, artificial intelligence scientists, programmers, risk managers, and
information security specialists.
Defining Events
There have been many events, laws, and developments that have shaped the
investment banking industry. For example, the Gramm-Leach-Bliley Act,
which was signed by President Bill Clinton in 1999, allowed banks,
insurance firms, and investment banks to affiliate under the umbrella of a new
entity, a financial holding company. Under the new system, banking,
insurance, and securities activities are “functionally regulated,” with the
Federal Reserve given authority to supervise and inspect records of the
newly created financial holding companies. When the financial crisis
occurred in the late 2000s, some major investment banks, such as Goldman
Sachs, had to restructure their businesses into bank holding companies in
order to accept government bailout funds. In addition, the effects of
technological change on investment banking over the past 40 years cannot be
ignored. For example, the arrival of cheap desktop personal computers in the
1980s at the big investment banks opened up whole new worlds of financial
modeling. These modeling techniques, the Black-Scholes options pricing
model being a well-cited example, were a door opener for all kinds of
financial modeling techniques, pricing scenarios, and securities trading.
Market-making and proprietary trading, putting the firm’s own money at risk,
became a major profit center, surpassing revenues from the traditional
broker-dealer lines of business. The passage and repeal of the Glass-Steagall
Act, the Great Recession of December 2007-June 2009, and slowly
increasing opportunities for women investment banking professionals are
other noteworthy events in the investment banking industry.
The Rise and Fall of Glass-Steagall
The famous Glass-Steagall Act, enacted in 1934, erected barriers between
commercial banking and the securities industry. A piece of Depression-era
legislation, Glass-Steagall was created in the aftermath of the stock market
crash of 1929 and the subsequent collapse of many commercial banks. At the
time, many blamed the securities activities of commercial banks for their
instability. Dealings in securities, critics claimed, upset the soundness of the
banking community, caused banks to fail, and crippled the economy.
Therefore, separating securities businesses and commercial banking seemed
the best solution to provide solidity to the U.S. banking and securities’
system.
In later years, a different truth seemed evident. The framers of Glass-Steagall
argued that a conflict of interest existed between commercial and investment
banks. The conflict of interest argument ran something like this: 1) A bank
that made a bad loan to a corporation might try to reduce its risk of the
company defaulting by underwriting a public offering and selling stock in that
company; 2) The proceeds from the IPO would be used to pay off the bad
loan; and 3) Essentially, the bank would shift risk from its own balance sheet
to new investors via the initial public offering. Academic research and
common sense, however, has convinced many that this conflict of interest
isn’t valid. A bank that consistently sells ill-fated stock would quickly lose
its reputation and ability to sell IPOs to new investors.
In the late 1990s, before legislation officially eradicated the Glass-Steagall
Act’s restrictions, the investment and commercial banking industries
witnessed an abundance of commercial banking firms making forays into the
I-banking world. The feeding frenzy reached a height in the spring of 1998. In
1998, NationsBank bought Montgomery Securities, Société Génerale bought
Cowen & Co., First Union bought Wheat First and Bowles Hollowell
Connor, Bank of America bought Robertson Stephens (and then sold it to
BankBoston), Deutsche Bank bought Bankers Trust (which had bought Alex.
Brown months before), and Citigroup was created in a merger of Travelers
Insurance and Citibank. While some commercial banks have chosen to add Ibanking capabilities through acquisitions, some have tried to build their own
investment banking business. JPMorgan stands as the best example of a
commercial bank that entered the I-banking world through internal growth,
although it recently joined forces with Chase Manhattan and, more recently,
BankOne to form JPMorganChase. Interestingly, JPMorgan actually used to
be both a securities firm and a commercial bank until federal regulators
forced the company to separate the divisions. The split resulted in JPMorgan,
the commercial bank, and Morgan Stanley, the investment bank. Today,
JPMorgan has slowly and steadily clawed its way back to the pinnacle of the
securities business, and Morgan Stanley has merged with Dean Witter to
create one of the larger I-banks on the Street.
So why did it take so long to enact a repeal of Glass-Steagall? There were
several logistical and political issues to address in undoing Glass-Steagall.
For example, the Federal Deposit Insurance Corporation and the Federal
Reserve regulate commercial banks, while the Securities & Exchange
Commission regulates securities firms. A debate emerged as to who would
regulate the new “universal” financial services firms. The Fed eventually
won with then Fed chairman Alan Greenspan defining his office’s role as that
of an “umbrella supervisor.” A second stalling factor involved the
Community Reinvestment Act (CRA) of 1977—an act that requires
commercial banks to reinvest a portion of their earnings back into their
community. Senator Phil Gramm (R-TX), Chairman of the Senate Banking
Committee, was a strong opponent of this legislation while then-President
Clinton was in favor of keeping and even expanding CRA. The two sides
agreed on a compromise in which CRA requirements were lessened for
small banks.
In November 1999, Clinton signed the Gramm-Leach Bliley Act, which
repealed restrictions contained in Glass-Steagall that prevent banks from
affiliating with securities firms. The new law allowed banks, securities
firms, and insurance companies to affiliate within a financial holding
company (“FHC”) structure. Under the new system, insurance, banking, and
securities activities were “functionally regulated.”
The Great Recession
In 2007 the United States began to suffer through a financial crisis that many
economists believe was the worst downturn since the Great Depression.
During the crisis, which lasted from December 2007 to June 2009 and has
become known as the Great Recession, the U.S. housing market crashed,
many people who had taken out subprime mortgages lost their homes, and
interbank credit markets dried up, causing the failure of many banks and
businesses. During this time, several major investment banks failed. Lehman
Brothers declared bankruptcy and went into receivership. Merrill Lynch was
acquired by Bank of America for much less than its market value. And Bear
Stearns was acquired by JPMorgan for pennies on the dollar.
The federal government stepped in to bail out some financial institutions
(such as mortgage giants Freddie Mac and Fannie Mae) that it deemed “too
big to fail.” It allowed other banks, such as the aforementioned Lehman
Brothers, to fail. Congress approved a $700 billion rescue package for the
financial sector, and the U.S. Department of the Treasury required even
healthy banks to accept Troubled Asset Relief Program (TARP) funds to help
encourage confidence in the banking sector. It also purchased outright the
problematic financial assets (mortgage backed securities) of some banks.
Some investment banks, such as Goldman Sachs, had to restructure their
businesses into bank holding companies in order to accept TARP funds.
In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer
Protection Act, which increased regulation of the financial industry and
offered improved protections to consumers. The Act requires all investment
management firms with more than $150 million in assets under management
to register with the Securities and Exchange Commission, bank holding
companies with more than $50 billion in assets to abide by stringent liquidity
and capital standards, and financial institutions to take on higher levels of
credit risk regarding the sale of asset-backed securities, among a variety of
other rules. Additionally, the Volcker Rule, a provision of Dodd-Frank,
restricts banks from conducting certain investment activities with their own
funds and prohibits them from investing in or sponsoring venture capital,
private equity, and hedge funds in most cases.
The Great Recession and the ensuing legislation geared to rein in the
excesses of the financial industry had and continue to have a profound effect
on the investment banking industry. Some banks, such as Deutsche Bank,
Credit Suisse, RBS, and UBS, have retreated from their equity sales and
trading activities (instead, focusing on more lucrative wealth management
services and lending to companies; Morgan Stanley’s acquisition of Smith
Barney is just one example of this trend). Goldman Sachs, one of the largest
investment banks in the world, has developed a retail banking business.
Others have pulled back from certain markets or become niche players
because they realize that they can no longer be all things to all people and
because they are seeking to cut costs amidst falling revenue.
These developments have also prompted significant cuts in staffing. The
number of investment bankers, sales workers, research analysts, and traders
has declined in the last decade. Many people leave the field because of the
long work hours, limited chances of advancement (for some positions), and
other factors. “After years of job cuts and reorganizations, most of the
world’s biggest investment banks do very little investment banking today,”
according to the Financial Times. “Of the 10 largest global banks only two
—Goldman Sachs and Morgan Stanley—still make the most of their revenue
from their investment banking operations, compared with six before the
global financial crisis.”
Women Slowly Break the Glass Ceiling
The investment banking industry has traditionally been a man’s world
(especially in front-line deal-making and advisory positions, as well as in
managerial- and board-level positions). But this is slowly changing.
Approximately one-third of all employees in the U.S. investment banking and
securities dealing industry are women, according to the U.S. Equal
Employment Opportunity Commission. This percentage could be much
worse, but it is still far lower than the percentage of women (about 47
percent) in the U.S. workforce. The more sobering statistics relate to women
in leadership positions. Less than 17 percent of executive/senior-level
positions in the I-banking industry are held by women, according to Catalyst.
In 2019, women comprised only 27 percent of board members at Barclays,
25 percent at Credit Suisse, and 18 percent at JPMorgan Chase & Co.
Goldman Sachs (37 percent) and Morgan Stanley (31 percent) rank slightly
higher.
Although the overall number of women in the I-banking industry has risen
over the last decade, the number of women in leadership positions is still
appallingly low—even if it has inched slightly higher in recent years. These
low stats are also ironic because studies by Catalyst, the Credit Suisse
Research Institute, and other organizations find that companies with
significant numbers of women on their corporate boards typically outperform
those with no female board members.
In the past decade or so, many large investment banks have increased their
efforts to create a more diverse workforce. For example, Credit Suisse offers
the Sophomore Diversity Program, in which outstanding women from
traditionally underrepresented backgrounds (Black/African American,
Hispanic/Latino, and/or Native American descent) learn more about asset
management, global markets, information technology, and investment banking
and capital markets. It also offers a Women's Mentor Program, in which
female college sophomores learn about the industry, work with a mentor, and
attend a multi-day career development program in its New York City office.
Participants also have the opportunity to apply for an internship during their
junior year of college. Goldman Sachs offers an Undergraduate Camp, an
interactive multi-day program for Black, Latino/Hispanic, Native American,
and/or first generation college freshmen and sophomores of all majors.
Participants learn about the financial services industry and participate in
interactive case studies, group projects, technical and soft skills training, and
networking with Goldman Sachs professionals. It also offers a MBA
Women’s Symposium, a multi-day event for first-year female MBA students
who would like to learn more about the financial services industry and
summer internship opportunities. Professional associations such as the
American Bankers Association and the Accounting & Financial Women’s
Alliance are also striving to improve diversity in the field—especially in
top-level positions.
State of the Industry
Structure
Investment banks generally fall into three groups, the very large “bulge
bracket” banks, specialist firms that specialize in one or two industries, and
small broker-dealers, who trade securities for their own benefit or for
customers. Full-service investment banks usually provide both advisory and
financing services, as well as the sales, market making, and research on a
broad array of financial products including equities, credit, rates, currency,
commodities, and financial derivatives. It is very common for one bulge
bracket bank to be competitive in investment banking, commercial banking,
asset management, private equity, venture capital, mortgage finance, and
more. Investment bank clients include corporations, other financial
institutions, pension funds, government agencies, and hedge funds.
Most investment and commercial banks have a financial holding company
structure, which serves as a shell corporation that issues common stock, the
bank’s equity capital, financing the bank’s activities. The bank’s equity
capital also serves as a financial backup in the event of any write-offs from
bad loans or investments. Below is a list of the 10 largest U.S. bank holding
companies and their location as of March 31, 2019, according to the Federal
Reserve Board.
1. JPMorgan Chase & Co., Columbus, OH
2. Bank of America Corp., Charlotte, NC
3. Wells Fargo & Co., Sioux Falls, SD
4. Citigroup/Citibank, Sioux Falls, SD
5. U.S. Bancorp, Cincinnati, OH
6. PNC Financial Service Group, Wilmington, DE
7. Capital One Financial Corporation, McLean, VA
8. TD Bank, Wilmington, DE
9. Bank of New York Mellon Corp., New York, NY
10. State Street, Boston, MA
As a result of deregulation, investment banks have become more like
commercial banks and commercial banks more like investment banks. This
transformation came about through enabling legislation, the Financial
Modernization Act (also called the Gramm-Leach-Bliley Act) of 1999,
which gave the legal okay for investment banks and insurance companies to
affiliate with commercial banks. Financial holding companies are overseen
by the Federal Reserve, the federal agency overseeing activities of bank
holding companies and banking subsidiary companies. Non-bank
subsidiaries are subject to functional regulation. For example, the Securities
and Exchange Commission oversees a banking company’s broker-dealer
subsidiary. By regulation, a financial holding company must have at least 85
percent of its assets in financial services; they have to divest all nonfinancial services within 10 years of the date they switch to a financial
holding company.
Investment banks are typically split up into three distinct parts: the front
office, middle office, and back office. The front office is where the bank
generates its revenue. It has three primary divisions: investment banking (Ibank), sales and trading, and investment research. Investment bankers in the
I-bank division help clients raise money in the capital markets. They also
advise clients on financial topics like stock buybacks, mergers and
acquisitions, and corporate restructurings. The sales and trading division is
where an I-bank buys and sells products (stocks, bonds, commodities,
foreign exchange, and so on). Traders in the sales and trading division act on
the bank’s account, using the firm’s capital to place bets where they see
opportunities to make money or acting on client instructions. Research is
where the bank reviews companies and industries. Research analysts write
reports on expected earnings in companies and the industries they follow.
Other front-office divisions cover related activities, such as commercial
lending, merchant banking, investment management, and global transaction
banking.
The middle office typically covers financial risk controls and reporting.
There is a significant level of interaction between middle and front offices to
make sure the bank’s trading and underwriting activities aren’t putting too
much of the bank’s capital at risk. Typical middle office activities include
compliance, financial control, corporate strategy, corporate treasury, and risk
management.
The back office is the unseen but vitally important section of the I-bank,
providing securities settlement and record keeping services so front office
bankers can do their jobs and make money for the bank. The back office
provides operational and information technology support to the front and
middle office parts of the bank.
Snapshot of the Industry Today
The U.S. investment banking industry includes 3,400 companies with
combined annual revenue of about $40 billion in 2018, according to
Dealogic, a financial markets platform. Investment worldwide earned $81
billion in 2018. Investment banking is highly concentrated: the cost of capital
tilts the competitive playing field in favor of the largest banks. The 50 largest
firms generate more than 90 percent of the industry’s revenue, according to
Hoover’s, a business research company. Investment banking is capital
intensive and labor-intensive industry, yet it delivers a very high-value
product.
In the securities industry, the largest number of firms can be found in New
York City, with smaller pockets in financial centers like Atlanta, San
Francisco, Chicago, Los Angeles, Charlotte, Dallas, and Seattle. In addition,
some banks are moving some of their operations to cities where the cost of
living is much lower than it is in New York City, Los Angeles, and Chicago.
For example, Goldman Sachs has developed a strong presence in Salt Lake
City, Utah, in recent years. Overall, the securities industry employed about
950,000 workers, according to the U.S. Department of Labor. About 19
percent of the industry’s employees work in New York City. Many of the
largest U.S. companies also have offices in foreign countries.
The Players
The big firms—the so-called “bulge bracket” companies—have a substantial
advantage over the competition because they have the financial resources and
economies of scale to finance almost any size deal. These are known
informally as bulge bracket banks because the largest banks can take the
largest share of a stock offering, buyout deal, or any other type of financing.
The biggest investment banks include JPMorgan Chase, Goldman Sachs,
Bank of America Merrill Lynch, Morgan Stanley, Citigroup, Deutsche Bank,
Credit Suisse, and among others. Of course, the complete list of I-banks is
substantially more extensive, but the firms listed above compete for the
biggest deals both in the U.S. and worldwide. You have probably heard of
many of these firms, and perhaps have a brokerage account with the
commercial banking arm of one of them. While the brokerage presence of
these firms covers every major city in the U.S., the headquarters of almost
every one of these firms is in New York City, the epicenter of the I-banking
universe. It is important to realize that investment banking and brokerage go
hand-in-hand, but that brokers are one small cog in the investment banking
wheel. Smaller investment banks compete by participating in syndications,
operating in regional markets, or specializing in niche markets.
This raises a very important distinction in the world of investment banking. A
number of firms have remained “pure” investment banks (Goldman Sachs,
Morgan Stanley), while others have commercial banking arms (JPMorgan,
Citigroup, Bank of America). Until recently, these two were completely
separate entities; while the investment bank would provide M&A and other
strategic financial advice to companies, the commercial bank would lend
capital (often times the advice requires capital). However, as firms evolved,
many found they could become “one-stop shopping” for M&A advice, bond
offerings, etc. for clients. These global financial institutions are able to tap
the vast network of deep relationships they have with small clients and turn
those into large transactions as the clients become larger. Many of these
investment banks with commercial arms are the biggest dealmakers on Wall
Street.
According to Statista.com, the leading investment banks (by global market
share of revenue) worldwide, as of July 2019, were:
1. JPMorgan Chase: 9 percent
2. Goldman Sachs: 8 percent
3. Morgan Stanley: 6.2 percent
4. Bank of America Merrill Lynch: 6.1 percent
5. Citi: 5.2 percent
6. Barclays: 4.4 percent
7. Credit Suisse: 4 percent
8. Deutsche Bank: 2.9 percent
9. RBC Capital Markets: 2.2 percent
10. Wells Fargo Securities: 2.1 percent
The Forbes Global 2000 is an annual ranking of the top 2000 public
companies in the world in a range of categories. Forbes ranks the companies
using a combination of four metrics: sales, profit, assets, and market value. In
2019, the top U.S.-based “Investment Services” firms were Berkshire
Hathaway (#26), Goldman Sachs Group (#45), Morgan Stanley (#48),
BlackRock (#214), Charles Schwab (#240), State Street (#314), Fannie Mae
(#352), Ameriprise Financial (#372), IntercontinentalExchange (#467), CME
Group (#545), TD Ameritrade Holding (#631), Raymond James Financial
(#764), E-Trade Financial (#838), Franklin Resources (#919), T Rowe Price
(#990), VOYA Financial (#1002), Interactive Brokers Group (#1060),
Invesco (#1087), Schroders (#1176), New Residential Investment (#1244),
AGNC Investment (#1277), NASDAQ (#1423), and Ares Capital (#1632).
There are several key organizations in the investment banking industry.
The American Bankers Association describes itself as the “united voice
of America’s banks—small, regional and large—that together employ
more than 2 million women and men, hold nearly $17 trillion in assets,
safeguard $13 trillion in deposits and extend more than $10 trillion in
loans.” It provides extensive continuing-education programs, publishes
the ABA Banking Journal, and offers 10 professional certification
programs in the areas of bank marketing, wealth management and trust,
compliance and risk management, and retirement services.
The CFA Institute offers certification and continuing-education
opportunities. It has more than 120,000 members in over 140 countries.
The International Association for Quantitative Finance offers
membership for both students and professionals. Its Web site contains
useful education and job-search resources.
The Investment Company Institute is a “leading global association of
regulated funds, including mutual funds, exchange-traded funds, closedend funds, and unit investment trusts in the United States and similar
funds offered to investors in jurisdictions worldwide.” It offers
continuing-education opportunities and publishes the Investment
Company Fact Book.
The National Futures Association is the self-regulatory organization for
the U.S. derivatives industry, including retail off-exchange foreign
currencies, on-exchange traded futures, and OTC derivatives (swaps).
Its membership currently numbers approximately 4,100 firms and
57,000 associates.
The Securities Industry and Financial Markets Association is a trade
organization for broker-dealers, banks, and asset managers. It offers the
Securities Industry Institute, an executive development program for
securities industry professionals that is held at The Wharton School of
the University of Pennsylvania.
Current Trends and Issues
The Great Recession (December 2007 to June 2009) and the ensuing
financial reforms (with the Dodd-Frank Act of 2010 being the centerpiece)
have had a major effect on the investment banking industry. Some trends
worth watching include declining staff levels in client-facing positions,
decreasing employment opportunities in sales and trading, declining revenue
from IPOs and other challenges to traditional revenue streams, advances in
technology, and the rise of specialist firms.
The Changing World of IPOs
Investment banks used to make about 25 percent of their income from
underwriting IPOs. But this has changed in recent years due to several
developments. Currently, investment banks earn only 15 percent of their
revenue from IPOs, according to Seeking Alpha, a crowd-sourced content
service for financial markets. CB Insights reports that investment banks
generated $7.3 billion in revenue in 2017 from underwriting IPOs—a 43
percent reduction since 2000 when adjusted for inflation. Much of this
reduction in revenue can be tied to the growing power of tech companies,
which are:
using their power and influence to negotiate lower fees with investment
banks; banks typically charge an underwriting fee of 3 to 7 percent of
the gross proceeds of the IPO
using other types of initial stock offerings (such as direct public
offerings and alternative changes) that do not involve investment banks
choosing not to go public at all, which is forcing banks to pursue more
deals and lower their fees in order to compete
“As revenue generated from underwriting IPOs has gone down, investment
banks have turned to technology to lower costs and automate parts of the
process,” according to CB Insights. “This is helping banks maintain high
profit margins—for now. But it also signals the susceptibility of the
investment banks to commodification down the road by technology
disruptors.”
The Disruption of Mergers and Acquisitions
Assisting companies with mergers and acquisitions (M&A) has been another
traditionally robust revenue stream for investment banks. But that has also
changed in recent years. In 2018, M&A activity accounted for 34 percent of
investment bank revenue, according to Dealogic, a financial markets
platform. This was a decrease of 10 percent from 2015. Technology such as
private, online networks and software as a service tools (such as Axial
Networks, a platform that connects startups with potential buyers) are
helping middle-market company executives handle many M&A tasks without
hiring investment banks. “Even some big companies are opting to go it alone
when it comes to mergers and acquisitions,” according to CB Insights.
“Apple’s acquisition of Beats, Comcast’s acquisition of DreamWorks,
Facebook’s acquisition of WhatsApp, and Oracle’s acquisition of Micros
Systems were all done without an investment bank’s involvement—and those
four deals were altogether worth more than $31 billion.”
Large investment banks also face competition for M&A work from
specialized boutique investment banks such as Qatalyst Partners and
Centerview Partners. “Smaller banks that don’t trade may be seen to have
fewer potential conflicts of interest when it comes to their advisory work,”
according to CB Insights.
Wall Street Staffing Continues to Decline
The number of investment bankers, sales workers, research analysts, and
traders has declined in the last decade. “New rules on capital and risk taking
have crimped profit,” according to the Wall Street Journal (WSJ), “forcing
banks into tough decisions about businesses to exit from [such as fixedincome currencies and commodities] and veteran moneymakers to turn
loose.” Some employment areas remain strong as a result of growing
concerns about information technology security; the growing use of cloud
computing, artificial intelligence, and data analytics; and increasing
government regulation (in some countries).
Regulatory crackdowns on heavy borrowing, changing businesses practices
regarding mergers and acquisitions and IPOs, and risky assets have reduced
profit margins at investment banks and increased the cost of capital. A higher
cost of capital does more than raise the cost of doing business overall. In
fact, some bankers would argue a higher cost of capital pushes banks to put
more capital at risk in proprietary trading platforms where the bank is
effectively betting the house. It’s a risky strategy. For example, JPMorgan
Chase lost $6 billion in 2012 as a result of improper derivative transactions
that involved credit default swaps approved by the bank and made by a
trader in its London office. These so called “London Whale” trades, named
after the trader who initiated the trades, were so large that they affected
world credit markets. A subsequent investigation and lawsuit against
JPMorgan Chase by the U.S. Department of Justice Department resulted in a
record $13 billion settlement.
The Rewards and Challenges of Technology
Technology is changing the way the investment banking industry does
business. Many large I-banks are migrating their operations from custombuilt information technology systems to cloud-based systems to save money
and improve efficiency. “New technologies—particularly those in the area of
mobile communications—are opening new horizons for investment banks and
their clients,” according to professional services firm Accenture.
“Transactions are no longer limited to landline telephones or desktop
computers; mobile phones and tablets now serve as effective platforms for
many activities.” Although customers love the increased flexibility that
technology provides, many investment banks are still struggling to catch up
with customer demand for user-friendly technology, as well as address data
security and privacy issues. Accenture reports that “some investment banks
are piloting voice biometrics for added security and a better customer
experience during telephone transactions. Others are exploring new
authentication methods, such as social log-ins and risk- or content-based
identification.” These technologies are still in the early stages, but Accenture
believes firms that provide these services may have a competitive advantage
over banks that do not provide these types of services to their clients. These
developments are fueling demand for programmers, information security
professionals, risk managers, compliance professionals, and other
information technology workers.
Another emerging technology is distributed ledger technology (DLT), which
is a decentralized database that is used and managed by various participants.
Transactions are synchronized and shared so that all users can view the most
recent information on the database. “As a distributed log of records, there is
greater transparency—making fraud and manipulation more difficult—and it
is more complicated to hack the system,” according to BBVA, a multinational
Spanish banking group. Banks and other financial companies are using DLT
to improve data security, risk management practices, and fraud detection;
create more-trusted recordkeeping for use with customers and for regulatory
compliance; share data more easily between various entities (this is
especially useful as financial transactions become more complex); and
reduce costs. “Distributed ledger technology could fundamentally change the
financial sector, making it more efficient, resilient and reliable,” according to
the World Bank. The phrase DLT is sometimes used interchangeably with the
phrase blockchain technology. Blockchain technology maintains a
continuously-growing list of records that cannot be altered, except after
agreement by all parties in the chain. Each entry is time-stamped and linked
to the previous entry. Each digital transaction or record is called a block in
the chain of records, hence the blockchain moniker. Blockchain can either be
an open system, where anyone can add information, or a controlled one,
where only users with permission can access the system. “A DLT can be
considered a first step towards a blockchain, but importantly it won’t
necessarily construct a chain of blocks,” according to TheNextWeb.com.
“Rather, the ledger in question will be stored across many servers, which
then communicate to ensure the most accurate and up to date record of
transactions is maintained… That said, DLT is technologically decentralized
and relies on similar principles of consensus to blockchain.”
Artificial intelligence (AI)—which can be defined as technology that can be
programmed to make decisions which normally require human thought—is
increasingly being used in the banking industry. It is being utilized in the front
office (authentication and biometrics, pricing engines, trading), the middle
office (anti-fraud and risk, anti-money laundering, complex compliance
workflows), and the back office (credit underwriting, smart contracts).
A noteworthy change brought about by technology (including AI) is the
growing popularity of high-frequency, trading with the use of computer
algorithms. Algorithmic trading tied to computer programs can trigger tens of
thousands of automated stock trades in less time than it takes to read this
sentence. Algorithmic models are used to trade stocks quickly and take
advantage of small changes in stock prices to earn healthy returns. Highfrequency trading firms accounted for 60 percent of all U.S. equity trading
volume in 2017, according to CNBC.com, an increase of 9 percent from
2012. Computer-driven trading has overtaken the work traditionally done by
specialists on the stock exchange trading floors. Floor traders on the New
York Stock Exchange (NYSE), currently numbering less than 500, or about
10 percent of the 5,000 floor traders in the early 2000s, may be on the way
out, replaced by off-exchange high-frequency trading specialists that account
for the majority of stock exchange trades. (On the other hand, some see
NYSE traders and brokers as a great public relations and marketing tool in
an industry that is becoming increasingly automated. They also are an
important on-site resource during a crisis. For example, when a software
error at trading firm Knight Capital caused it to lose $440 million in 30
minutes in 2012, brokers were on the trading floor to manually close down
stock trading.) Computer-driven trading, blamed for the May 2010 “flash
crash” has its share of critics, but appears destined to stay. (A flash crash
occurs when stock prices drop or rise precipitously in a matter of minutes
before recovering; regulators believe that automated, high-speed, algorithmic
trading exacerbates this phenomenon.) High-frequency trading “is here to
stay,” says Lawrence Leibowitz, past chief operating officer of the NYSE
Euronext. “The real question is, how do we regulate it and (monitor) it in a
way that gives people confidence that it is fair and that they have a chance?”
In regard to trading, investment banks also face competition from automated
high-frequency trading firms; specialized, boutique investment banks; and
large tech companies.
The Rise of Specialist Firms
As investment banks reacted to market shifts, two trends are apparent: Some
banks have expanded their activities beyond traditional investment banking,
while others have sold off their non-core lines of business that are not
specifically related to securities underwriting, advisory services, or trading.
Boutiques banks are on the rise, according to Deal Pen, a research and
advisory firm. Banks like Evercore and Greenhill are winning mandates,
taking market share and luring top talent away from the bulge bracket banks.
Also worth noting, there is more focus on international transactions, notably
with Asian companies seeking access to the U.S. markets. Even some
regional Midwestern banks are stepping up and getting involved. The major
trend is a shifting of market share from the larger wire house banks to smaller
niche focused boutique banks.
The Weakening of the European Investment
Banking Industry
Many European investment banks are losing business to American firms. In
2007, European investment banks earned 39 percent of IB revenue, according
to Dealogic, a financial markets platform that connects banks and investors.
But that number decreased to 26 percent in 2018. On the other hand, U.S.
investment bank’s share of worldwide revenue increased from 46 percent to
52 percent during this time span. “Weak economic growth has made it more
difficult for European investment bankers to make money at home,”
according to CNN Business. “Ultra-low interest rates and strict capital
requirements have further reduced the resources at their disposal.”
Looking Ahead
Industry Outlook
The outlook for the investment banking industry is mixed. The positive:
Worldwide merger and acquisition deal values reached nearly $4.1 trillion
during full year 2018, according to the Institute for Mergers, Acquisitions
and Alliances, a 15 percent increase from 2014 levels and the strongest
annual period for worldwide deal making since 2007 (at the height of the
financial crisis). Corporate earnings have been robust in recent years, and
U.S. companies are still sitting on a mountain of cash, which could be readily
deployed in the next round of acquisitions. The negative: The industry is not
generating as much revenue as it used to, and it is facing increasing
competition for business and changing financial trends. “The investment
banking industry as a whole has to deal with the fact that many companies are
delaying public offerings or opting for direct listings that de-emphasize the
role of banks,” according to CNN Business. “Additionally, trading since the
financial crisis has not been a reliable source of income. Even industry
leaders are being forced to adjust. Goldman Sachs, for example, is
undergoing a multi-year effort to build out new business lines that could prop
up faltering trading returns.”
Some of the best employment opportunities in investment banking can be
found, not on Wall Street, but in other financial centers around the country
and world. Some opportunities that stand out are in product management,
marketing, and restructuring troubled companies. Some specialty areas of
banking are hard to break into, and they require specialized skills and in
some cases prior industry experience. In debt restructuring, which involves
helping over-leveraged companies shed their debt load, a legal background
or some expertise with corporate bankruptcy filings is helpful. Debt
restructuring is usually the province of boutique firms such as Evercore,
Rothschild, or Greenhill. The biggest players in this field are Blackstone,
Lazard, and Houlihan Lokey.
Investment banks are no longer the dream job destination for many finance
majors due to declining compensation packages and perceptions by young
people that these employers are not as employee friendly as those in other
industries. The Boston Consulting Group reports that “social-media and
technology companies are attracting Millennials by appealing to their desire
for global experiences, high levels of responsibility, rapid advancement, and
an attractive work-life balance. Overall, investment banks are losing the
human resources battle.” Investment banks are also facing strong competition
for employees from private equity firms, hedge funds, and venture capital
firms. Other young analysts are leaving to pursue advanced degrees in
finance or business administration. Some investment banks have realized that
they need to create more worker-friendly environments in order to attract and
retain top talent (especially in areas that are not high-paying). “Investment
banking is becoming more inclined to the thought that ‘employee satisfaction
is the key to customer delight,’" according to Quantzig, a data analytics firm.
“Especially after the emergence of platforms like Glassdoor and social
media, where the negative work experiences can be made public, the players
in investment banking have realized that their reputation is at stake here.”
The diversity of occupations in investment banking makes it difficult to make
projections about employment opportunities that ring true across the industry
as a whole. Investment banking, collectively, is an umbrella for many
different occupations—underwriting, distributing, and trading securities,
providing financial advice, and managing client wealth. But the U.S.
Department of Labor (DOL) does provide employment outlook information
that will be of some use to those wishing to enter the field.
Employment of securities, commodities, and financial services sales agents
(including investment bankers and investment banking sales agents and
traders) is expected to grow by 6 percent from 2016 to 2026, according to
the DOL, or about as fast as the average for all careers. The U.S. remains an
international financial hub, and its employment growth is fueled by the
economic growth of other countries. However, the DOL reports that
“continuing consolidation in the financial services industry is projected to
slow employment growth for these workers over the next decade. In addition,
automated trading systems have reduced demand for securities traders.
Financial regulation, including restrictions on proprietary trading, have
created a shift of employment among traders from investment banks to hedge
funds; however, this shift should not affect overall employment growth for the
occupation.” Competition will remain strong for these high-paying, often
prestigious jobs. Those with a master’s degree in business administration or
finance, the chartered financial analyst credential, and a strong grade-point
average (for new graduates) will have the best job prospects.
Job opportunities for financial analysts (buy-side analysts, sell-side analysts,
portfolio managers, fund managers, ratings analysts, and risk analysts) are
expected to grow by 11 percent from 2016 to 2026, according to the DOL, or
faster than the average for all careers. Despite this prediction, there is strong
competition for jobs in this field because these careers pay well and offer a
path to occupations with even more prestige and higher earnings. Again,
those who are certified or who have advanced degrees will have the best job
prospects.
Employment for financial managers (treasurers, chief financial officers, risk
managers, etc.) is expected to grow by 19 percent from 2016 to 2026,
according to the DOL, or much faster than the average for all careers.
Information security analysts will enjoy employment growth of 28 percent
during this same time span. Demand will be strong as the banking industry
continues to strengthen its IT security infrastructure as a result of
cyberattacks. Banks are increasing their cybersecurity budgets and seeking to
hire more information security analysts, chief risk officers (who are
responsible for ensuring data security as well as managing many other areas
of risk), and ethical hackers (also known as white-hat hackers). Despite the
strong demand for information security analysts, there’s a shortage of
workers in the field. The computer security association (ISC)² estimates that
there is a shortage of 3 million cybersecurity professionals worldwide.
The growing use of artificial intelligence (AI), distributed ledger and
blockchain, data analytics, and cloud computing technology will create
strong demand for tech workers who are both familiar with these
technologies and the investment banking industry. There is currently a
shortage of technology workers with this expertise. The staffing firm Robert
Half recently listed AI, cloud computing, and data analytics and database
management software (SQL, VBA) as in-demand technology skills in its
Accounting and Finance Salary Guide 2019. “The largest banks are
automating work anywhere they can, especially routine work like cutting and
pasting data from one app to another," according to American Banker. “Use
of AI and robotics will only grow provided banking regulators become more
open-minded about them. This will dramatically change banking jobs and the
skills required to do them. People will be needed to design and train bots
and AI engines, to test and oversee them, and to manage the employees who
do those jobs.”
Know the Field
Job Searching in This Industry
Landing a job in investment banking can be challenging because many people
want to enter this high-paying, prestigious field. Some of the best job-search
strategies include networking, utilizing the job-search resources of
professional associations, contacting recruiters and managing partners
directly, and participating in information interviews. Here are a few other
effective strategies to land a job:
Utilize the resources of your college’s career center. Career counselors
can help you fine-tune your resume and interviewing skills and otherwise
prepare for the job search. If you attend a top-tier school, its career services
department will probably have a strong relationship with I-banking
recruiters. Counselors can fill you in on job openings, career fairs, and
upcoming recruiting visits by investment banks.
Head right to the source: the Web site of the investment bank where you
want to work. Many investment banks provide detailed information about
career paths, campus recruiting events, internship programs, the interview
process, profiles of current workers, and other resources at their Web sites.
At many sites you can also apply for a job. For example,
Goldman Sachs offers information on summer analyst and associate
internships and new analyst and associate programs, video profiles of
employees, answers to frequently asked questions (FAQs) about the
application process and an application checklist, advice on
interviewing,
a
career
blog,
and
job
listings.
See
http://www.goldmansachs.com/careers.
Lazard provides job listings, information on internships and campus
events, and answers to FAQs about the job search. See
https://www.lazard.com/careers/students.
Morgan Stanley offers job listings, information on career paths, and a
variety of career-planning and job search-articles (including What Do
Recruiters Look For?, How to Follow Up After a Networking Event,
Beyond the Application: How to Get Noticed, 10 Biggest Interview
Mistakes, and Career Advice from Women in Finance). See
http://www.morganstanley.com/people.
Many specialized Web sites, associations, and publications offer
information about the investment banking and finance industries, firms,
and job leads. At some sites, you can apply for jobs. Here are some popular
resources:
The American Bankers Association (http://aba.careerbank.com) offers
job listings and comprehensive information on the U.S. banking
industry.
LinkedIn (https://www.linkedin.com) provides job listings, information
about employers, interest groups for those interested in investment
banking careers, and networking opportunities.
The Global Association of Risk Professionals (http://www.garp.org)
provides job listings and information on networking at its Web site.
Vault Jobs (https://jobs.vault.com) provides job listings.
The
Association
for
Financial
Professionals
(https://www.afponline.org/careers/career-center/afp-global-careercenter) offers job listings, career tips and articles, and other helpful
resources.
The
International
Association
for
Quantitative
Finance
(http://www.iaqf.org/job-board) provides job listings and useful
career-planning resources for students.
The The CFA Society New York (https://www.cfany.org/cfany-careercenter) provides job listings, career advice and events, and career
coaching (exclusively for society members).
Jobs4Banking (http://www.jobs4banking.com) offers job listings that
you can search by job title or company.
The CFA Institute (https://www.cfainstitute.org/membership/careers)
provides job listings and a career resources library.
Many large “bulge bracket” banks provide internships, co-ops,
fellowships, and other opportunities that seek to identify promising
future employees and give them experience at the company. These are
excellent ways to break into the industry. For example:
Goldman Sachs offers a Summer Analyst Internship Program for those
currently pursuing a college or university degree. To be eligible for the
10-week program, applicants must have a strong academic record and
an interest in the financial markets. The program is available in more
than 20 cities in the U.S. and abroad. Those who make a strong
impression may be asked to join Goldman’s New Analyst Program in a
full time position. Many other programs are available. Visit
https://www.goldmansachs.com/careers/students/programs for more
information.
Credit Suisse provides Summer Analyst and Associate Internship
Programs, a Quantitative Summer Internship Program, a Sales and
Trading-Equities and Fixed Income (analyst only) Internship Program, a
Technology Quantitative Summer Associate Program, and full-time
analyst and associate programs for those currently pursuing an MBA
and MBA graduates. It also offers a 10-week Sophomore Diversity
Program for talented college sophomores from traditionally
underrepresented
backgrounds
(Black/African
American,
Hispanic/Latino
and/or
Native
American
descent).
See
https://www.credit-suisse.com/careers/en/careeropportunities/students-and-graduates.html.
JPMorgan Chase & Co. provides an Investment Banking Analyst
Internship Program during which participants “support major deals and
transactions, by completing financial analysis and models, conducting
research, and helping with pitches; develop key technical skills, while
being supported by smart and dynamic colleagues.” Top performers may
receive a full-time job offer. JPMorgan also offers a full-time
Investment Banking Analyst Program and full-time and internship
programs in investor services, risk management, and other areas. See
https://careers.jpmorgan.com/US/en/our-businesses/investment-banking.
Researching Companies
Many an I-banking interviewee asks, “Which firm is the best?” The answer,
like many things in life, is unclear. There are different ways to measure the
quality of investment banks. You might examine a bank’s expertise in a
certain segment of investment banking. For example, Goldman Sachs was
tops in mergers and acquisitions (“M&A”) advisory in 2018, according to a
report from Bloomberg, followed by Morgan Stanley, JPMorgan Chase,
Citigroup, and Barclays. Goldman Sachs, as a pure investment bank, has a
stellar reputation in equity underwriting and M&A advisory but is not nearly
as strong in debt issuance. The debt markets belong to the larger investment
banks with commercial banking arms, such as JPMorgan Chase and
Citigroup. With larger balance sheets (due to customer deposits, among a
variety of other things), these banks are able to leverage their size to take on
more underwriting risk (more on underwriting later). By underwriting more
transactions and becoming a one-stop-shop, these firms now have a very
substantial presence in M&A, IPO, and equity-related volume. They can
focus on executing every possible deal in the market, whereas the pure
investment banks might focus on a particular area (M&A at Goldman, for
example).
Those who watch the industry pay attention to “league tables,” which are
rankings of investment banks in several categories (e.g., equity underwriting
or M&A advisory). The most commonly referred to league tables are
published quarterly by Refinitiv, the financial and risk business of the
multinational mass media and information firm Thomson Reuters.
Refinitiv collects data on deals done in a given time period and determines
which firm has done the most deals in a given sector over that time period.
Essentially, the league tables are rankings of firms by quantity of deals in a
given area. However, readers should be aware that the only truly unbiased
source of information comes from these independent firms, such as Thomson
Reuters, and not from the investment banks themselves. League tables are
merely a compilation of the volume of transactions (either by deal size or by
number of deals) and can be easily manipulated by the investment banks for
bragging purposes. For example, in just about every pitch made to a client,
there will usually be a page with tombstones (icons of previous deals done
by an I-bank), along with league tables, showing the firm’s expertise in a
given area. Many times, analysts and associates will find themselves creating
favorable league tables at late hours of the night to show how their firm is
truly the best in a particular market segment, for transactions of a certain size,
and so forth.
Of course, industry rankings and prestige ratings don’t tell a firm’s whole
story. Since the pay scale in the industry tends to be comparable among
different firms, potential investment bankers would be wise to pay attention
to the quality of life at the firms they’re considering for employment. This
includes culture, social life, and hours, which differ greatly even within
different groups at the same firm. You can glean this information from your
job interviews or “best company” lists. For example, Vault.com provides
prestige and work environment rankings of the Top 50 banking firms, based
on surveys of finance professionals. These rankings are available on its Web
site,
https://www.vault.com/best-companies-to-work-for/banking/bestbanks-to-work-for-top-50. In 2019, the leading firms were:
1. Goldman Sachs & Co.
2. Evercore
3. Centerview Partners
4. Morgan Stanley
5. Greenhill & Co.
6. Moelis & Company
7. Perella Weinberg Partners
8. Guggenheim Securities
9. Bank of America Corp.
10. Lazard
Global Finance magazine (http://www.gfmag.com) publishes an annual
ranking of top investment banks with input from industry experts. Below is its
list for 2019, with each firm's market specialty noted:
Best Investment Bank: JPMorgan
Best Boutique Investment Bank: Allen & Co.
Best in Emerging Markets: VTB Capital
Best in Frontier Markets: Kazkommerts Securities
Best Equity Bank: JPMorgan
Best Debt Bank: DBS Bank
Best Mergers & Acquisitiions Bank: UBS
Best Up & Comer: Capstone Headwaters
Best Bank for IPOs: Morgan Stanley
Best Bank for New Financial Technology: Citi
Here are the winners in various industry sectors:
Consumer: Goldman Sachs
Financial Institutions: JPMorgan
Healthcare: Bank of America Merrill Lynch
Industrials/Chemicals: Goldman Sachs
Infrastructure: Macquarie Capital
Media/Entertainment: Morgan Stanley
Metals & Mining: BMO Capital
Oil & Gas: Bank of America Merrill Lynch
Power: Credit Suisse
Real Estate: Bank of America Merrill Lynch
Technology: CCB International
Telecoms: JPMorgan
You can also check out industry best lists that spotlight the best places to
work (including banks) in cities across the country. Here are a few local
publications in large cities that publish lists of the best places to work:
Boston Globe: http s://www3.bostonglobe.com/section/top -p laces-to-work-2018
Boston Business Journal: http://www.bizjournals.com/boston
Chicago
Tribune:
https://www.chicagotribune.com/business/careers/top-workplaces
Los Angeles Business Journal: http://www.bestplacestoworkla.com
Crain’s New York Business: https://www.crainsnewyork.com/htmlpage/672466
Seattle
Business:
https://www.seattlebusinessmag.com/seattleevent/100-best-companies-work-2019
The Denver Post: https://topworkplaces.com/publication/denverpost
The
Atlanta
JournalConstitution: https://topworkplaces.com/publication/ajc
Beyond these free sources there are several listings of top banks available by
paid subscription. American Banker, a daily digital newspaper and Web site
(http://www.americanbanker.com), has a directory of the 500 largest U.S.
banks, ranked by assets, available to subscribers. Crain’s New York
Business, a news weekly publication (http://www.crainsnewyork.com),
publishes several industry guides to senior executives in its New York
Business Listing & Rankings (http://www.crainsnewyork.com/data-lists.
Many people use social media sites to learn more about investments banks,
including their practice areas, work environments, application and
interviewing processes, career paths, internship programs (another good way
to learn more about banking careers and specific companies), and typical
salaries. You can get this information directly from employers (at their Web
sites and social networking sites) or through current and former employees of
these organizations. Check out the following social media sites to learn more
about employers:
LinkedIn allows you to create your own profile, follow investment
banks, join I-banking groups, and connect with banking recruiters and
people who are already employed at your target employers.
At Twitter.com, you can follow investment banks, I-banking experts, and
recruiters to learn more about specific companies and the field in
general. Don’t just be a spectator on Twitter; create an account and
begin tweeting to raise your industry profile. Doing so will allow you to
engage with other people who are interested in investment banking, and
it might get you noticed by hiring managers and recruiters.
MeetUp.com allows you to locate investment banking networking
groups in your area. During these meet-ups you can share information
about the job search, promising companies, internship programs, and
other resources.
Information interviews are another way to collect intel on potential
employers. Use social media and your contacts (e.g., professors, internship
coordinators, friends and family members with contacts in the industry) to
locate potential information interviewees.
Making Connections
Networking
“Networking is considered the most effective way of finding a job—
particularly in challenging economic times,” according to Yale University’s
Office of Career Strategy. “Through networking you can uncover job
opportunities that might not yet—or never—be posted on job-sites, or create
an opportunity that did not previously exist.” Networking is extremely
important in the club like world of investment banking. Investment bankers
like to hire people whom they know or who have been recommended by
trusted colleagues. Still not sure about the importance of networking? The
U.S. Department of Labor reports that networking plays a role in two-thirds
of successful job searches.
There are two main ways to network: open, face-to-face networking at
business meetings, conferences, and events, or informal networking through
social media (LinkedIn, Twitter, industry job boards, blogs). Most people
find that using a blended approach yields the best results.
Getting Started
A good way to ease your way into networking is to ask your friends and
family members if they know anybody in the investment banking or related
industries. Perhaps your uncle has an investment banker friend who would be
willing to talk to you about her career and steer you toward some other
contacts in the industry. As you build your network, reach out to the
following people:
roommates/classmates in high school/college
coaches
teachers/professors
fellow athletes
fraternity/sorority members
current and past employers
neighbors/community members
members of your religious community
people you volunteer with
members of social organizations you’re involved in
members of professional associations
your family’s financial planner or banker
people who work in personnel departments or for placement or search
agencies
Networking via Information Interviewing
Information interviews are an excellent networking strategy—especially if
you did not attend a top-tier business schools where Goldman Sachs,
JPMorgan, and other top investment banks typically recruit. Unlike a
traditional interview (where your goal is to get a job), information
interviews involve gathering information about a particular company or
career path from people who are already working in the field. The ultimate
goal is to impress the information interviewee enough that he or she will
offer you an internship or a job, or, at least, connect you with others at the
company whom you can talk to and try to impress.
Typical questions to ask during an information interview include:
What is your company’s corporate culture?
How does the company differ from its competitors?
How would you describe a day in your life on the job?
What type of travel does your job require?
What are the most important personal and professional qualities for
people in your career?
Technology really seems to be changing the investment banking industry.
What computer and software skills will I need to be successful?
Are you certified? How important is certification to career success?
What do you like best and least about your job?
What’s the best way today for people to land jobs in the banking
industry?
What types of interview formats are used during the interview process?
What’s the best way to network in this industry?
What advice would you give to job seekers in terms of applying and
interviewing for banking jobs?
What qualifications does your company seek in a hire?
How do you identify promising job candidates?
What is the future employment outlook for your career and the
investment banking industry in general? How is the field changing?
Check out the following resources to learn more about information
interviewing:
Mergers & Inquisitions: How to Use Investment Banking Informational
Interviews
to
Break
In:
http://www.mergersandinquisitions.com/investment-bankinginformational-interviews
Fortune: What to Ask in an Informational Interview:
http://www.fortune.com/2013/04/04/what-to-ask-in-an-informationalinterview
Volunteer
Volunteering might not be the first thing that occurs to you when the topic of
networking is mentioned, but helping others is rewarding and might even help
you land a job. Some of the people that you meet while volunteering can
become part of your network and might be able to steer you toward job
leads. There are many opportunities to volunteer. As a student, you can join
clubs, student organizations, and community projects that help make the
world a better place. For graduates, there are “young professionals” groups,
association chapters, and alumni organizations. Some important advice: try to
focus your volunteer activities in the banking industry in order to improve
your chances of making good contacts. One way to do this is by volunteering
with a banking association. The ABA Community Engagement Foundation,
for example, offers Teach Children to Save, a “national program that
organizes banker volunteers to help young people develop a lifelong savings
habit” and Get Smart About Credit, a “national campaign of volunteer
bankers who work with young people to raise awareness about the
importance of using credit wisely.” Members can also volunteer at ABA
conferences. Volunteering with your association will definitely get you
noticed by association “movers and shakers,” who might recommend you the
next time they learn about a job opening. Visit https://www.aba.com/aboutus/aba-foundation/financial-education-programs for more information on
volunteer opportunities with the foundation.
Here are a few Web sites that will help you explore volunteer
opportunities.
Bankers Without Borders (http://www.bankerswithoutborders.com)
Idealist (http://www.idealist.org)
VolunteerMatch (http://www.volunteermatch.org)
Corporation
for
National
and
Community
Service
(http://www.nationalservice.gov)
Use Social Media
In 2017, 52 percent of graduating college seniors used social media in the
job search (most commonly to research potential employers of interest via a
platform’s search bar, post their resume on a publicly accessible profile, and
network with employers). In recent years, social media networks (LinkedIn,
Twitter, Facebook, etc.) have become extremely important networking tools
that help job-hunters learn more about particular industries and careers and
connect with recruiters and hiring managers. You should develop a strong
presence on social media while in college to take advantage of all the
available job-search and networking resources. LinkedIn is the most popular
professional-networking site in the United States, and it had more than 645
million users in 200+ countries and territories worldwide in 2019. The first
thing you should do at LinkedIn is to create a profile, which provides
information to others (networking contacts, recruiters, hiring managers, etc.)
about your educational background, professional experience, skills, and
interests. Next, join investment banking groups and follow investment banks
to talk with members about industry trends, the job-search and interview
process, companies and career paths, and much more. Nearly 900 investment
banking–related groups and firms are on LinkedIn.
Internet job boards and blogs are other excellent networking and job-search
search resources. Job boards serving the investment banking and financial
services community include the following:
http://aba.careerbank.com
https://www.afcpe.org/career-center
https://www.afponline.org/careers/career-center/afp-global-careercenter
https://careers.financialexecutives.org
https://channels.theinnovationenterprise.com/jobs?channel_id=cfo
http://www.linkup.com/b/chief-financial-officer-jobs.html
http://www.iaqf.org/job-board
http://careers.icba.org
http://www.nact.org/careercenter
http://nacm.org/services/credit-career-center.html
https://www.cfany.org/cfany-career-center
http://www.rmahq.org/career-center
http://www.Jobs4banking.com
http://www.wallstreetoasis.com
Networking with a Purpose: How to Excel at a
Networking Event
Networking is all about building connections. These connections can open
opportunities, promote your personal “brand” even if you aren’t actively
looking for a new position, and help build life-long personal and
professional friendships.
Using an intelligent approach to networking, whether you’re at a casual
social-hour type of event or attending a conference, alumni event, or trade
show, can produce the best results. By following proper networking
etiquette, you can build out your contact sphere while having a little fun at the
same time.
Some tips for networking success:
Don’t just collect business cards. While making your networking
connections, keep in mind that networking is more than just being
introduced to someone and shaking his or her hand. When you meet
people at a conference, business lunch, or social event, you want them
to remember you as someone who can help them achieve their goals.
Have a 30-second “elevator pitch” ready to go whenever someone asks,
“So, what do you do?”
Remember that networking is a give-and-take process. Be genuinely
interested in what other people have to say about themselves or what
they’re doing. While you’re at it, share job leads with other job-seekers
whenever possible. This may seem counter-intuitive, but it shows that
you are willing to help others. Your job search may turn up leads that
aren't right for you, but may be right for someone else in your network.
By reaching out to help others, you become a resource for them. Your
contacts will appreciate the gesture, and one day they might be in a
position to let you know about an opening that isn’t a good fit for them
but could be the one you’re looking for.
Network with a plan. Decide upfront what you want to accomplish and
stick with the plan. If your goal is connecting with one person in the first
hour, and exchanging business cards, hold yourself accountable to
making that one connection.
Be fearless. Take the initiative in conversations, even if casual
conversation is not your strong suit. Believe it or not, you’re not alone.
Learn to listen. Active listening is almost a forgotten skill in today’s
multimedia world. Actively listening means putting yourself in another
person’s shoes and taking the time to truly hear what they have to say.
Practice repeating people’s name when you meet them and promise to
connect with them again after the event.
Give genuine feedback. Be willing to share your opinions when
prompted. People you are connecting with may value your comments or
suggestions. Learn how to say what you think in an honest, constructive,
and positive way.
Stay in touch with contacts. Keep good notes and records of networking
contacts, and send a thank-you note to anyone who was especially
helpful. Do your best to keep in touch—without being a pest. Connect
on LinkedIn and keep track of contacts’ movements throughout the
banking industry. Reach out to your contacts every six months or so to
say hello and to keep the relationship going. It might seem like a lot of
work, but if you’re determined and sincere, you’ll eventually know
someone who can provide a key job lead or inside information on a
potential employer.
Cover Letters
“The point of the cover letter is not to rehash your resume,” advises the
staffing firm Robert Half International (RHI). “A cover letter can accomplish
what a resume cannot, including explaining why you want this particular job;
describing how your skills and experience make you ideal for the position;
explaining traits you possess that would be useful for the role, which are not
mentioned on your resume; establishing a connection with the company to
which you are applying; and explaining job gaps.”
But is a cover letter still important in the job-search process? Responses vary,
but in the banking industry, the answer is yes…at least for certain types of
applicants. Experienced workers really don’t need a cover letter (although
companies may still request one) because the employer will be seeking a
specific set of job skills and experience at well-known employers on the
applicant’s resume. On the other hand, some employers (especially boutique
and local firms) require college students and new graduates to submit a cover
letter. If you plan to work in Europe, the Middle East, or Africa, some
investment banks (such as Goldman Sachs) require applicants to submit a
personal statement, which details their motivation for applying for the job.
Finally, if you have an unusual background (i.e., you’re working in a
completely different industry, you have a nontraditional educational
background, etc.), you’ll want to include a cover letter to explain your
qualifications and why you want to change gears and work in investment
banking.
The typical cover letter has three short paragraphs. Each should have no more
than three or four sentences. A good cover letter answers three very important
questions that the recruiter will be asking: Why should I interview you? What
value do you bring the company? What is your potential? It also gives you a
chance to show a little of your personality and the ambition and drive that
aren’t easily conveyed in a resume. You should also use the cover letter to ask
(respectfully) for a job interview.
Use paragraph one to briefly introduce yourself [your name, employer or
college that you’re attending, years of experience (if applicable), academic
honors or work awards received], and tell the reader what position you are
applying for. This is also the paragraph to “drop names” (i.e., people at the
company who recommended that you apply for the job, company recruiters
with whom you’ve been in contact, etc.). Then quickly move on to tell the
hiring manager you offer something they won’t see from the typical applicant.
Sell yourself by stressing results and outcomes of your experience in the field
or as a student. Study the keywords and skills that appear in the job ad and
incorporate them—with examples—into a description of your skill set and
achievements.
The second paragraph answers the question, Why do I want to work in this
sector, at this particular firm, and in this specific position? Show enthusiasm
and industry knowledge and tie your skills and educational and work
achievements and experiences to the job in question.
The third paragraph is your call to action—with the goal of moving the
process along to the next step. You could say, “Thank you for reviewing my
qualifications. I will call next week to discuss setting up a time to meet
personally.” Thank the reader for his or her time and consideration.
Here are a few tips for creating a quality cover letter:
Use your cover letter to show your spark and personality—to convey that
beneath the often tedious listing of job duties, achievements, and GPA in
your resume lies a go-getter who is ready to hit the ground running and
work hard, if hired.
Never use a cover letter you wrote for jobs in other industries to apply
for positions in investment banking. Start from scratch to ensure that the
focus of each and every word is on landing a job in investment banking.
Your cover letter must be free of spelling and grammatical errors, run-on
sentences, fragments, and any other issues that will cause the hiring
manager to question your abilities and disqualify you from consideration.
Keep it short. Eighty-three percent of hiring managers surveyed by the
Society for Human Resource Management reported spending one minute
or less reading cover letters, so you have to quickly explain why you’re
the right person for the job.
Never address the cover letter to “Dear Sir” or “To Whom it May
Concern.” Take the time to address your letter to the human resources
manager directly or to the manager hiring for the open position. You want
to send a message that you’re a detail-oriented person who takes the jobsearch process seriously.
Banking, High Experience, Response to Ad Cover
Letter
Response to Ad Cover Letter: Banking
Resumes
“Successful resumes serve only one function: to get you an interview,”
advises JPMorgan Chase & Co. at its Web site. “Creating a resume that
accomplishes this requires a lot of thought. Your resume is an introduction to
us or to any potential employer; make sure it presents you in the best possible
light.”
Although cover letter and resume basics may be the same from industry to
industry, your goal is to create the perfect cover letter and resume to land a
job in the banking industry. JPMorgan Chase & Co., Bank of America,
Citibank, Robert Half Finance and Accounting, and other banks and recruiters
offer the following tips for creating perfect cover letters and resumes:
Use keywords that match those featured in the job announcement. For
example, if you’re applying for an investment banking position that
requires a master’s degree in finance, then your resume should include
the terms “master’s degree in finance” and “investment banking.” Using
keywords ensures that your resume will be noticed by resume-scanning
software, and it may help you advance past the initial screening stage.
Create different cover letters and resumes for different job listings. Each
cover letter and resume should emphasize specific education,
certification, skills, or experience to help you land that specific job.
“Prioritize the points you want to get across,” advises JPMorgan, “such
as summer internships and other quantitative work experience, and
structure your resume to highlight skills that are most relevant to the
position for which you are applying.”
Make your resume one page only for individual job submissions. Your
resume can run longer than one page if you are posting it on a job board
or working with a recruiter. In these cases, it’s acceptable to spotlight a
broader set of skills because your resume may be viewed by dozens of
different employers with different requirements.
Use numbers and hard data. Banking is all about numbers, so try to
provide firm numbers to explain your accomplishments and actions. For
example, detail how much money you saved a college club while serving
as treasurer or how your work as an intern saved an employer a specific
amount of money or time.
Be conservative with design elements. Don’t overdo it with boldface
type. Bank of America recommends that applicants “skip italics,
underlining, shadows, or other fancy treatments.” Citibank says that your
CV/resume should “appear ordered, readable, and pleasing to the eye…
and stick to a standard typeface such as Arial or Times New Roman in at
least 9-point type.”
Skip the reference to “references.” The potential employer will request
references if it wants them.
Proofread your documents until they’re perfect. JPMorgan Chase & Co.
says that “typos tell us that either you’re careless, or you’re not that
interested in a job.”
Tell the truth. “Don’t be dishonest,” advises Bank of America at its Web
site, “Always tell the truth about yourself in the most flattering light.”
Many companies conduct background checks and investigate statements
you make on your application materials. Lies and distortions on your
resume are the surest way to lose your job or be disqualified as a
candidate.
If you send your resume as an attachment, don’t name it “resume.pdf” or
“resume.doc”—unless you want your resume to get lost among the
thousands of other submissions. Instead, name the file starting with your
last name, then your first name, then the date. Add the job identification
number if one is available. If sending a hard copy, always include the job
identification number (if available) on the cover letter.
Always use the hiring manager’s name in the salutation of your cover
letter, not a generic “Dear Sir” or “To whom it may concern.”
Resume Formats
The standard reverse chronological format is the most popular resume format
in the investment banking industry for those with an extensive employment
history. In this format, you list your current, or most recent, job first. Then list
your next most-recent job, and so on. Education, skills, and other information
follows at the end. In addition, some applicants choose to place a brief
summary at the top of their resume that lists their most-notable educational
and professional achievements and demonstrates the value they can bring to an
organization. In an era of shrinking attention spans, the summary can provide
an effective on-screen or on-paper elevator speech for hiring managers who
don’t have the time to read an entire resume.
The reverse chronological format is not a good fit if you’re just about to
graduate from college or have recently graduated, because it calls attention to
your lack of work experience. In this instance, use the functional resume
format, which allows you to stress your educational background and paid and
unpaid experience as well as your personal skills (such as leadership,
communication, and teamwork). Here’s how you should arrange the format of
your functional resume:
1. Name and contact information.
2. Objective section: Detail the job that you’re seeking and the skills that
you’ll bring to the job to make the company more successful. This is a
great chance to give the resume a little of your personality while
tailoring it to match the skills being sought in the job listing.
3. Education section: List your education and achievements in college. Note
any unique or otherwise noteworthy banking/finance-related activities
and achievements.
4. Work and Internship Experience section: List your job, internship, and
co-op experiences in reverse chronological order. This section should
also list duties or skills that are pertinent to the job for which you’re
applying.
5. Community Involvement section: List your volunteer activities. Any
experience related to accounting will be most useful.
6. Other Skills section: Include applicable skills or talents such as
computer and Internet skills, foreign language proficiency, etc.
For more advice on resumes, cover letters, and job hunting, visit the
following Web sites:
Bank
of
America:
Recruitment
Tips:
http://careers.bankofamerica.com/us/working-here/recruitment-tips.aspx
Forbes: How to Write an Effective Investment Banking Resume
http://www.forbes.com/sites/investopedia/2013/07/31/how-to-write-aneffective-investment-banking-resume/#7728a768452b
HSBC:
Application
Hints
and
Tips:
http://www.hsbc.com/careers/application-hints-and-tips
JPMorgan: Advice Center: https://careers.jpmorgan.com/us/en/advice
For Dummies: Reverse Chronological Resume Format: Focusing on
Work
History,
Growth:
http://www.dummies.com/howto/content/reverse-chronological-resume-format-focusing-on-w0.html
For Dummies: Functional Resume Format: Focusing on Skills and
Experience:
http://www.dummies.com/how-to/content/functionalresume-format-focusing-on-skills-and-e0.html
Banking, High Experience, Chronological Résumé,
1 of 2
Chronological Résumé: Banking and Consulting, page 1 of 2
Banking, High Experience, Chronological Résumé,
2 of 2
Chronological Résumé: Banking and Consulting, page 2 of 2
Interviewing
Interviewing in This Industry
The interview process in the investment banking industry can be demanding,
but if you prepare well and learn what your target employers expect during
the interview, you will be successful. The number, type, format, and location
of interviews vary somewhat by employer. For example:
At Goldman Sachs (ranked as the best place to work in banking by
Vault.com in 2019), candidates first are asked to participate in a video
interview, which will take approximately 30 minutes to complete.
Engineering applicants will be asked to take a HackerRank assessment,
a coding-based technical skills and assessment platform. (You can learn
more about video interviews and the HackerRank assessment at
Goldman
by
visiting
https://www.goldmansachs.com/careers/students/prepare. Candidates
who pass this first round are asked to participate in a day of in-person
interviews at a Goldman Sachs location. Typically, Goldman conducts
between two and five interviews for campus hires, depending on the
division.
At Deutsche Bank (ranked as the 27th-best place to work by
Vault.com), you will first take an online Situational Judgement Test, in
which “you will be confronted with real-life workplace scenarios and
will be asked to find the most effective way to handle critical
situations.” Candidates who pass this test will be asked to participate in
several case studies and interviews, which will relate to the business
area they’ve applied to. The interviews will focus on the core
competencies the bank is looking for as well as questions about the
candidate’s degree and extracurricular interests.
At Nomura Holdings Inc. (ranked 37th by Vault.com), candidates
participate in first-round interviews on campus or at Nomura’s New
York office. You may be asked competency-based questions; technical
questions; curriculum vitae, cover letter, and application questions; and
industry-related questions. Candidates who advance to the final
interview round “have four 30-minute, one-on-one interviews with
senior business representatives (a banker who is vice president or
above).”
At UBS (ranked 16th by Vault.com), candidates participate in firstround interviews that are held on-campus, in-person, or via video or
phone with a representative from the business or from human resources.
(Visit https://www.ubs.com/global/en/careers/meet-us/join-us/2017/10tips-for-video-interview-success.html to read video interview tips.)
The first-round video interview aims to help recruiters get to know you,
gauge your enthusiasm for working in investment banking, and learn
more about your background. Candidates who make it to the final round
will participate in a series of face-to-face interviews held at a UBS
offices. According to the UBS Web site, “You'll have a chance to meet
senior leaders in the business and give us a glimpse into your
personality and capabilities. The final interview will be more detailed
and focused on assessing your compatibility with us in your desired
position.”
Preparing for Interviews
“Without sufficient preparation, interviews can be difficult and stressful—
and even when fully prepared, they can be an intense experience,” advises
UBS at its Career Web site. That’s why you need to dedicate a substantial
amount of time to prepare for interviews. Here are a few tips that will help
you ace your interviews:
1. Know what the employer is looking for in a candidate. Carefully study
the job advertisement to identify key skills and job duties and develop
anecdotes and general responses that touch on these attributes. Visit the
company’s Web site to learn about the firm’s culture and what it seeks in
its employees. For example, at the UBS Web site, you can learn about
its seven core competencies (i.e., professional qualities and business
skills sought in the ideal UBS employee): problem analysis, judgment
and decision making, innovation, communication and impact, drive and
commitment, teamwork and collaboration, and planning and organizing.
At Nomura Holdings’ Web site, you can learn more about its in-demand
competencies:
Problem
Solving/Analytics,
Team
Skills/Professionalism, Leadership, Initiative, and Communication.
2. Practice, practice, practice. Participate in mock/practice interviews
with your friends and classmates, or by taking advantage of interview
training offered by your career center (which typically includes a video
of your interview so you can assess your performance). Think about the
types of questions you’ll be asked (see the list further along in this
section), and create responses for each one. It may feel weird or
repetitive to participate in mock/practice interviews, but the more you
practice, the less nervous and more prepared you’ll be during the actual
interview.
3. Double-check the date, location, and time of the interview. Do you
know how to get to the interview site? Is there adequate parking? Is
there any road construction or other transit issues that could add extra
time to your commute? If you’re unsure of your destination, take a trial
run from your house to the interview site to gauge how much time it will
take and identify any potential issues.
4. Prepare your interview outfit. Wear your best suit, and make sure your
shoes are shined. “You have exactly five seconds to make a great first
impression, so dress for the part,” advises JPMorgan. “Usually, this
means professional, formal business attire.”
5. Prepare your own questions. At the end of the interview, you’ll be asked
if you have any questions about the company. Be sure to create a list of
questions because if you don’t, “interviewers may interpret a lack of
questions as a lack of genuine interest,” according to JPMorgan Chase
& Co. Skip the easy questions that can be answered at the company’s
Web site, and, instead, ask questions that show you’ve done your
research and that communicate your interest in and enthusiasm for the
job. Here are a few questions to ask.
What will the bank look like in three to five years?
How is the bank affected by the business cycle and other external
factors (i.e., periods of recession, government regulation, etc.)?
What are its key challenges?
What are the key skills of workers in this position? How do you
see my skills fitting in?
What are some of the key objectives that you would like to see
accomplished in this job?
What distinguishes a great analyst/associate from a good
analyst/associate?
What is a typical day like for a worker in this position?
How many people are on my work team? What are their job titles?
What are the biggest issues facing the team?
Is travel required for this position? If so, how much, and to where?
Do you have management training or mentorship programs in
place?
Are diversity programs available?
How frequently are performance reviews held? How will my
performance be measured?
What advancement opportunities are available to someone in this
position?
How is work assigned, and how are associates supervised and
evaluated?
Do you have any reservations about hiring me?
Interview Questions You Should Not Ask
Some questions should never be asked or should be asked only at
appropriate times (such as after you receive a job offer).
Never Ask
basic questions that you would know the answer to if you did your
research ahead of time
questions relating to confidential issues between a bank and its clients
questions about bank scandals, etc.
Ask Only After You Receive a Job Offer
questions about salary, benefits, vacation time, and leave policy
questions that request special treatment if you’re hired (asking for time
off for an upcoming vacation, etc.)
Types of Interview Questions
Investment banking interviews typically involve three or four rounds at a
minimum, and each round may have up to six separate interviews. The
number of interviews generally goes up in each round. Interviewers ask
questions in a variety of formats, including:
Guesstimate Questions (which typically don’t have right or wrong answers,
but are geared to help the interviewer understand how you go about solving a
problem). Examples include:
Estimate the total revenues obtained from the movie Star Wars:
The Rise of Skywalker.
How many fish are caught in Slovakia annually?
How much does Mount McKinley weigh?
How many weddings are performed in Japan each month?
How many white cars are there in Swaziland?
What is the size of the market for disposable diapers in Germany?
If I were to fill this room with Sacagawea dollar coins, how many coins
would fit in?
Brainteaser Questions (which aim to test your critical-thinking ability and
creativity under pressure). Examples include:
Why do humans have two legs and not five, or six, or eight?
How would you reverse the course of the Mississippi River?
You are faced with two doors. One door leads to your interview (that’s
the one you want!), and the other leads to the exit. In front of each door
is a recruiter. One recruiter is from a firm whose employees always tell
the truth. The other is from a firm whose employees always lie. You are
allowed to ask one question to decide which door is the correct one.
What will you ask?
Why is the earth round?
How many times a day do a clock’s hands overlap?
It's 3:30 pm. What is the angle formed by the hour hand and the minute
hand?
Technical Questions (which gauge your knowledge of the banking industry
and assess how you would use this knowledge and your experience to solve
problems). Examples include:
Your client is a large, privately owned company that needs to raise
capital to expand. The CFO has asked you about an IPO. What other
options are there, and what are the pros and cons of each?
What are the advantages of raising funds through bonds rather than
equity?
What happens to various figures in financial statements if $150 is added
to the current depreciation amount?
What major factors drive mergers and acquisitions?
Can you walk me through the major line items of a cash flow statement?
What opportunities does a financial downturn present to financiers?
Two otherwise identical companies have different asset structures—one
is all equity, the other is both debt and equity. Which one would you
invest in?
Behavioral/Situational Questions (which seek to gauge how you would act
in a particular situation or how you acted in past jobs). Examples include:
Provide an example of a situation in which you had multiple competing
deadlines—how did you prioritize? Were the deadlines met? What did
you or would you have done if you were unable to meet the deadlines?
You’re taking pitchbooks to an important client meeting that starts in
five minutes and you find a critical typo. There is no time to reprint the
books. What would you do?
Can you provide me with an example of a situation in a past job or
internship where you had a conflict with a manager? What was the
issue, and how did you resolve it?
Can you describe how you would address a situation if you met
resistance when introducing a new idea or policy to a team or work
group?
What to Do During the Interview
It’s the day of the interview, and the pressure is on. No matter what your
credentials, experience, or references, if you don’t impress the hiring
manager during the interview, you have very little chance of landing the job.
Here are some tips on how to perform well during an interview:
On the day of the interview, be sure to get there in plenty of time, at
least 10 minutes before your appointed interview time. There’s nothing
worse than arriving late, flustered and sweaty.
Demonstrate good body language. “Slouching, folding your arms, or
fidgeting suggests you’re not interested in the conversation,” advises
Citibank at its employment Web site. Make good eye contact and offer a
firm handshake.
Be yourself. “Scripted answers sound false and skilled interviewers can
usually spot this,” advises Citibank. “We’re looking for real
experiences you’ve had that you can tell us about in a natural, engaging
way.”
Relax. ”If you’re properly prepared, you have no reason to be nervous,”
advises UBS at its career Web site. Think of the interview as an
exchange of ideas with someone whom you respect.
Be confident. Confidence isn’t the same as arrogance. Don’t show off.
Be curious and interested. Have some thoughtful questions ready to ask,
but don’t ask anything obvious. And hold off on asking any questions
about salary unless you are prompted.
Listen closely and think carefully when answering questions. “Think
about what the interviewer is really asking,” advises UBS. “Do not be
afraid to take your time when answering. Repeating or rephrasing the
question or asking for clarification can be a good way to help you
compose your thoughts.”
Be positive and never say anything negative about your experiences in
past internships or jobs.
After the Interview
Do the following after you complete your interview:
Prepare a quick summary of the interview as soon as possible. Touch on
the main topics discussed (including job duties, work environment,
salary, etc.). If you think you answered a particular question poorly,
make it a note and try to improve your answer for the next interview
(you could also touch on this in your thank-you note).
Send thank-you notes via e-mail—or, preferably, a handwritten note—to
the interviewer and anyone else who participated in the hiring process.
“Ensure that you have a neutral party review the thank-you note before
you send it,” advises Robert W. Baird & Co. “Spelling or grammatical
errors can destroy your chances of getting a job, even after a stellar
interview.”
Be patient and continue to network, practice your interviewing skills,
send out resumes, research potential employers, and interview with
other companies.
Careers in This Industry
Lifestyle Issues
The pace of work in investment banking runs on a different rhythm than work
in commercial banking, but a lot depends on the bank’s culture and the client
mix unique to that bank. Investment bank analysts and associates typically
have a long work week. At bulge bracket and boutique firms analysts can
work 90 to 100 hours a week, including both days of the weekend.
Occasional all-nighters during crunch periods are not unheard of. I-bank
associates have a slightly better schedule—80 to 90 hours a week starting at
9 a.m. and going as late as 11 p.m. The work load lightens significantly for
those reaching the vice president and managing director level. Lifestyles at
boutique investment banks can vary quite a bit from these hours, but in
general are much better than at the bigger bulge bracket firms.
What’s more, the work schedule is very unpredictable. The lack of control
over personal time makes it hard to schedule for family or friends, requiring
last minute cancellations of dinner plans, even vacations.
Working as an investment banking analyst is a great way to break into a new,
and potentially lucrative, career. The hours are long, but the “return on
investment” for the time spent on the job can produce future earnings many
times what an analyst actually gets paid. A big part of the job is making the
boss look good, but the upside is you have the opportunity to add value by
getting things done in a meaningful way.
The reward is typically a year-end bonus (although bonuses and average
salaries have been dropping in recent years) and the opportunity for further
advancement. The average bonus for New York City securities-industry
workers declined by 17 percent from 2017 to 2018 to an estimated $153,700,
according to the Office of the New York State Comptroller. (But it’s
important to keep the big picture in mind amidst talk of earnings declines.
Wall Street investment banking professionals still earn roughly five times
more, on average, than workers in other industries.)
The downside to all the hours invested is I-banking firms are getting pickier
about the associates they select for promotions to managing director or
partner. Goldman Sachs, for instance, now anoints partners every two years
instead of once a year. And the number of partners it selects every two years
is small. In 2018, 69 people earned the honor, according to the company’s
Web site, the smallest class in more than a decade. In recent years, Goldman
has sought to increase the number of women and ethnic minorities in
management levels. Women made up 26 percent of the 2018 partner class,
and 6 percent were African Americans—the most ever in both categories.
Fewer than 1 percent of Goldman’s 36,600 employees are partners.
That’s the downside of the investment banking life. The upside is, of course,
the money. Few career paths pay as well as investment banking. It may be a
short career; most I-banking firms expect their associates to eventually move
on to other interests; associates or managing directors taking early retirement
in their 40’s is not unusual. In any event, working as an I-banking associate
will offer some valuable life lessons: learning how to survive and thrive in a
difficult working environment; and it teaches you more about hands-on
finance than you can get in almost any other occupation.
Talk Like a Pro
Glossary
10-K
Audited financial statements filed annually with the Securities & Exchange
Commission; the report includes a balance sheet, cash flow statement,
income statement, and explanation of company performance (Management’s
Discussion and Analysis).
10-Q
Set of quarterly financial statements public companies file with the Securities
& Exchange Commission. Similar to a 10K statement.
accredited investor
A Securities and Exchange Commission term for financially sophisticated
investors, such as banks, insurance companies, or high-net-worth individuals.
Accredited investors can get fewer investor protections than the general
public.
active investor
An investor who uses available information to seek a better performance than
achievable by holding a broadly diversified portfolio.
algorithmic trading
A trading system that uses advanced mathematical models to buy or sell large
blocks of securities.
alternative investment
Financial assets outside traditional investment classes—stocks, bonds or
cash; typically owned by institutions or high-net-worth individuals.
annual report
Combination of financial statements, management discussion, and analysis—
including information in the 10K report—provided annually by publicly
traded U.S. companies.
arbitrage
Trading stocks, bonds, commodities, or other assets in two different markets
to take advantage of pricing differences and book a profit.
arranger
A financial institution that is involved in leading a financing transaction; also
called a bookrunner.
asset allocation
The practice of distributing a portfolio’s assets among various types of
investments—stocks, bonds, cash, etc.—to achieve a desired investment
return at an acceptable level of risk.
asset management
Professional management of investments to achieve attractive returns; also
known as investment management.
asset securitization
The process of taking a non-liquid asset, and through financial engineering,
transforming it into a security (a final instrument that has value).
back office
Support functions responsible for the processing transactions made by
traders and fund managers.
balance sheet
One of three main financial statements—a snapshot of a company’s financial
condition—assets and liabilities—on a given date. (The other two are cash
flow statement and income statement.) Public companies must issue these
statements quarterly in their 10Q reports and annually, at the end of their
fiscal year, in a 10K statement.
basis point
A hundredth of a percentage point, used to measure changes in interest rates
and bond yields.
bear market
Any market in which prices exhibit a declining trend for a prolonged period.
blockchain
A type of distributed ledger database (similar to a relational database) that
maintains a continuously-growing list of records that cannot be altered,
except after agreement by all parties in the chain. Blockchain is a form of
distributed ledger technology.
Bloomberg
A computer terminal connected to a proprietary news feed most commonly
found on the desks of sales people and traders, providing current and
historical market information, as well as e-mail and instant messaging
services.
blue chip
Well-established company with a good record of earnings, sought by
investors seeking relative safety and stability.
bond
Long-term debt instrument with the promise to pay a specified interest and
return of the original investment on a stated maturity date.
bookrunner
The firm or firms leading a financing transaction. “Solebooks” refers to a
deal with only one leading institution, whereas “jointbooks” refers to a deal
with two or more institutions. The term bookrunner is also synonymous with
arranger.
broker
An individual or firm that charges a fee or commission to execute buy and
sell orders from another individual or firm.
bulge bracket
The largest and most prestigious Wall Street banks; these firms typically take
the largest positions in a new offering of securities.
buy side
Asset management firms working for individual and institutional investors,
making buy or sell decisions acting as agent for their clients.
call protection
A mechanism used to entice investors to purchase debt securities, whereby a
company must pay a premium to repurchase its debt during a specified period
of time. Call protection is usually stated in 1 percent and one year
increments. For example, call protection of “102/101” would mean that a
company has the right to repurchase its debt for 102 cents on the dollar in the
first year, 101 cents in the second year, and par thereafter. The term “NC”
refers to a no-call period, where a company is restricted from repurchasing
its debt for a certain period of time, usually a year.
capital
The total of the equity accounts in a bank; these include common and
preferred stock, surplus, and undivided profits.
capital structure
This refers to the composition of a company’s debt and equity, including
stock, bonds, and loans.
CFA exam
Three-part exam that tests your knowledge in financial accounting,
investment analysis, economics, and other topics. The exam is taken over the
course of three years.
Chartered Financial Analyst (CFA)
A CFA Institute designation that is awarded to individuals who receive a
passing grade on the CFA exam and who meet other requirements.
Chinese wall
The separation between public and private sections of an investment bank,
including sales, trading, and research from corporate finance. Many banks
even have physical barriers and/or e-mail restrictions to support this effort.
commercial banks
Financial entities that accept deposits from individuals and organizations and
that make loans to a full spectrum of borrowers—from private individuals, to
corporations, to government agencies.
commercial paper
Short-term corporate debt, typically maturing in nine months or less.
commodity
A tangible good or item—such as gold, grain, or cattle—that can be bought
or sold.
convertible bonds
Bonds that can be converted into a specified number of shares of stock.
cost of capital
Rate of return required before owners will invest in an income-producing
asset. Analysts often measure the cost of capital by taking a weighted average
of a firm’s debt and various equity securities.
counterparty
The financial institution or organization on the opposite side of a transaction.
credit derivative
An agreement between two parties, whose payoff depends on whether a
credit event (bankruptcy, default, downgrade, etc.) occurs. Credit derivatives
offset risk.
cryptocurrency
A digital cash that is increasingly being used as a substitute or complement to
traditional currency. Cryptocurrency payments are not processed through a
central banking system or trusted third party, but are sent from payer to
payee. Bitcoin is the most-popular cryptocurrency. Facebook and a
consortium of nearly 30 partners are currently developing Libra, a new
cryptocurrency, which will be backed by international currencies such as the
dollar, yen, and euro.
dark pool
Platform allowing trades of large blocks of shares away from the public
exchanges; prices are disclosed only after the trades have been completed.
depreciation
The reduction in book value or market value of an asset; also the portion of
an investment (or an income producing asset) that can be deducted from
taxable income.
derivative
A financial contract that derives its value from an existing bond, share,
currency, or commodity. Derivatives will move in direct relationship to the
price of the underlying investment.
discounted cash flow (DCF)
A valuation method used to estimate the attractiveness, or potential future
earnings, of an investment being considered; if the DCF value is higher than
the investment’s current cost, the investment is a good opportunity.
distributed ledger technology
A database of records that is consensually shared and synchronized among
multiple entities. It is used to improve data security, provide a fact-based
record of transactions for regulatory purposes, and for other purposes.
due diligence meeting
A meeting conducted by an underwriter of a new offering; such a meeting
provides an opportunity to ask the issuing company questions about its
background, financial stability, and intended use of the proceeds from the
sale.
equities
Shares in a corporation representing a claim over a proportion of its assets
and profit.
ERISA
Employee Retirement Income Security Act of 1974. The federal law defining
most pension plan requirements.
exchange-traded fund (ETF)
An investment pool that is similar to a mutual fund; ETF shares are adjusted
to current market values throughout the day, unlike mutual funds.
Federal Deposit Insurance Corporation
An independent agency of the federal government that insures deposits in
banks and thrift institutions for at least $250,000; identifies and addresses
risks to deposit insurance funds; and seeks to negate the effects on the
economy and the financial system when a thrift institution or bank fails.
financial engineering
The application of mathematical methods and tools (such as applied
mathematics, statistics, computer science, and economic theory) to solve
problems in finance. Also known as computational finance, financial
mathematics, and mathematical finance.
fintech
A financial technology company uses technology to provide financial
services to consumers or businesses. Examples of fintech products and
services include crowdfunding platforms, blockchain and cryptocurrency
exchanges, mobile payments, insurance (known as insurtech), robo-advising
and stock trading apps, and budgeting apps.
fixed income
Bonds and other securities that earn a fixed rate of return. Bonds are
typically issued by governments, corporations, and municipalities.
fund manager
An individual or team that manages a fund of stocks, bonds, and other
securities. The fund manager decides when to buy or sell the bonds and
shares held in the fund.
futures
Contracts for the sale/purchase of a specified quantity of a currency,
commodity, or financial instrument at an agreed-upon price on a given future
date. Futures are available for stocks, stock indexes, U.S. Treasury debt,
foreign currencies, Eurodollar deposits, and other financial instruments.
futures contract
A legal agreement to buy or sell a certain amount and type of a certain
specified commodity at some future date.
growth stock
A stock that analysts believe will have better than average earnings and
growth in share price; characteristic of high technology companies, which
typically do not pay dividends but have higher growth potential than more
established companies.
hedge fund
An investment pool managed as a private investment partnership; hedge funds
try to generate returns by taking long or short positions or buying derivatives
and futures contracts. By the nature of these strategies, hedge funds take a
high level of risk.
index
A statistical measure of financial market performance, computed daily and
for specific time periods; for example, the Dow Jones Industrial Average,
comprising the 30 largest U.S. companies or the Standard & Poor’s 500,
representing a broad group of publicly traded U.S. companies.
initial public offering (IPO)
The initial sale of shares of common stock, representing ownership in the
issuing company. An IPO is arranged by a group of investment banks known
as the underwriting syndicate, or syndicate.
investment bank
A financial intermediary that specializes in large and complex financial
transactions such as helping companies access capital markets (stock market
and bond market, for instance) to raise money for expansion or other needs
and facilitating mergers and other corporate reorganizations.
junk bond
A risky bond offering a higher rate of return and higher default risk than a
bond issued by a financially stable company; also known as a high yield
bond.
lead manager
The primary investment bank managing a securities offering. (An investment
bank may share this responsibility with one or more co-managers.)
league table
Ranking of companies based on a set of criteria such as revenue, earnings,
deals, or any other relevant criteria. League tables are used for comparing
companies within a group for investment research or for marketing purposes.
letter of credit
An obligation issued by a financial institution on behalf of a bank customer to
a third party.
leveraged
This refers to companies or debt securities with a BB+ or lower S&P rating
(or Ba1 or lower Moody’s rating).
leveraged buyout
The purchase of a company with borrowed money, often using the company’s
assets as collateral.
leverage ratio
A financial ratio used by investors to assess a company’s debt obligations in
relation to its cash flow. Usually measured as Total Debt/EBITDA, often a
fixed number (or a schedule of numbers) is structured into loan contracts.
Investors tend to focus very heavily on both the coverage and leverage ratios
of a company before investing in its debt.
liquidity
The amount of a particular bond or stock that is available for trading in the
stock market.
making markets
A function performed by investment banks to provide liquidity for their
clients in a particular security, often for a security that the investment bank
has underwritten. (In others words, the investment bank stands willing to buy
the security, if necessary, when the investor later decides to sell it.)
market capitalization
The value of a company’s stock, calculated by multiplying the price of shares
by the number of shares outstanding (owned by investors).
market maker
A firm or individual that sets buy and sell prices in a financial instrument or
commodity.
merchant banking
The department within an investment bank that invests the firm’s own money
in other companies. Analogous to a private equity arm.
middle office
A functional area that supports front office sales and trading in financial and
legal matters, such as corporate treasury and risk management.
money market securities
This term is generally used to represent the market for securities maturing
within one year. These include short-term certificates of deposit, repurchase
agreements, and commercial paper (low-risk corporate issues), among
others. These are low risk, short-term securities that have yields similar to
Treasuries.
mortgage-backed bonds
Bonds collateralized by a pool of mortgages. Interest and principal payments
are based on the individual homeowners making their mortgage payments.
The more diverse the pool of mortgages backing the bond, the less risky they
are. Also known as munis.
municipal bonds
Bonds issued by local and state governments, a.k.a. municipalities.
Municipal bonds are structured as tax-free for the investor, which means
investors in munis earn interest payments without having to pay federal taxes.
Sometimes investors are exempt from state and local taxes, too.
Consequently, municipalities can pay lower interest rates on muni bonds than
other bonds of similar risk.
mutual fund
A professionally managed investment pool sold to the public through sale of
shares representing an ownership interest. These funds have a board of
directors or trustees to make sure it is managed for the benefit of investors.
mutual fund supermarket
Distribution channel for mutual funds and ETFs giving investors and
investment advisors access to hundreds of different funds; popularized by
Charles Schwab & Co. and since copied by other firms.
net interest margin
A performance metric used by banks that examines how successful their
investment decisions are compared to their debt situations. A positive value
suggests that the bank made good decisions because interest expenses were
less than the amount of returns generated by investments.
offering memorandum (OM)
The offering memorandum is a marketing document prepared by an
investment bank for a loan offering. The OM generally contains transaction,
competitor, financial, management, and investment risk information. OMs are
circulated to investors in order to educate them about the company, before
investing in the company’s securities. They are similar in nature to a bond
prospectus. Also referred to as an information memorandum.
passive investor
An investor who relies on broad diversification to match the performance of
a market index, commonly referred to as indexing.
P/E ratio
Price to earnings ratio; the comparison of a company’s stock price to its
earnings. A higher P/E ratio indicates a more expensive stock. Growth stocks
tend to have higher P/E ratios.
pitchbook
The book of exhibits, graphs, and initial recommendations presented by
bankers to prospective clients when trying to land an engagement.
portfolio
A collection of investments (stock shares, bonds, convertibles, cash, real
estate, etc.). Owning a portfolio reduces one's risk by holding different types
of investments and spreading out the risk.
prime broker
An investment bank that provides financing and other services to institutional
clients, typically to hedge funds. Services can include securities lending,
leveraged trade executions, and cash management.
private equity
Equity investment in companies not traded on a public stock exchange. The
portfolio may include traditional assets such as bonds, but also hedge funds,
real estate, and commodities.
proprietary trading
Profit-oriented trading in the financial markets using a bank’s own capital, as
distinct from trading with funds contributed by investors.
prime rate
The base rate U.S. banks use to price loans for their best customers.
prospectus
A report issued by a company and approved by the Securities & Exchange
Commission prior to a public sale of securities; the prospectus document
discloses the company’s financial condition and management, as well as risk
factors and suitability of the offering to investors.
public information book
Generally prepared by analysts, public information books are a compilation
of all public information that exists for a company, including public
financials, press releases, and analyst reports. Before the due diligence
phase, corporate finance teams will usually read through these to get a better
idea of the company’s recent activities and performance.
rating agency presentation
The deck of slides used by investment banks when presenting a security for
rating by one of the major rating agencies: Moody’s or Standard & Poor's.
recapitalization
A transaction where a company’s capital structure is changed, by issuing one
security for another. Recapitalizations often involve the repurchase of shares
by the issuance of debt or the replacement of existing debt with a new type
and/or different-sized tranche. Often times, a recapitalization can be done to
fend off a hostile takeover, by issuing debt for the company to repurchase
existing equity shares.
risk management
Calculating the probability of some unexpected, unwelcome outcome, and
taking steps to prevent that from happening, or to mitigate the effects of any
potential losses.
risk premium
Additional return on investment compensating investors for owning a
particular stock or bond; usually calculated by comparing the investment
yield to that of so-called risk-free investments like U.S. Treasury securities.
roadshow
A series of marketing presentations to investors by an issuing company,
usually in the weeks prior to an offering.
sales memo
Short reports are written by the corporate finance bankers and distributed to
the bank’s salespeople. The sales memo provides salespeople with points to
emphasize when marketing to investors the stocks and bonds the firm is
underwriting.
secured debt
Debt that is secured by the assets of the firm is referred to as secured debt.
Although usually coming in the form of loans, secured debt can also take the
form of bonds. If a company is liquidated, those investors in the firm’s
secured debt are paid out first and foremost with the proceeds from the sale
of the firm’s assets. Secured debt is almost entirely classified as “senior
debt.”
securities
Financial instruments that represent some type of financial value.
securitization
A financial technique that pools assets from multiple sources and converts
them into a marketable security to be sold to investors.
sell side
A term for brokers who sell bonds and shares to customers and the research
departments of investment banks that make recommendations to their clients.
senior debt
Most often in the form of loans or bonds, this refers to debt that has
repayment priority in the event of bankruptcy. “Senior” also refers to the
place of the debt in the firm’s capital structure in comparison to other
instruments of the same type. If a firm is liquidated, its senior debt is paid out
before its junior debt. Therefore, junior debt usually must compensate
investors with higher yield from spreads for this increased risk.
short position
The practice of making money on a security whose value is expected to fall;
also called short selling.
short-term debt
A bond that matures in nine months or less. Also called commercial paper.
specialty firm
An investment management firm that focus on one type of style, product, or
client type.
spot market
A financial market in which trades are completed for immediate delivery, as
opposed to futures markets in which delivery is due at a specified later time.
spread
The difference between the price at which a financial institution will buy a
bond or share and the price at which it will sell.
standard deviation
The statistical measure of the risk associated with price changes in a
particular asset owned (stocks, bonds, etc.), or the investment risk in a given
portfolio of mutual funds, ETFs, or any other type of investment. The
Standard & Poor’s 500 index has a standard deviation of 1.0.
structured product
A tailor-made investment package that combines bonds with other types of
assets, created using complex modeling techniques.
syndicate
A group of investment banks that together will underwrite a particular stock
or debt offering. Usually the lead manager will underwrite the bulk of a deal,
while other members of the syndicate will each underwrite a small portion.
syndicated loan
This refers to a type of loan provided to a company by a group of lenders
(investment banks and/or institutions).
tombstone
Usually found in pitchbooks, these are logos and details from past successful
deals done by an investment bank. Often times for hallmark transactions,
these same details will be placed on a notable object and distributed to the
company and bankers, to serve as a memento of a deal. For example, a high-
yield bond for a sporting equipment manufacturer might be commemorated
with actual baseball bats or footballs, inscribed with transaction information.
treasury securities
Securities issued by the U.S. government. These are divided into Treasury
Bills (maturity of up to two years), Treasury Notes (from two years to 10
years maturity), and Treasury Bonds (10 years to 30 years). As they are
government guaranteed, treasuries are often considered risk-free. In fact,
while U.S. Treasuries have no default risk, they do have interest rate risk; if
rates increase, then the price of U.S. Treasuries will decrease.
treasury stock
Common stock that is owned by the company but not outstanding, with the
intent either to be reissued at a later date, or retired. It is not included in the
calculations of financial ratios, such as P/E or EPS, but is included in the
company’s financial statements.
value at risk
The measure of the potential changes in portfolio value over a specified
period of time.
value stock
The characteristic of a well-capitalized, dividend-paying company with a
low price-to-earnings ratio and low price-to-book ratio. Analysts and
investors view such companies as “diamonds in the rough” that have
undervalued assets and earnings potential.
venture capitalist
Investors in start-up companies, usually ones with some technological
innovation that means the investment has the potential to yield high returns.
underwrite
The function performed by investment banks when they help companies issue
securities to investors. Technically, the investment bank buys the securities
from the company and immediately resells the securities to investors for a
slightly higher price, making money on the spread.
yield
The annual return on investment. A high yield bond, for example, pays a high
rate of interest.
Learn More
Advice on Interviewing Strategy
Askivy.net: Investment Banking Interview Dress Code
https://www.askivy.net/articles/investment-banking/interviewpreparation/investment-banking-interview-dress-code
This Web site offers 16 tips for men and 11 tips for women on how best to
dress for success during an investment banking (IB) interview.
Mergers & Inquisitions: Investment Banking Interviews
https://www.mergersandinquisitions.com/investmentbanking/recruitment/interviews/
This article provides a comprehensive resource to what to expect and how to
prpeare for investment banking interviews. It addresses key topics as typical
interview questions and expected answers, "fit" questions, case studies, and
much more.
Nomura Holdings, Inc.: Application and Interview Tips
https://www.nomura.com/americas/careers
This investment bank’s Web site provides advice on the types of interview
questions Nomura recruiters ask applicants, how to prepare for interviews,
and what to do on the day of the interview.
RBC Capital Markets: Interview Hints & Tips
https://www.rbccm.com/en/careers/programs.page
Visit this investment bank’s Web site to learn about its application and
interview process.
RBS Group: 6 Questions You Might Be Asked at Your Next Interview
https://jobs.rbs.com/posts/6-questions-you-might-be-asked-at-your-nextinterview
This Web site provides advice on how to answer six questions—including
"What do you know about the organisation?"; "Tell me about a time
when...?"; "What are you good at?"; and "Do you have any questions for
us?"—that may be asked by RBS recruiters.
Robert W. Baird & Co.: Interview Preparation Strategies
https://content.rwbaird.com/careers/PDF/Baird-Interview-PreparationStrategies.pdf
This four-page resource offers tips on preparing for and succeeding during
interviews, dressing appropriately for interviews, and common interview
mistakes to avoid. It also provides sample questions to ask interviewers.
Banking and Finance Salaries, 2019
Accountant (1–3 years of experience): $51,500 to $96,500
Accountant (5+ Years): $68,000 to $129,250
Analyst: $55,000 to $104,500
Chief Compliance Officer: $164,750 to $313,500
Compliance Analyst: $67,750 to $128,750
Credit Analyst (1–3 years of experience): $44,000 to $83,500
Credit Analyst (3–5 years of experience): $52,250 to $97,000
Portfolio Manager: $97,250 to $185,000
Regulatory Reporting Professional (1–3 years of experience): $49,250
to $93,250
Regulatory Reporting Professional (3–5 years of experience): $60,000
to $112,750
Regulatory Reporting-Manager: $74,750 to $141,500
Sales/Trader Assistant: $48,000 to $91,500
Source: Robert Half Accounting & Finance
Questions for New or Soon-to-Be
Graduates
You probably won’t be asked too many technical questions if you’re new to
the industry. According to JPMorgan’s Web site, here are some of the
questions you might encounter during your job interview:
What differentiates our firm from other firms you are considering?
What most interests you about Investment Banking/Asset
Management/Treasury Services & Investor Services?
What industry or product groups interest you, and why?
Provide an example of a situation in which you had multiple competing
deadlines—how did you prioritize? Were the deadlines met? What did
you or would you have done if you were unable to meet the deadlines?
You’re taking pitchbooks to an important client meeting that starts in
five minutes and you find a critical typo. There is no time to reprint the
books. What would you do?
Questions for Experienced Workers
Technical questions gauge your knowledge of the banking industry and assess
how you would use this knowledge and your experience to solve problems.
According to JPMorgan, here are some of the questions you might encounter
during your job interview for an associate position (a worker with at least
two years on the job):
Your client is a domestic U.S. manufacturer who wants to open a plant
in a country with low labor costs. He’s considering Mexico, Brazil, and
China. How would you advise him? What issues would you consider?
Tell me about a time or a project when you faced a crisis late on a
Friday night and there was no one you could contact for help or advice.
What did you do?
Your client is a large, privately owned company that needs to raise
capital to expand. The CFO has asked you about an IPO. What other
options are there, and what are the pros and cons of each?
Here are some additional technical questions you might be asked:
What are the advantages of raising funds through bonds rather than
equity?
What happens to various figures in financial statements if $150 is added
to the current depreciation amount?
What major factors drive mergers and acquisitions?
Can you walk me through the major line items of a cash flow statement?
What opportunities does a financial downturn present to financiers?
Tips for Acing an Interview
Here are some general tips for getting ready for and performing well during
an interview:
Double-check the date, location, and time. Do you know how to get to
the interview site? Is there adequate parking? Be sure to get there in
plenty of time, at least 10 minutes before your appointed interview time.
There’s nothing worse than arriving late, flustered and sweaty.
Dress appropriately. Wear your best suit, and make sure your shoes are
shined. “You have exactly five seconds to make a great first impression,
so dress for the part,” advises JPMorgan. “Usually, this means
professional, formal business attire.”
Be yourself. “Scripted answers sound false and skilled interviewers can
usually spot this,” advises Citibank at its employment Web site. “We’re
looking for real experiences you’ve had that you can tell us about in a
natural, engaging way.”
Be confident. Confidence isn’t the same as arrogance. Don’t show off.
Be curious and interested. Have some thoughtful questions ready to ask,
but don’t ask anything obvious. And hold off on asking any questions
about salary unless you are prompted.
Demonstrate good body language. “Slouching, folding your arms, or
fidgeting suggests you’re not interested in the conversation,” advises
Citibank.
Think carefully when answering questions. “Don’t feel you have to give
an immediate answer to a complicated hypothetical question,” advises
Citibank. “It is perfectly acceptable to pause and gather your thoughts
before answering.”
Keep your responses brief. Your interviewer will be assessing your thought
process and how well you communicate. Don’t ramble on unnecessarily.
How to Prep for Telephone
Interviews
Prepare for a telephone interview the same as you would for an in-person
job interview.
Dress the same as you would if you were sitting in the same room with
your interviewer. In other words, wear your interview suit.
Sit up in your chair and remember to smile. When you smile, you’re
relaxed; more to the point, a smile communicates warmth and
friendliness.
Listen. Practice listening skills before your actual interview. During the
interview, be attentive to any verbal prompts or cues so that you know
when the other person is finished talking and it’s your turn to say
something.
Breathe normally. This will help you stay focused and calm during the
interview.
Are presentation materials required? Consider sending any prepared
documentation (pro forma business plans, project notes, etc.) via e-mail
in advance of the interview.
Case Study: How to Answer
Difficult Interview Questions
“Why do you want to be an investment banker?”
“Why should I pick you instead of someone from an Ivy League school?”
“What are your greatest weaknesses?”
These and other questions are famous for making job interviewees break into
a cold sweat. Answer well, and you’ll impress the hiring manager and move
one step closer to landing a job. Give a poor answer, and you’re back to
square one of the job search. The key to overcoming uncomfortable questions
is preparation. You should think about the types of challenging questions that
you’ll be asked (Glassdoor.com offers lists, and people in your network
might be able to provide some examples) and carefully prepare responses
that will make you appear confident and capable.
Here are a few interview questions that can fluster an applicant and
strategies on how to answer them:
Question: Why do you want to be an investment banker?
Answer Strategy: If you’re straight out of college, you should say that
investment banking provides the best experience available to someone who
wants to help companies achieve their strategic financing goals. You can also
say that you like the idea that work in the I-banking industry is challenging,
unpredictable, and exciting (this would be a good time to insert an anecdote
related to a recent interesting development in the I-banking industry). You
could also acknowledge that you know the work will be demanding and
require long hours. This demonstrates that you’re aware of the requirements
of a career in I-banking but excited about the challenges of the job.
Question: Why should I pick you instead of someone from an Ivy League
school?
Answer Strategy: If you didn't attend an Ivy League school, you need to
confidently explain how the skills that you bring to the table can match those
of an Ivy League grad. First, you should tell the interviewer that you attended
a less-prestigious college because it was located in-state and had lower
tuition (if that was the case). You should then cite the quality of the program
that you attended, applicable classes that demonstrate your qualifications,
your strong GPA and any academic awards that you received, and your
membership in finance-related clubs. Be sure to mention internships or jobs
that you held at respected banks, and express confidence (not arrogance) that
you can do the job. You can also say that attending a less-prominent college
has put a “chip on your shoulder” and that you intend to use this as motivation
to work exceptionally hard and demonstrate your ability.
Question: Where else are you interviewing? Are you interviewing outside
banking?
Answer Strategy: There are two schools of thought regarding these
questions. Some recruiters believe that it’s okay to provide the names of
other companies with which you’ve interviewed, but job seekers are
cautioned to give honest answers. The industry is relatively small (especially
in investment banking), and making an erroneous claim about an interview
that never happened could lead to you being caught in a lie. Job-search
experts also advise applicants to never admit that they are interviewing
outside the banking industry. Doing so may cause the interviewer to question
your commitment to working in banking.
Others believe that it’s best not to reveal the names of any other banks on
your interview schedule. If you provide the names, the hiring manager might
use them as a benchmark to decide if you’re actually worth hiring. For
example, if you’re interviewing at a Vault Banking 50 firm and reveal that the
rest of your interviews are scheduled with lesser-known banks, the hiring
manager might decide that you’re not ready for the “big time.”
Question: What are your greatest weaknesses?
Answer Strategy: There are two potential responses to this question. First,
you could prepare a list of skills that are not your strongest points but that are
considered non-essential for employees in the banking industry. One way to
do this would be to scan the in-demand skills cited at the bank’s Web site or
in relevant job listings and choose a few that are not on the list. That way, the
honest shortcomings that you present won’t have a huge impact on whether or
not you get the job.
A better strategy is to prepare a list of two or three areas in which you have
needed improvement in the past (even if they appear on the bank’s in-demand
skills list) and craft short stories of how you turned what had been
weaknesses into assets. So when an interviewer asks you the dreaded
question, be honest, detail the weaknesses (communication and time
management, for example), and describe the steps you’ve taken to become a
better communicator and time manager. Try to provide real-life examples of
how you’ve improved these skills, using situations from college, internships,
or your work experience. It’s even better if you can provide a LinkedIn tout
or a letter of reference from a former professor, internship coordinator, or
employer who compliments you on the specific skills you mention.
Investment Banking Basics
Alexander, Kern. Principles of Banking Regulation. New York: Cambridge
University Press, 2019. Alexander uses an interdisciplinary approach (i.e.,
law, economics, finance, etc.) to detail the state of bank regulation around the
world since the Great Recession of 2008.
Fleuriet, Michel. Investment Banking Explained: An Insider's Guide to the
Industry, 2nd ed., New York: McGraw-Hill Education, 2018. This book
answers a variety of questions about the investment banking industry,
including "What is investment banking?"; "How do investment bankers create
profit for their clients?"; and "How has the industry changed in the past
decade?"
Hubbard, Glenn P., and Anthony P. O'Brien. Money, Banking, and the
Financial System, 3rd ed., Upper Saddle River, N.J.: Pearson, 2017: This
textbook provides an excellent overview of the financial industry. Chapters
include The Economics of Banking; Beyond Commercial Banks: Shadow
Banks and Nonbank Financial Institutions; Financial Crises and Financial
Regulation; and The Federal Reserve and Central Banking.
Krantz, Matthew, and Robert Johnson. Investment Banking For
Dummies, Hoboken, N.J.: For Dummies, 2014: This is an excellent primer
for the I-banking novice who would like to learn more about mergers and
acquisitions, discounted cash flow analysis, the ins and outs of leveraged
buyouts, determining return on equity, and many other topics.
Lewis, Michael. Flash Boys: A Wall Street Revolt. New York: W. W. Norton
& Company, 2015: This award-winning author examines the rise of highfrequency trading in the U.S. equity market, and how a small number of
traders are using it to abuse the financial trading system and cheat investors.
Smith Jr., Winthrop H. Catching Lightning in a Bottle: How Merrill Lynch
Revolutionized the Financial World, Hoboken, N.J.: John Wiley & Sons,
2014: This book details the evolution of this groundbreaking investment firm,
from its start as a one-man shop in 1914, to its rise to the heights of the
industry in the 1990s, to its acquisition by Bank of America in 2008.
Authored by the son of Merrill Lynch co-founder Winthrop H. Smith, this is a
fascinating look at one of the major investment firms of the past century.
Wall Street Trivia
Wall Street was created during a financial bubble. As the Dutch were
settling New Amsterdam and setting up shop, their world was rocked by
the famous Tulip Mania bubble of 1637. Prices of tulip bulbs soared to
unsustainable heights, only to crash months later.
Wall Street got its name from a wall—an actual wall stretching across
the width of Manhattan to protect early settlers from possible attack by
Native American tribes.
The first bank on Wall Street, the Bank of New York, was founded in
1784 by Alexander Hamilton, first U.S. secretary of the treasury.
The Dow Jones Industrial Average has its origins in Charles Dow’s
Customer Afternoon Letter, first issued back in 1884. Dow, along with
co-founder Edward Jones, published their list of commonly traded
industrial stocks 12 years later, in 1896. Initially, 12 companies were
listed in the Dow Jones Industrial Average. Only one, GE, remains in
business today.
Bulls and Bears in finance have a long history, dating to at least the late
18th century in published accounts. While experts disagree on how the
terms actually originated, a “bull market” generally means rising prices,
while a “bear market” means the opposite—falling prices.
Investment Banking Podcasts
It’s estimated that there are more than 750,000 podcasts in production. Fiftyone percent of Americans have listened to a podcast, according to The
Infinite Dial, a long-running survey of digital media consumers that is
produced by Edison Research and Triton Digital. Podcasts make us laugh,
cry, and think about big issues. They also teach us about a variety of topics,
ranging from technology and space exploration to gardening, exercise, and
music. Even investment banks are getting into the act, with nearly every
major investment bank (including Goldman Sachs, Morgan Stanley, Barclays,
JPMorgan Chase, UBS, and Deutsche Bank) having at least one podcast.
These podcasts are available at the companies’ Web sites, as well as
sometimes on Apple Podcasts and Spotify. “Podcast listeners tend to be an
intellectually curious audience, and that makes sense for our brand,”
explained Liz Bowyer, Goldman Sachs’ co-head of brand and content
strategy, in an interview about the trend in Fortune.
Investment banking podcasts cover a variety of topics, and have a wide
variety of formats and audiences. Some are geared toward consumers and
feature discussions about everything from corporate stock buybacks and
deregulation to Brexit, bear markets, and bonds, as well as interviews with
investment bankers and others in the field. Others are geared toward industry
insiders. Regardless of their format and intended audience, aspiring
investment banking professionals should check out podcasts from investment
banks and other providers to build their knowledge and learn about key
issues that influence and affect the industry. Listening to these podcasts is
another way to gather intel on a particular company or trends in the field. You
could even mention a company’s podcast(s) during a job interview to
demonstrate your enthusiasm for the firm. Here are some podcasts to listen
to:
Barclays
“The Flip Side” (https://www.investmentbank.barclays.com/ourinsights/the-flip-side-podcast.html)
Citigroup
“Treasury
&
Turbulence”
(https://www.euromoney.com/podcasts/treasury-and-turbulence)
Deutsche Bank
“Podzept”
(https://www.dbresearch.com/PROD/RPS_ENPROD/Podzept_Podcast_series/PODCASTS.alias)
Goldman Sachs
"Exchanges
at
Goldman
Sachs”
(https://www.goldmansachs.com/insights/series/exchanges-at-goldmansachs)
“Top
of
Mind
at
Goldman
Sachs
(https://www.goldmansachs.com/insights/series/top-of-mind)
JPMorgan Chase
“Market
Insights”
(https://am.jpmorgan.com/us/en/assetmanagement/gim/adv/insights/market-insights)
“Eye on the Market” (https://am.jpmorgan.com/eotm/home)
“My
Next
Move”
(https://privatebank.jpmorgan.com/gl/en/ofinterest/podcasts/my-next-move)
Morgan Stanley
“Ideas” (https://www.morganstanley.com/ideas/morgan-stanley-ideaspodcast)
UBS
“On-Air” (https://open.spotify.com/show/47vQjhp6mZmrSaq7RMZpi9)
“Top
of
the
Morning”
(https://www.ubs.com/us/en/wfw/articles/invest/fw/ubs-top-of-themorning.html)
What Employers Want to See on
Your Resume and Cover Letter
In addition to specialized industry knowledge, certification, a strong GPA,
and internship experience, employers look for graduates who have “soft
skills.” The National Association of Colleges and Employers asked
employers (as part of its Job Outlook 2019 survey) to name the most
important soft skills for new hires. The most important skill was written
communication, which was cited by 82 percent of survey respondents. Other
important traits included:
Problem-solving skills (cited by 80.9 percent of respondents)
Ability to work in a team (78.7 percent)
Initiative (74.2 percent)
Analytical/quantitative skills (71.9 percent)
Strong work ethic (70.8 percent)
Verbal communication skills (67.4 percent)
Leadership (67.4 percent)
Detail-oriented (59.6 percent)
Technical skills (59.6 percent)
Flexibility/adaptability (58.4 percent)
Computer skills (55.1 percent)
Interpersonal skills (52.8 percent)
Some banks also list in-demand soft skills for job applicants on their Web
sites. UBS states that it seeks applicants who have the following skills:
judgment and decision-making, innovation, communication, drive and
commitment, teamwork and collaboration, and planning and organizing.
Rothschild looks for banking professionals who can demonstrate “good
communication skills, drive and ambition, sound judgment, creativity,
execution excellence, presence, teamwork, and numeracy.”
Writing an Attention-Getting
LinkedIn Profile
LinkedIn is the number one social media site for promoting your professional
presence. It remains the preferred spot for recruiters to post job listings—
and for jobseekers to get noticed. So what do employment recruiters want to
see in your LinkedIn profile?
LinkedIn is more than an online resume. Recruiters use LinkedIn for
“comparison shopping” when considering a pool of applicants to fill an open
position. They do a lot of headline reading since they don’t have a lot of time
to read through an entire profile.
When creating your profile page on LinkedIn, write it in a way that speaks to
your target audience. The five top items recruiters want to see in your
LinkedIn profile are:
Your picture.
A short list of clearly defined problem-solving skills. Give each job
skill a brief headline or title. List one or more accomplishments for
each skill set.
A one-paragraph “white space” summary of your professional
background.
A quantifiable work history. Keywords (searchable text) are important
in your work history; make your work experience readable with one to
three bullet points for each position (or internship) in your work history.
Any relevant add-ons (education, Web sites, books you’re reading,
banking clubs and organizations you’ve joined, LinkedIn groups, etc.) to
round out your profile.
Resources
The AIMA represents approximately 2,000 corporate members in the global
alternative investment industry.
Alternative Investment Management Association
167 Fleet Street, 2nd Floor
London EC4A 2EA UK
Tel: 44 (0)20 7822 8380
E-mail: info@aima.org
http://www.aima.org
The AABD serves the information, education, and advocacy needs of bank
directors.
American Association of Bank Directors
1300 I Street NW, Suite 400E
Washington, D.C. 20005-3318
Tel: (202) 463-4888
E-mail: info@aabd.org
http://www.aabd.org
The ABA offers banking information, as well as an overview of schools and
their business programs, at its Web site.
American Bankers Association
1120 Connecticut Avenue, NW
Washington, D.C. 20036-3902
Tel: (800) 226-5377
E-mail: custserv@aba.com
http://www.aba.com
This organization “represents the interests of banks underwriting and
dealing in securities, proprietary mutual funds, and derivatives before
Congress and the federal government.”
American Bankers Association Securities Association
https://www.aba.com/abasa
The AFSA describes itself as the "primary trade association for the
consumer credit industry--protecting access to credit and consumer
choice."
American Financial Services Association
919 18th St, NW, Suite 300
Washington, D.C. 20006-5531
E-mail: info@afsamail.org
http://www.afsaonline.com
The institue is the world's largest member association representing
professional accountants.
American Institute of Certified Public Accountants
1211 Avenue of the Americas
New York, NY 10036-8775
Tel: (888) 777-7077
E-mail: service@aicpa.org
http://www.aicpa.org
The AIC is an advocacy and resource organization that provides
information about the contributions of the private equity investment
industry to long-term economic growth in the U.S.
American Investment Council
799 9th Street, NW, Suite 200
Washington, D.C. 20001-5324
Tel: (202) 465-7700
E-mail: info@investmentcouncil.org
http://www.investmentcouncil.org
Visit the association’s Web site for information about management trends,
job listings, and membership for college students.
American Management Association
1601 Broadway, 6th Floor
New York, NY 10019-7664
Tel: (877) 566-9441
E-mail: customerservice@amanet.or
http://www.amanet.org
The AFCPE is a nonprofit organization sets standards for financial
counseling, coaching, and education.
Association for Financial Counseling and Planning Education
79 South State Street, Suite D3
Westerville, OH 43081-2066
Tel: (614) 368-1055
http://www.afcpe.org
The AFP is the professional society that represents finance executives
throughout the world.
Association for Financial Professionals
4520 East West Highway, Suite 800
Bethesda, MD 20814-3354
Tel: (301) 907-2862
http://www.afponline.org
BAI provides financial service leaders with updated information on news,
research, and events in the industry.
BAI
115 South LaSalle Street, Suite 3300
Chicago, IL 60603-3801
Tel: (800) 224-9889
E-mail: info@bai.org
http://www.bai.org
The center provides information on workshops, home study courses,
educational materials, and publications for futures and securities
professionals.
Center for Futures Education
PO Box 309
Grove City, PA 16127-0309
Tel: (724) 458-5860
E-mail: info@thectr.com
http://www.thectr.com
CFP Board is a nonprofit organization that sets standards for financial
planning certification.
Certified Financial Planner Board of Standards
1425 K Street, NW, #800
Washington, D.C. 20005-3673
Tel: (800) 487-1497
E-mail: mail@cfpboard.org
http://www.cfp.net
Visit the institute’s Web site for information on certification for financial
analysts.
CFA Institute
915 East High Street
Charlottesville, VA 22902-4868
Tel: (800) 247-8132
E-mail: info@cfainstitute.org
http://www.cfainstitute.org
For information on membership, contact
CFA Society New York
1540 Broadway, Suite 1010
New York, NY 10036-2714
Tel: (212) 541-4530
E-mail: education@cfany.org
https://www.cfany.org
For more information on hedge funds, contact
Coalition of Private Investment Companies
http://www.hedgefundfacts.org/hedge/coalition-of-private-investmentcompanies-cpic
This organization represents the professional interests of senior-level
financial executives. Visit its Web site for more information.
Financial Executives International
1250 Headquarters Plaza, West Tower, 7th Floor
Morristown, NJ 07960-6837
Tel: (973) 765-1000
http://www.financialexecutives.org
FINRA is a not-for-profit organization that regulates the broker-dealer
industry.
Financial Industry Regulatory Authority
1735 K Street, NW
Washington, D.C. 20006-1506
Tel: (301) 590-6500
http://www.finra.org
This organization develops and distributes knowledge about financial
practices globally.
Financial Management Association International
University of South Florida, Muma College of Business
Tampa, FL 33620-5500
Tel: (813) 974-2084
E-mail: fma@coba.usf.edu
http://www.fma.org
FWA offers career support for women in finance as well as a job bank.
Financial Women's Association of New York
25 East 21st Street, Floor 6
New York, NY 10010-6207
Tel: (212) 533-2141
E-mail: fwaoffice@fwa.org
http://fwa.org
The FIA is a major trade organization for the futures, options, and cleared
swaps markets industry worldwide.
Futures Industry Association
2001 Pennsylvania Avenue, NW, Suite 600
Washington, D.C. 20006-1823
Tel: (202) 466-5460
E-mail: info@fia.org
http://www.fia.org
The ICBA represents the community banking industry and its membership
through advocacy and education.
Independent Community Bankers of America
1615 L Street, NW, Suite 900
Washington, D.C. 20036-5623
Tel: (800) 422-8439
E-mail: info@icba.org
http://www.icba.org
For information on certification, contact
Institute of Certified Bankers
1120 Connecticut Avenue, NW, Suite 600
Washington, D.C. 20036-3971
http://www.aba.com
The IMA is a worldwide association of business accountants and financial
professionals and is a great resource for information on certification,
careers, continuing education, and its online professional network.
Institute of Management Accountants
10 Paragon Drive, Suite 1
Montvale, NJ 07645-1760
Tel: (800) 638-4427
E-mail: ima@imanet.org
http://www.imanet.org
For information on education and careers in financial engineering, visit
International Association for Quantitative Finance
http://www.iaqf.org
For information on its members, visit
International Association of Investment Bankers
http://www.iaib.org
This organization advances the interests of investment fund investors while
promoting public understanding of investment funds worldwide.
International Investment Funds Association
11 King Street West, Suite 400
Toronto, ON M5H 4C7 Canada
Tel: (416) 309-2314
E-mail: info@iifa.ca
http://www.iifa.ca
For information on mutual funds and to read the Investment Company Fact
Book, contact
Investment Company Institute
1401 H Street, NW, Suite 1200
Washington, D.C. 20005-2110
Tel: (202) 326-5800
http://www.ici.org
For information on membership and certification, contact
Investments & Wealth Institute
5619 DTC Parkway, Suite 500
Greenwood Village, CO 80111-3044
Tel: (303) 770-3377
E-mail: TheInstitute@investmentsandwealth.org
https://investmentsandwealth.org
For information on the alternative investment industry (which includes
hedge funds, funds of hedge funds, managed futures funds, and other
nontraditional asset classes), contact
Managed Funds Association
600 14th Street, NW, Suite 900
Washington, D.C. 20005-2002
Tel: (202) 730-2600
E-mail: info@managedfunds.org
https://www.managedfunds.org
The MBA represents the real estate finance industry and advocates policy
initiatives to support the success of its members.
Mortgage Bankers Association
1919 M Street NW, 5th Floor
Washington, D.C. 20036-3572
Tel: (800) 793-6222
E-mail: education@mba.org
http://www.mba.org
The NACT addresses the issues facing senior financial executives in the
industry.
National Association of Corporate Treasurers
11130 Sunrise Valley Drive, Suite 350
Reston, VA 20190-4371
Tel: (703) 437-4377
E-mail: nact@nact.org
http://www.nact.org
The NACM is the premier resource for knowledge, learning, and
networking in the credit management profession.
National Association of Credit Management
8840 Columbia 100 Parkway
Columbia, MD 21045-2158
Tel: (410) 740-5560
E-mail: nacm_national@nacm.org
http://www.nacm.org
The NFA is the self-regulatory organization of the U.S. derivatives industry
that enforces rules to protect investors and help its members comply with
regulations.
National Futures Association
300 South Riverside Plaza, #1800
Chicago, IL 60606-6615
Tel: (312) 781-1300
E-mail: information@nfa.futures.org
https://www.nfa.futures.org
For information on conferences and its members, contact
National Investment Banking Association
422 Chesterfield Road
Bogart, GA 30622-1763
Tel: (706) 208-9620
http://www.nibanet.org
The NMA is a nonprofit organization that provides leadership development
and new opportunities to its members across a wide range of industries.
National Management Association
2210 Arbor Boulevard
Dayton, OH 45439-1580
Tel: (937) 294-0421
http://www.nma1.org
This organization advocates for policies on behalf of the U.S. venture
capital community and serves as a resource for data on the industry.
National Venture Capital Association
25 Massachusetts Avenue, NW, Suite 730
Washington, D.C. 20001-7401
Tel: (202) 864-5920
E-mail: membership@nvca.org
http://www.nvca.org
The society represents more than 3,500 corporate, industrial, service,
nonprofit, charitable, and government risk-related entities around the
world.
RIMS, the risk management society
1407 Broadway, 29th Floor
New York, NY 10018-5100
Tel: (212) 286-9292
https://www.rims.org
SIFMA is a trade group that represents securities firms, asset management
companies, and banks in the United States.
Securities Industry and Financial Markets Association
120 Broadway, 35th Floor
New York, NY 10271-3599
Tel: (212) 313-1200
E-mail: inquiry@sifma.org
http://www.sifma.org