An Overview of Investment Banking and Recruiting Presented by: Jessica Delfino William Kim With contributions by Mike Hudgin & Ekaterina Petrovitch

Agenda What is Investment Banking? The Role of an Analyst Recruitment Which Bank? Interviews Question and Answer

What is Investment Banking?

The Role of an Analyst

Recruitment

Which Bank?

Interviews

Question and Answer

Introduction Jessica Delfino Highlights Producer NBC Sports, Paris, London, Los Angeles, New York [email_address] William Kim Analyst – Municipal Markets/DCM/ECM Merrill Lynch & Co., New York [email_address]

Jessica Delfino

Highlights Producer

NBC Sports, Paris, London, Los Angeles, New York

[email_address]

William Kim

Analyst – Municipal Markets/DCM/ECM

Merrill Lynch & Co., New York

[email_address]

What is Investment Banking?

What is Investment Banking? Investment Banking is Neither Investing Nor Banking Investment Banks: Raise capital for companies in the debt or equity markets through various instruments. e.g. stocks, bonds, options, notes, structured products. Advise companies on financing and merger alternatives. Investment banking activities include: Investment Banking Division (“IBD”) Concerned with financing and advising public and private institutions Sales Concerned with buying and selling products on behalf of the bank’s clients Trading Concerned with executing client trades and taking positions for the firm. Research Concerned with producing reports relevant to valuations of financial products

Investment Banking is Neither Investing Nor Banking

Investment Banks:

Raise capital for companies in the debt or equity markets through various instruments. e.g. stocks, bonds, options, notes, structured products.

Advise companies on financing and merger alternatives.

Investment banking activities include:

Investment Banking Division (“IBD”)

Concerned with financing and advising public and private institutions

Sales

Concerned with buying and selling products on behalf of the bank’s clients

Trading

Concerned with executing client trades and taking positions for the firm.

Research

Concerned with producing reports relevant to valuations of financial products

What is Investment Banking? Investment Banks sell things Investment Banks are Sell-side I-Banks sell their services to the Buy-side (Individual, Institutional, Endowment Fund, and Pension fund investors) What do Investment Banks sell? I-Banks sell their Intellectual Capital and ability to execute Underwriting is the ability to create and sell financial products to buy-side investors at the lowest cost of financing that achieves the client’s goals Advisory provides clients with innovative financing and merger solutions S&T provides expertise and infrastructure to clients to facilitate transactions provide products, and make markets Research augments S&T and gives clients the firm’s insights into products Everything in this business is about selling. You are selling your product/service, selling your firm, and selling yourself to the client at all times.

Investment Banks sell things

Investment Banks are Sell-side

I-Banks sell their services to the Buy-side (Individual, Institutional, Endowment Fund, and Pension fund investors)

What do Investment Banks sell?

I-Banks sell their Intellectual Capital and ability to execute

Underwriting is the ability to create and sell financial products to buy-side investors at the lowest cost of financing that achieves the client’s goals

Advisory provides clients with innovative financing and merger solutions

S&T provides expertise and infrastructure to clients to facilitate transactions provide products, and make markets

Research augments S&T and gives clients the firm’s insights into products

What is Investment Banking? What do Investment Bankers do? Client service Build relationships Pitch ideas Process Build models Handle deal flow Tell a company’s story Provide judgment Know the market, industries and companies to add value to clients’ decision-making process

What do Investment Bankers do?

Client service

Build relationships

Pitch ideas

Process

Build models

Handle deal flow

Tell a company’s story

Provide judgment

Know the market, industries and companies to add value to clients’ decision-making process

What is Investment Banking? Front, Middle and Back Office Front Office Corporate Finance, Sales and Trading, Syndicate, Research and M&A Raises funds in the Capital Markets and advises clients Middle Office Risk Management Analyzes the market and credit risk that traders are taking onto the balance sheet and sets capital limits Trade Support Assists traders with daily activities like trade processing Back Office Operations Data-checks that trades have been executed, ensures they are not erroneous, and transacts required transfers Technology Supports the considerable amounts of proprietary software, data, and systems that are ubiquitous in major I-Banks

Front, Middle and Back Office

Front Office

Corporate Finance, Sales and Trading, Syndicate, Research and M&A

Raises funds in the Capital Markets and advises clients

Middle Office

Risk Management

Analyzes the market and credit risk that traders are taking onto the balance sheet and sets capital limits

Trade Support

Assists traders with daily activities like trade processing

Back Office

Operations

Data-checks that trades have been executed, ensures they are not erroneous, and transacts required transfers

Technology

Supports the considerable amounts of proprietary software, data, and systems that are ubiquitous in major I-Banks

What is Investment Banking? Consumer Products & Retail Energy & Power Financial Institutions (“FIG”) Global Industrials (“GIG”) Healthcare Real Estate Technology, Media & Telecom (“TMT”) Transportation Debt Capital Markets (“DCM”) Equity Capital Markets (“ECM”) Mergers and Acquisitions (“M&A”) High Yield Finance Leveraged Finance Project Finance Leasing Restructuring Product and Industry Groups work closely to complete a transaction . Industry groups handle a number of different companies in their respective industries Product groups handle the structuring and execution of a number of deals irrespective of industries Primary Groups within “IBD” Industry Groups Product Groups

Consumer Products & Retail

Energy & Power

Financial Institutions (“FIG”)

Global Industrials (“GIG”)

Healthcare

Real Estate

Technology, Media & Telecom (“TMT”)

Transportation

Debt Capital Markets (“DCM”)

Equity Capital Markets (“ECM”)

Mergers and Acquisitions (“M&A”)

High Yield Finance

Leveraged Finance

Project Finance

Leasing

Restructuring

Product and Industry Groups work closely to complete a transaction .

Industry groups handle a number of different companies in their respective industries

Product groups handle the structuring and execution of a number of

deals irrespective of industries

What is Investment Banking? Associate MBA 1 2 Years 2 Years 3 Years 3 Years 3 Years ? Years Nota Bene: 1 Some analysts stay a third year and are then promoted to Associate without pursuing an MBA 2 Every firm has a different corporate structure Hierarchy and Typical Time Spent in Each Position Managing Director Executive Director 2 Director Analyst

What is Investment Banking? Global subprime credit crisis Rogue traders found at French bank Société Générale and Swiss bank Credit Suisse The US Federal Reserve orchestrated the rescue takeover of Bear Stearns ~47,000 jobs in finance have vanished as the credit crisis continues to lay waste to the industry ( as of April, not including Bear Sterns) The US is redrawing the regulatory landscape for its financial services industry as it last did after the Great Depression “ Fear is stalking the financial system and … markets have become so complicated that it is difficult to work out exactly what is going on” In April 2008, Marcel Ospel, one of the most respected and long-standing figures in European banking, agreed to leave UBS after its revelation of £6bn of losses in the first quarter of the year after a stunning SFr19bn (£9.5bn) write-down for CDO and sub-prime losses ARS Market Meltdown and litigation Hiring freezes at Merrill Lynch and many other investment banks Freddie Mac/Fannie Mae crisis August 29 th , 2008  Lehman Brothers reportedly prepared to lay off up to 1,500 people in its fourth round of cutbacks this year (6% of workforce total) The Industry Today

Global subprime credit crisis

Rogue traders found at French bank Société Générale and Swiss bank Credit Suisse

The US Federal Reserve orchestrated the rescue takeover of Bear Stearns

~47,000 jobs in finance have vanished as the credit crisis continues to lay waste to the industry ( as of April, not including Bear Sterns)

The US is redrawing the regulatory landscape for its financial services industry as it last did after the Great Depression

“ Fear is stalking the financial system and … markets have become so complicated that it is difficult to work out exactly what is going on”

In April 2008, Marcel Ospel, one of the most respected and long-standing figures in European banking, agreed to leave UBS after its revelation of £6bn of losses in the first quarter of the year after a stunning SFr19bn (£9.5bn) write-down for CDO and sub-prime losses

ARS Market Meltdown and litigation

Hiring freezes at Merrill Lynch and many other investment banks

Freddie Mac/Fannie Mae crisis

August 29 th , 2008  Lehman Brothers reportedly prepared to lay off up to 1,500 people in its fourth round of cutbacks this year (6% of workforce total)

The Role of an Analyst

The Role of an Analyst The Analyst’s Main Responsibilities Modeling Creating Presentations Creating Books (i.e. CIMs, Pitches, Bank) Formatting Setting up Dial-ins Entertaining the Client (i.e. if on road show) Facilitating the job of your Director and Associate

The Analyst’s Main Responsibilities

Modeling

Creating Presentations

Creating Books (i.e. CIMs, Pitches, Bank)

Formatting

Setting up Dial-ins

Entertaining the Client (i.e. if on road show)

Facilitating the job of your Director and Associate

The Role of an Analyst What Makes a Great Analyst? Great attitude (never say no, but manage your capacity) Reliability (books/materials on chairs prior to meetings/calls, triple-checked numbers, correct dial-ins) Accuracy (every possible research source examined, no typos, careful numbers work) Communicating with senior bankers and support staff to manage expectations Timeliness (deadlines, time management , parallel processing) Technical skills (accounting, finance and spreadsheet skills) Absolute intolerance for imperfection (perfect formatting, no errors, on time) Ability to eyeball your work and catch any unreasonable numbers at a glance Always footnote assumptions Questions? Ask fellow Analysts/Associates first Senior bankers are not interested in how the sausage is cooked, they just want to eat it No demand is unmeetable, there is always a solution

What Makes a Great Analyst?

Great attitude (never say no, but manage your capacity)

Reliability (books/materials on chairs prior to meetings/calls, triple-checked numbers, correct dial-ins)

Accuracy (every possible research source examined, no typos, careful numbers work)

Communicating with senior bankers and support staff to manage expectations

Timeliness (deadlines, time management , parallel processing)

Technical skills (accounting, finance and spreadsheet skills)

Absolute intolerance for imperfection (perfect formatting, no errors, on time)

Ability to eyeball your work and catch any unreasonable numbers at a glance

Always footnote assumptions

Questions? Ask fellow Analysts/Associates first

Senior bankers are not interested in how the sausage

is cooked, they just want to eat it

No demand is unmeetable, there is always a solution

Recruiting

Recruiting Full Time Analyst Recruiting starts in early September Banks come to McGill and give information sessions Resume and Cover Letters are typically submitted no later than the day of the info session The bank looks through your documents and gives you a call if they are interested First round interviews held in Bronfman or at the bank’s office in Montréal Second round interviews are conducted in Toronto typically as a “Super Saturday” Offers are extended following successful second round interviews Recruiting starts around mid September Only a few banks come to campus to give information sessions Best way in is through connections Usually secures interview only First round interviews held in Bronfman (for the banks that visit campus) or by telephone Second round interviews are held in the NYC offices as a “Super Saturday” Offers extended the week following “Super Saturday” Canada United States

Recruiting starts in early September

Banks come to McGill and give information sessions

Resume and Cover Letters are typically submitted no later than the day of the info session

The bank looks through your documents and gives you a call if they are interested

First round interviews held in Bronfman or at the bank’s office in Montréal

Second round interviews are conducted in Toronto typically as a “Super Saturday”

Offers are extended following successful second round interviews

Recruiting starts around mid September

Only a few banks come to campus to give information sessions

Best way in is through connections

Usually secures interview only

First round interviews held in Bronfman (for the banks that visit campus) or by telephone

Second round interviews are held in the NYC offices as a “Super Saturday”

Offers extended the week following “Super Saturday”

Recruiting Summer Analyst Recruiting starts in early January Banks come to McGill and give information sessions Resume and Cover Letters are typically submitted no later than the day of the info session The bank looks through your documents and gives you a call if they are interested First round interviews held in Bronfman or at the bank’s office in Montréal Second round interviews are conducted in Toronto typically as a “Super Saturday” Offers are extended following successful second round interviews Recruiting starts a little later, usually in early February Only a few banks come to campus to give information sessions Best way in is through connections Usually secures interview only First round interviews held in Bronfman (for the banks that visit campus) or by telephone Second round interviews are held in the NYC offices as a “Super Saturday” Offers extended the week following “Super Saturday” Canada United States

Recruiting starts in early January

Banks come to McGill and give information sessions

Resume and Cover Letters are typically submitted no later than the day of the info session

The bank looks through your documents and gives you a call if they are interested

First round interviews held in Bronfman or at the bank’s office in Montréal

Second round interviews are conducted in Toronto typically as a “Super Saturday”

Offers are extended following successful second round interviews

Recruiting starts a little later, usually in early February

Only a few banks come to campus to give information sessions

Best way in is through connections

Usually secures interview only

First round interviews held in Bronfman (for the banks that visit campus) or by telephone

Second round interviews are held in the NYC offices as a “Super Saturday”

Offers extended the week following “Super Saturday”

Recruiting Canada or New York? – U.S./European Banks Smaller, satellite offices for U.S. and European banks (e.g., UBS, JPMorgan, Morgan Stanley, Deutsche Bank) Toronto, Calgary, Montréal, maybe Vancouver Get to interact more with your MD’s and may take on more responsibility at a satellite office Satellite offices are usually generalists and are more “Geographic Specialists” rather than industry specialists Risk of lay offs/shut downs of satellite offices – first offices to go Usually hire 1-2 summer analysts and 1-3 full-time analysts, depending on bank and year Will most likely work on deals concerning mining, natural resources, or commodities Training in New York or London (1 week for summers, 4 weeks for full time analysts) Financial capital of the world, headquarters for U.S. banks and North American headquarters for European banks Industry or product specialists - may work with a team from the Toronto office if working with a Canadian company in your industry May not get as much interaction with MD’s or VP’s, but you have a larger analyst pool to turn to with questions Bulge brackets usually hire 50-80 full-time analysts (including summers who’ve gotten offers), depending on bank and year You will be placed in an industry group and will work on deals in that group, e.g., consumer retail, energy, TMT. Will train in New York at the bank’s training facilities (1 week for summers, 4 weeks for full time analysts) Canada New York

Smaller, satellite offices for U.S. and European banks (e.g., UBS, JPMorgan, Morgan Stanley, Deutsche Bank)

Toronto, Calgary, Montréal, maybe Vancouver

Get to interact more with your MD’s and may take on more responsibility at a satellite office

Satellite offices are usually generalists and are more “Geographic Specialists” rather than industry specialists

Risk of lay offs/shut downs of satellite offices – first offices to go

Usually hire 1-2 summer analysts and 1-3 full-time analysts, depending on bank and year

Will most likely work on deals concerning mining, natural resources, or commodities

Training in New York or London (1 week for summers, 4 weeks for full time analysts)

Financial capital of the world, headquarters for U.S. banks and North American headquarters for European banks

Industry or product specialists - may work with a team from the Toronto office if working with a Canadian company in your industry

May not get as much interaction with MD’s or VP’s, but you have a larger analyst pool to turn to with questions

Bulge brackets usually hire 50-80 full-time analysts (including summers who’ve gotten offers), depending on bank and year

You will be placed in an industry group and will work on deals in that group, e.g., consumer retail, energy, TMT.

Will train in New York at the bank’s training facilities (1 week for summers, 4 weeks for full time analysts)

Recruiting Canada or New York? – Canadian Banks Headquarters in Toronto, usually have large offices in Montréal (e.g., BMO Capital Markets & CIBC World Markets) Placed in industry and product groups, but Mining and natural resources are still the largest industries in Canada, so learning how to value a mining company is crucial Usually hire 20 - 50 summer analysts and a very variable number of full-time analysts, depending on bank and year Due to the larger incoming analyst class, you have more analysts to turn to for questions Will usually train in your own office (e.g., Toronto or Montréal) Headquarters in Toronto, usually have limited presence in New York, but have some strategic satellite offices. Placed in specialty groups and strategic areas. Highly linked to cross-border or US specific transactions. Not many Canadian summer analysts are hired, but the number of first year analysts varies from bank to bank and year to year Will usually train in New York Canada New York

Headquarters in Toronto, usually have large offices in Montréal (e.g., BMO Capital Markets & CIBC World Markets)

Placed in industry and product groups, but Mining and natural resources are still the largest industries in Canada, so learning how to value a mining company is crucial

Usually hire 20 - 50 summer analysts and a very variable number of full-time analysts, depending on bank and year

Due to the larger incoming analyst class, you have more analysts to turn to for questions

Will usually train in your own office (e.g., Toronto or Montréal)

Headquarters in Toronto, usually have limited presence in New York, but have some strategic satellite offices.

Placed in specialty groups and strategic areas. Highly linked to cross-border or US specific transactions.

Not many Canadian summer analysts are hired, but the number of first year analysts varies from bank to bank and year to year

Will usually train in New York

Which Bank? How to Decide? People You have to work with them 15-20 hours a day or more … Culture Conservative? Aggressive? Competitive? Collegial? Face time? General feel Do you see yourself working here? Career goals Where do you want to work after two years? Location and industry Specialization Is this bank the best in what you want to do?

How to Decide?

People

You have to work with them 15-20 hours a day or more …

Culture

Conservative? Aggressive? Competitive? Collegial? Face time?

General feel

Do you see yourself working here?

Career goals

Where do you want to work after two years?

Location and industry

Specialization

Is this bank the best in what you want to do?

Which Bank? Bulge Bracket vs. Boutique Provide a full range of investment banking services, across all major regional financial markets around the globe – the US, Europe, Asia and Latin America Very large: Incoming Full Time Analyst classes typically around 50-80 Goldman, Sachs & Co.; Merrill Lynch & Co.; Morgan Stanley; Credit Suisse; Deutsche Bank; JPMorgan; UBS Securities; Lehman Brothers; Citigroup; Macquarie Group Specialize in a few aspects of Investment Banking; not full service Very small relative to Bulge Brackets with fewer international offices Very small: Incoming Full Time Analyst classes of around 1-5 Lazard; Greenhill & Co.; ThinkPanmure; Jefferies Bulge Bracket Boutique

Provide a full range of investment banking services, across all major regional financial markets around the globe – the US, Europe, Asia and Latin America

Very large: Incoming Full Time Analyst classes typically around 50-80

Goldman, Sachs & Co.; Merrill Lynch & Co.; Morgan Stanley; Credit Suisse; Deutsche Bank; JPMorgan; UBS Securities; Lehman Brothers; Citigroup; Macquarie Group

Specialize in a few aspects of Investment Banking; not full service

Very small relative to Bulge Brackets with fewer international offices

Very small: Incoming Full Time Analyst classes of around 1-5

Lazard; Greenhill & Co.; ThinkPanmure; Jefferies

Interviews What to Expect First round interviews Interviews are typically conducted two on one 15-25 minutes in total Analysts are trying to get a feel for you as a person and if you would be successful at their bank You should try to get a feel for the company; ask about their experience Both behavioural and technical questions Second round interviews Interviews conducted by employees from all levels of the firm Usually interviewed by 5-10 bankers, 10-20 minutes each, 3 on 1, 2 on 1, or 1 on 1 More technical questions and some brain teasers Behavioural questions are focused on finding out your real motivation to work in banking and to see if you would survive in the environment Stress test – They are looking to break you – don’t

First round interviews

Interviews are typically conducted two on one 15-25 minutes in total

Analysts are trying to get a feel for you as a person and if you would be successful at their bank

You should try to get a feel for the company; ask about their experience

Both behavioural and technical questions

Second round interviews

Interviews conducted by employees from all levels of the firm

Usually interviewed by 5-10 bankers, 10-20 minutes each, 3 on 1, 2 on 1, or 1 on 1

More technical questions and some brain teasers

Behavioural questions are focused on finding out your real motivation to work in banking and to see if you would survive in the environment

Stress test – They are looking to break you – don’t

Interviews What Comes Next Offer extended Offers are extended with decision deadlines If you find yourself in a position where you have been extended an offer, but are still waiting to hear back from another bank, communicate this with the recruiting staff. A bank that really want you will be flexible Some offers are “explosive offers” which force you to make a decision within a very short time frame (i.e. two days) Full time job offer Requires you to finish your degree Most don’t care about GPA once the offer has been extended Drug test required (USA) Training begins first week of July Summer analyst offer Drug test required (USA) Training/work begins first week of June (USA) Training/work begins first week of May (Canada)

Offer extended

Offers are extended with decision deadlines

If you find yourself in a position where you have been extended an offer, but are still waiting to hear back from another bank, communicate this with the recruiting staff. A bank that really want you will be flexible

Some offers are “explosive offers” which force you to make a decision within a very short time frame (i.e. two days)

Full time job offer

Requires you to finish your degree

Most don’t care about GPA once the offer has been extended

Drug test required (USA)

Training begins first week of July

Summer analyst offer

Drug test required (USA)

Training/work begins first week of June (USA)

Training/work begins first week of May (Canada)

Interviews Introduction and Behavioral Questions Tell me about yourself Why did you choose McGill? What is Investment Banking? Why do you want to do Banking? What would you like to tell me that’s not on your resume? What role do you usually assume in a team? Tell me an example of a time were part of a team that failed/was successful? How do you handle a problem with a teammate? Tell me what you think are the worst things about this job? What does an Analyst do? What makes you different than the other applicants? What is your greatest weakness/strength? What do you do in your spare time? What is your greatest accomplishment/disappointment/risk you’ve taken? What is your favorite/least favorite course at McGill?

Tell me about yourself

Why did you choose McGill?

What is Investment Banking?

Why do you want to do Banking?

What would you like to tell me that’s not on your resume?

What role do you usually assume in a team?

Tell me an example of a time were part of a team that failed/was successful?

How do you handle a problem with a teammate?

Tell me what you think are the worst things about this job?

What does an Analyst do?

What makes you different than the other applicants?

What is your greatest weakness/strength?

What do you do in your spare time?

What is your greatest accomplishment/disappointment/risk you’ve taken?

What is your favorite/least favorite course at McGill?

Interviews Technical Questions How do you value a firm? Which has a higher Beta, an airport or an airline? Walk me through the financial statements. How do they relate? What is the FCFF? How is it different from the cash flow statement? What is WACC and how do you derive it? Tell me some multiples you know. What is the difference between P/E, P/S? What is an LBO? Can you explain it to me? What is minority interest? What are deferred taxes and how would you handle them when calculating the Enterprise Value of a firm? What is the Enterprise Value? How do you calculate it? What is the difference between EBITDA and EBIT? How would you calculate the return on equity of a private firm with no comps?

How do you value a firm?

Which has a higher Beta, an airport or an airline?

Walk me through the financial statements. How do they relate?

What is the FCFF? How is it different from the cash flow statement?

What is WACC and how do you derive it?

Tell me some multiples you know.

What is the difference between P/E, P/S?

What is an LBO? Can you explain it to me?

What is minority interest?

What are deferred taxes and how would you handle them when calculating the Enterprise Value of a firm?

What is the Enterprise Value? How do you calculate it?

What is the difference between EBITDA and EBIT?

How would you calculate the return on equity of a private firm with no comps?

Interviews Your Turn Have questions prepared Ask about a recent deal Their job in particular Ask about something they mentioned in the interview Don’t ask about salary Ask when you can expect to hear back from them Thank them for their time They are doing interviews in addition to their normal work load If you are going to write a thank you letter make sure it is on Crane paper, not lined school paper.

Have questions prepared

Ask about a recent deal

Their job in particular

Ask about something they mentioned in the interview

Don’t ask about salary

Ask when you can expect to hear back from them

Thank them for their time

They are doing interviews in addition to their normal work load

If you are going to write a thank you letter make sure it is on Crane paper, not lined school paper.

Interviews General Tips If you already have an offer from another firm, let the interviewers know Don’t be cocky or pretend like you know everything about banking. Bankers, especially analysts, find this extremely aggravating and can see through it Relate your past work experience as much as you can to the job you are applying to Don’t forget to email them after your interview and thank them for their time Do this within 24 hours; the sooner the better Wear formal business attire, even if you know the work environment is business casual. Do not over dress (i.e. don’t wear a $2,000 suit and a $400 Hermès tie) Research the firm before you go to the interview. It is always good to know the firm’s most recent transactions.

If you already have an offer from another firm, let the interviewers know

Don’t be cocky or pretend like you know everything about banking. Bankers, especially analysts, find this extremely aggravating and can see through it

Relate your past work experience as much as you can to the job you are applying to

Don’t forget to email them after your interview and thank them for their time

Do this within 24 hours; the sooner the better

Wear formal business attire, even if you know the work environment is business casual. Do not over dress (i.e. don’t wear a $2,000 suit and a $400 Hermès tie)

Research the firm before you go to the interview. It is always good to know the firm’s most recent transactions.

Question and Answer