Investment Banking 101 (F08)


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  • Investment Banking 101 (F08)

    1. 1. An Overview of Investment Banking and Recruiting Presented by: Jessica Delfino William Kim With contributions by Mike Hudgin & Ekaterina Petrovitch
    2. 2. Agenda <ul><li>What is Investment Banking? </li></ul><ul><li>The Role of an Analyst </li></ul><ul><li>Recruitment </li></ul><ul><ul><li>Which Bank? </li></ul></ul><ul><ul><li>Interviews </li></ul></ul><ul><li>Question and Answer </li></ul>
    3. 3. Introduction <ul><li>Jessica Delfino </li></ul><ul><li>Highlights Producer </li></ul><ul><li>NBC Sports, Paris, London, Los Angeles, New York </li></ul><ul><li>[email_address] </li></ul><ul><li>William Kim </li></ul><ul><li>Analyst – Municipal Markets/DCM/ECM </li></ul><ul><li>Merrill Lynch & Co., New York </li></ul><ul><li>[email_address] </li></ul>
    4. 4. What is Investment Banking?
    5. 5. What is Investment Banking? <ul><li>Investment Banking is Neither Investing Nor Banking </li></ul><ul><li>Investment Banks: </li></ul><ul><ul><li>Raise capital for companies in the debt or equity markets through various instruments. e.g. stocks, bonds, options, notes, structured products. </li></ul></ul><ul><ul><li>Advise companies on financing and merger alternatives. </li></ul></ul><ul><li>Investment banking activities include: </li></ul><ul><ul><li>Investment Banking Division (“IBD”) </li></ul></ul><ul><ul><ul><li>Concerned with financing and advising public and private institutions </li></ul></ul></ul><ul><ul><li>Sales </li></ul></ul><ul><ul><ul><li>Concerned with buying and selling products on behalf of the bank’s clients </li></ul></ul></ul><ul><ul><li>Trading </li></ul></ul><ul><ul><ul><li>Concerned with executing client trades and taking positions for the firm. </li></ul></ul></ul><ul><ul><li>Research </li></ul></ul><ul><ul><ul><li>Concerned with producing reports relevant to valuations of financial products </li></ul></ul></ul>
    6. 6. What is Investment Banking? <ul><li>Investment Banks sell things </li></ul><ul><li>Investment Banks are Sell-side </li></ul><ul><ul><li>I-Banks sell their services to the Buy-side (Individual, Institutional, Endowment Fund, and Pension fund investors) </li></ul></ul><ul><li>What do Investment Banks sell? </li></ul><ul><ul><li>I-Banks sell their Intellectual Capital and ability to execute </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Advisory provides clients with innovative financing and merger solutions </li></ul></ul><ul><ul><li>S&T provides expertise and infrastructure to clients to facilitate transactions provide products, and make markets </li></ul></ul><ul><ul><li>Research augments S&T and gives clients the firm’s insights into products </li></ul></ul>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.
    7. 7. What is Investment Banking? <ul><li>What do Investment Bankers do? </li></ul><ul><li>Client service </li></ul><ul><ul><li>Build relationships </li></ul></ul><ul><ul><li>Pitch ideas </li></ul></ul><ul><li>Process </li></ul><ul><ul><li>Build models </li></ul></ul><ul><ul><li>Handle deal flow </li></ul></ul><ul><ul><li>Tell a company’s story </li></ul></ul><ul><li>Provide judgment </li></ul><ul><ul><li>Know the market, industries and companies to add value to clients’ decision-making process </li></ul></ul>
    8. 8. What is Investment Banking? <ul><li>Front, Middle and Back Office </li></ul><ul><li>Front Office </li></ul><ul><ul><li>Corporate Finance, Sales and Trading, Syndicate, Research and M&A </li></ul></ul><ul><ul><ul><li>Raises funds in the Capital Markets and advises clients </li></ul></ul></ul><ul><li>Middle Office </li></ul><ul><ul><li>Risk Management </li></ul></ul><ul><ul><ul><li>Analyzes the market and credit risk that traders are taking onto the balance sheet and sets capital limits </li></ul></ul></ul><ul><ul><li>Trade Support </li></ul></ul><ul><ul><ul><li>Assists traders with daily activities like trade processing </li></ul></ul></ul><ul><li>Back Office </li></ul><ul><ul><li>Operations </li></ul></ul><ul><ul><ul><li>Data-checks that trades have been executed, ensures they are not erroneous, and transacts required transfers </li></ul></ul></ul><ul><ul><li>Technology </li></ul></ul><ul><ul><ul><li>Supports the considerable amounts of proprietary software, data, and systems that are ubiquitous in major I-Banks </li></ul></ul></ul>
    9. 9. What is Investment Banking? <ul><li>Consumer Products & Retail </li></ul><ul><li>Energy & Power </li></ul><ul><li>Financial Institutions (“FIG”) </li></ul><ul><li>Global Industrials (“GIG”) </li></ul><ul><li>Healthcare </li></ul><ul><li>Real Estate </li></ul><ul><li>Technology, Media & Telecom (“TMT”) </li></ul><ul><li>Transportation </li></ul><ul><li>Debt Capital Markets (“DCM”) </li></ul><ul><li>Equity Capital Markets (“ECM”) </li></ul><ul><li>Mergers and Acquisitions (“M&A”) </li></ul><ul><li>High Yield Finance </li></ul><ul><li>Leveraged Finance </li></ul><ul><li>Project Finance </li></ul><ul><li>Leasing </li></ul><ul><li>Restructuring </li></ul><ul><li>Product and Industry Groups work closely to complete a transaction . </li></ul><ul><ul><li>Industry groups handle a number of different companies in their respective industries </li></ul></ul><ul><ul><li>Product groups handle the structuring and execution of a number of </li></ul></ul><ul><ul><ul><li>deals irrespective of industries </li></ul></ul></ul>Primary Groups within “IBD” Industry Groups Product Groups
    10. 10. 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
    11. 11. What is Investment Banking? <ul><li>Global subprime credit crisis </li></ul><ul><li>Rogue traders found at French bank Société Générale and Swiss bank Credit Suisse </li></ul><ul><li>The US Federal Reserve orchestrated the rescue takeover of Bear Stearns </li></ul><ul><li>~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) </li></ul><ul><li>The US is redrawing the regulatory landscape for its financial services industry as it last did after the Great Depression </li></ul><ul><li>“ Fear is stalking the financial system and … markets have become so complicated that it is difficult to work out exactly what is going on” </li></ul><ul><li>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 </li></ul><ul><li>ARS Market Meltdown and litigation </li></ul><ul><li>Hiring freezes at Merrill Lynch and many other investment banks </li></ul><ul><li>Freddie Mac/Fannie Mae crisis </li></ul><ul><li>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) </li></ul>The Industry Today
    12. 12. The Role of an Analyst
    13. 13. The Role of an Analyst <ul><li>The Analyst’s Main Responsibilities </li></ul><ul><li>Modeling </li></ul><ul><li>Creating Presentations </li></ul><ul><li>Creating Books (i.e. CIMs, Pitches, Bank) </li></ul><ul><li>Formatting </li></ul><ul><li>Setting up Dial-ins </li></ul><ul><li>Entertaining the Client (i.e. if on road show) </li></ul><ul><li>Facilitating the job of your Director and Associate </li></ul>
    14. 14. The Role of an Analyst <ul><li>What Makes a Great Analyst? </li></ul><ul><li>Great attitude (never say no, but manage your capacity) </li></ul><ul><li>Reliability (books/materials on chairs prior to meetings/calls, triple-checked numbers, correct dial-ins) </li></ul><ul><li>Accuracy (every possible research source examined, no typos, careful numbers work) </li></ul><ul><li>Communicating with senior bankers and support staff to manage expectations </li></ul><ul><li>Timeliness (deadlines, time management, parallel processing) </li></ul><ul><li>Technical skills (accounting, finance and spreadsheet skills) </li></ul><ul><li>Absolute intolerance for imperfection (perfect formatting, no errors, on time) </li></ul><ul><li>Ability to eyeball your work and catch any unreasonable numbers at a glance </li></ul><ul><li>Always footnote assumptions </li></ul><ul><li>Questions? Ask fellow Analysts/Associates first </li></ul><ul><li>Senior bankers are not interested in how the sausage </li></ul><ul><li>is cooked, they just want to eat it </li></ul><ul><li>No demand is unmeetable, there is always a solution </li></ul>
    15. 15. Recruiting
    16. 16. Recruiting Full Time Analyst <ul><li>Recruiting starts in early September </li></ul><ul><li>Banks come to McGill and give information sessions </li></ul><ul><li>Resume and Cover Letters are typically submitted no later than the day of the info session </li></ul><ul><li>The bank looks through your documents and gives you a call if they are interested </li></ul><ul><li>First round interviews held in Bronfman or at the bank’s office in Montréal </li></ul><ul><li>Second round interviews are conducted in Toronto typically as a “Super Saturday” </li></ul><ul><li>Offers are extended following successful second round interviews </li></ul><ul><li>Recruiting starts around mid September </li></ul><ul><li>Only a few banks come to campus to give information sessions </li></ul><ul><li>Best way in is through connections </li></ul><ul><ul><li>Usually secures interview only </li></ul></ul><ul><li>First round interviews held in Bronfman (for the banks that visit campus) or by telephone </li></ul><ul><li>Second round interviews are held in the NYC offices as a “Super Saturday” </li></ul><ul><li>Offers extended the week following “Super Saturday” </li></ul>Canada United States
    17. 17. Recruiting Summer Analyst <ul><li>Recruiting starts in early January </li></ul><ul><li>Banks come to McGill and give information sessions </li></ul><ul><li>Resume and Cover Letters are typically submitted no later than the day of the info session </li></ul><ul><li>The bank looks through your documents and gives you a call if they are interested </li></ul><ul><li>First round interviews held in Bronfman or at the bank’s office in Montréal </li></ul><ul><li>Second round interviews are conducted in Toronto typically as a “Super Saturday” </li></ul><ul><li>Offers are extended following successful second round interviews </li></ul><ul><li>Recruiting starts a little later, usually in early February </li></ul><ul><li>Only a few banks come to campus to give information sessions </li></ul><ul><li>Best way in is through connections </li></ul><ul><ul><li>Usually secures interview only </li></ul></ul><ul><li>First round interviews held in Bronfman (for the banks that visit campus) or by telephone </li></ul><ul><li>Second round interviews are held in the NYC offices as a “Super Saturday” </li></ul><ul><li>Offers extended the week following “Super Saturday” </li></ul>Canada United States
    18. 18. Recruiting Canada or New York? – U.S./European Banks <ul><li>Smaller, satellite offices for U.S. and European banks (e.g., UBS, JPMorgan, Morgan Stanley, Deutsche Bank) </li></ul><ul><li>Toronto, Calgary, Montréal, maybe Vancouver </li></ul><ul><li>Get to interact more with your MD’s and may take on more responsibility at a satellite office </li></ul><ul><li>Satellite offices are usually generalists and are more “Geographic Specialists” rather than industry specialists </li></ul><ul><li>Risk of lay offs/shut downs of satellite offices – first offices to go </li></ul><ul><li>Usually hire 1-2 summer analysts and 1-3 full-time analysts, depending on bank and year </li></ul><ul><li>Will most likely work on deals concerning mining, natural resources, or commodities </li></ul><ul><li>Training in New York or London (1 week for summers, 4 weeks for full time analysts) </li></ul><ul><li>Financial capital of the world, headquarters for U.S. banks and North American headquarters for European banks </li></ul><ul><li>Industry or product specialists - may work with a team from the Toronto office if working with a Canadian company in your industry </li></ul><ul><li>May not get as much interaction with MD’s or VP’s, but you have a larger analyst pool to turn to with questions </li></ul><ul><li>Bulge brackets usually hire 50-80 full-time analysts (including summers who’ve gotten offers), depending on bank and year </li></ul><ul><li>You will be placed in an industry group and will work on deals in that group, e.g., consumer retail, energy, TMT. </li></ul><ul><li>Will train in New York at the bank’s training facilities (1 week for summers, 4 weeks for full time analysts) </li></ul>Canada New York
    19. 19. Recruiting Canada or New York? – Canadian Banks <ul><li>Headquarters in Toronto, usually have large offices in Montréal (e.g., BMO Capital Markets & CIBC World Markets) </li></ul><ul><li>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 </li></ul><ul><li>Usually hire 20 - 50 summer analysts and a very variable number of full-time analysts, depending on bank and year </li></ul><ul><li>Due to the larger incoming analyst class, you have more analysts to turn to for questions </li></ul><ul><li>Will usually train in your own office (e.g., Toronto or Montréal) </li></ul><ul><li>Headquarters in Toronto, usually have limited presence in New York, but have some strategic satellite offices. </li></ul><ul><li>Placed in specialty groups and strategic areas. Highly linked to cross-border or US specific transactions. </li></ul><ul><li>Not many Canadian summer analysts are hired, but the number of first year analysts varies from bank to bank and year to year </li></ul><ul><li>Will usually train in New York </li></ul>Canada New York
    20. 20. Which Bank? <ul><li>How to Decide? </li></ul><ul><li>People </li></ul><ul><ul><li>You have to work with them 15-20 hours a day or more … </li></ul></ul><ul><li>Culture </li></ul><ul><ul><li>Conservative? Aggressive? Competitive? Collegial? Face time? </li></ul></ul><ul><li>General feel </li></ul><ul><ul><li>Do you see yourself working here? </li></ul></ul><ul><li>Career goals </li></ul><ul><ul><li>Where do you want to work after two years? </li></ul></ul><ul><ul><li>Location and industry </li></ul></ul><ul><li>Specialization </li></ul><ul><ul><li>Is this bank the best in what you want to do? </li></ul></ul>
    21. 21. Which Bank? Bulge Bracket vs. Boutique <ul><li>Provide a full range of investment banking services, across all major regional financial markets around the globe – the US, Europe, Asia and Latin America </li></ul><ul><li>Very large: Incoming Full Time Analyst classes typically around 50-80 </li></ul><ul><li>Goldman, Sachs & Co.; Merrill Lynch & Co.; Morgan Stanley; Credit Suisse; Deutsche Bank; JPMorgan; UBS Securities; Lehman Brothers; Citigroup; Macquarie Group </li></ul><ul><li>Specialize in a few aspects of Investment Banking; not full service </li></ul><ul><li>Very small relative to Bulge Brackets with fewer international offices </li></ul><ul><li>Very small: Incoming Full Time Analyst classes of around 1-5 </li></ul><ul><li>Lazard; Greenhill & Co.; ThinkPanmure; Jefferies </li></ul>Bulge Bracket Boutique
    22. 22. Interviews What to Expect <ul><li>First round interviews </li></ul><ul><ul><li>Interviews are typically conducted two on one 15-25 minutes in total </li></ul></ul><ul><ul><li>Analysts are trying to get a feel for you as a person and if you would be successful at their bank </li></ul></ul><ul><ul><li>You should try to get a feel for the company; ask about their experience </li></ul></ul><ul><ul><li>Both behavioural and technical questions </li></ul></ul><ul><li>Second round interviews </li></ul><ul><ul><li>Interviews conducted by employees from all levels of the firm </li></ul></ul><ul><ul><li>Usually interviewed by 5-10 bankers, 10-20 minutes each, 3 on 1, 2 on 1, or 1 on 1 </li></ul></ul><ul><ul><li>More technical questions and some brain teasers </li></ul></ul><ul><ul><li>Behavioural questions are focused on finding out your real motivation to work in banking and to see if you would survive in the environment </li></ul></ul><ul><ul><li>Stress test – They are looking to break you – don’t </li></ul></ul>
    23. 23. Interviews What Comes Next <ul><li>Offer extended </li></ul><ul><ul><li>Offers are extended with decision deadlines </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Some offers are “explosive offers” which force you to make a decision within a very short time frame (i.e. two days) </li></ul></ul><ul><li>Full time job offer </li></ul><ul><ul><li>Requires you to finish your degree </li></ul></ul><ul><ul><li>Most don’t care about GPA once the offer has been extended </li></ul></ul><ul><ul><li>Drug test required (USA) </li></ul></ul><ul><ul><li>Training begins first week of July </li></ul></ul><ul><li>Summer analyst offer </li></ul><ul><ul><li>Drug test required (USA) </li></ul></ul><ul><ul><li>Training/work begins first week of June (USA) </li></ul></ul><ul><ul><li>Training/work begins first week of May (Canada) </li></ul></ul>
    24. 24. Interviews Introduction and Behavioral Questions <ul><li>Tell me about yourself </li></ul><ul><li>Why did you choose McGill? </li></ul><ul><li>What is Investment Banking? </li></ul><ul><li>Why do you want to do Banking? </li></ul><ul><li>What would you like to tell me that’s not on your resume? </li></ul><ul><li>What role do you usually assume in a team? </li></ul><ul><li>Tell me an example of a time were part of a team that failed/was successful? </li></ul><ul><li>How do you handle a problem with a teammate? </li></ul><ul><li>Tell me what you think are the worst things about this job? </li></ul><ul><li>What does an Analyst do? </li></ul><ul><li>What makes you different than the other applicants? </li></ul><ul><li>What is your greatest weakness/strength? </li></ul><ul><li>What do you do in your spare time? </li></ul><ul><li>What is your greatest accomplishment/disappointment/risk you’ve taken? </li></ul><ul><li>What is your favorite/least favorite course at McGill? </li></ul>
    25. 25. Interviews Technical Questions <ul><li>How do you value a firm? </li></ul><ul><li>Which has a higher Beta, an airport or an airline? </li></ul><ul><li>Walk me through the financial statements. How do they relate? </li></ul><ul><li>What is the FCFF? How is it different from the cash flow statement? </li></ul><ul><li>What is WACC and how do you derive it? </li></ul><ul><li>Tell me some multiples you know. </li></ul><ul><li>What is the difference between P/E, P/S? </li></ul><ul><li>What is an LBO? Can you explain it to me? </li></ul><ul><li>What is minority interest? </li></ul><ul><li>What are deferred taxes and how would you handle them when calculating the Enterprise Value of a firm? </li></ul><ul><li>What is the Enterprise Value? How do you calculate it? </li></ul><ul><li>What is the difference between EBITDA and EBIT? </li></ul><ul><li>How would you calculate the return on equity of a private firm with no comps? </li></ul>
    26. 26. Interviews Your Turn <ul><li>Have questions prepared </li></ul><ul><ul><li>Ask about a recent deal </li></ul></ul><ul><ul><li>Their job in particular </li></ul></ul><ul><ul><li>Ask about something they mentioned in the interview </li></ul></ul><ul><li>Don’t ask about salary </li></ul><ul><li>Ask when you can expect to hear back from them </li></ul><ul><li>Thank them for their time </li></ul><ul><ul><ul><li>They are doing interviews in addition to their normal work load </li></ul></ul></ul><ul><li>If you are going to write a thank you letter make sure it is on Crane paper, not lined school paper. </li></ul>
    27. 27. Interviews General Tips <ul><li>If you already have an offer from another firm, let the interviewers know </li></ul><ul><li>Don’t be cocky or pretend like you know everything about banking. Bankers, especially analysts, find this extremely aggravating and can see through it </li></ul><ul><li>Relate your past work experience as much as you can to the job you are applying to </li></ul><ul><li>Don’t forget to email them after your interview and thank them for their time </li></ul><ul><ul><li>Do this within 24 hours; the sooner the better </li></ul></ul><ul><li>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) </li></ul><ul><li>Research the firm before you go to the interview. It is always good to know the firm’s most recent transactions. </li></ul>
    28. 28. Question and Answer