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Investment Banking 101 (F08)
 

Investment Banking 101 (F08)

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Investment Banking 101 (F08) Investment Banking 101 (F08) Presentation Transcript

  • 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
  • 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]
  • 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
  • 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.
  • 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 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
  • 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
  • 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
  • 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 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
  • 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 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 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
  • 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
  • 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?
  • 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
  • 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
  • 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)
  • 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?
  • 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?
  • 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.
  • 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.
  • Question and Answer