Personal introduction Book recommendation – interesting find…very secretive community in nature humorous recap of their years spent in the Investment Banking industry similar in spirit to Liar's Poker
- Universal platform banks (combining commercial banking/investment banking operations) have only been around since 1999 (Gramm-Leach-Bliley Act) - Also, independent banks -M&A advisors and underwriters of securities that are not affiliated with commercial banks - Often maintain special partnerships: i.e. Lazard Capital Markets - Generally formed around star bankers from full-service domain (relationship based) - Broker-dealer, capital markets focused banks also exist - In the spirit of the climate on Wall Street, can anyone name the six banks listed in the full-service category that are no longer around?
Currency exchange, merchant banking (equity-based financing to regional/local businesses) These are the banks most individuals come in contact with their entire lives
- For Acquiring Companies, Expansion and the Development of New Products Matches people who have money to those that need money Increased complexity => higher profits/returns The sell side of banking includes any firm which structures transactions or issues instruments The buy side describes the firms which buy (i.e. invest in) such issues, like insurance companies, pension funds, asset management firms, and hedge funds
Industry groups run transactions for a specific industry; they manage all product offerings Product groups focus on a transaction type; cover all industries On many deals, industry and product teams interface expertise to service the client
Responsible for client relationships and product execution Interact with clients, and manage the deal team Coordinate with senior bankers to develop presentation materials and perform subsequent analyses (generally hired out of MBA, unless direct promote) Hired out of undergrad program and perform all necessary work for successful implementation of analyses; focused on processing rather than development Assigned everything that Analyst doesn’t want to do Word processing – formatting, creation of presentation materials (cool diagrams, charts, tables, etc.); Research – Help with gathering information for respective deal – Wall Street Research, news, industry knowledge, shareholder information, etc.; Lazard India – Designed to support Analyst execution process – comparables, business profiles, etc.
with usually at least one weekend day constant pressure to perform, competitive environment, and demanding superiors running with 6 projects at once, minimal tolerance for errors before you’re trusted to operate without oversight catching up with your real work after 5PM not for the faint of heart in front of the computer
Interviews conducted in the fall (Oct. and Nov.) Interviews conducted in Feb. and March
Why do it? Challenging, fast paced Great experience, unparalleled industry and market knowledge: 3 years of experience @ 80 hours/week = 6 years of full-time knowledge Interaction with senior management from a variety of firms/industries Feeling of doing something noteworthy: your work “makes the papers” Experience looks great on the resume, opens doors to more humane jobs
- test social acumen and fit - wide gamut of people (from analysts up through MDs) - Convey your eagerness to learn and desire to work hard - NEVER try to BS your way through a question you can’t answer - Try to seem like the kind of person they could be around 12-15 hours a day; adopt the corporate culture they project
Interviewers take carte blanche with questions: ranging from the standard technical stuff into complete obscurity
Capital Expenditures would decrease on the Statement of Cash Flows, Increase cash on the Balance Sheet, going forward, but decrease PP&E respectively. Depreciation decreases on the Income Statement, so in subsequent years, Net Income would be higher, increasing shareholders’ equity in the future. DCF, Multiples (transaction, trading), LBO, Break-Up Public – More oversight, liquidity premium - Especially being part of an Investing club, you should have a stock pitch on hand at all times - Most states have 1 or 2 large airports. Average of 1.2/ state. One Northwest plane departs every 10 minutes. Times 50 states => 360 planes/hour - Rhetorical inquiries
- the more accounting the better
Limited direct-client interaction But you do have to be willing to work harder and sacrifice more than the average person Positive personality is key, due to the hours involved Like anything else in life, the right connections can provide necessary leverage Bottle service and a six-figure salary your first year out of college
adds substance to your resume and may result in an offer CFA, CPA, GMAT etc. They were in your shoes and will usually help if they can Associations like the SIA, honor societies, fraternities/sororities, family friends, etc. There are no shy i-bankers - call people, ask to meet them, ask for their advice and if they have any contacts
Be willing to make sacrifices - you can and will become wealthy in the business provided you can last If interested, you must utilize all available methods Despite some unpleasant experiences Patience & persistence will pay off
Michael Lewis, in Liar's Poker, his classic portrait of Wall Street in the 1980s, described how he invented &quot;logical lies&quot; as a trader to explain otherwise inexplicable events to nervous clients. Asked why the dollar fell, he would confidently say: &quot;Several Arabs had sold massive holdings of gold for which they received dollars. They were selling those dollars for marks and driving the dollar lower.&quot; In his words: &quot;Most of the time when markets move, no one has any idea why. A man who can tell a good story can make a good living as a broker. And it's amazing what people will believe... selling out of the Middle East was an old standby. Since no one ever had any clue what the Arabs were doing with their money or why, no story involving Arabs could ever be refuted.&quot;
In this clip from the film Boiler Room, Seth Davis, played by Giovanni Ribisi is at his best when dealing with matters of money, and the powerful scenes of Davis learning to be a “closer” can be taken as a lesson by prospective Sales & Trading Analysts.
Lets start with the basics: Efficient Markets Hypothesis EMH basically states that markets are perfectly efficient, and therefore recognize and reflect any relevant information immediately (inside/outside info). If this was actually true, then it would be impossible for anyone to consistently outperform the market. The reason I have these men up here (Warren Buffett, George Soros, Peter Lynch) is because these are men who have consistently beat the market. So in a way, they are living proof who challenge the validity of EMH. They don’t believe in EMH, If you believe in it, then you should not be considering a career in sales and trading.
1.) …a wide range of securities and derivatives in markets globally across many asset classes. 2.) To do this they work closely with research teams to extract and analyze relevant market information and then with trading to relay market sentiment and finalize deals. 3.) On a daily basis a trader will: make bids and offers for securities, structure trade ideas, manage and hedge his/her portfolio of risk. (Taking in mind: credit spreads, interest rates, etc.) Any given macro-economic report can shape the market on any given day, a lot of it is market psychology
To sum up: Sales develop their own client base (“buy-side”) and are responsible for developing long-term relationships, developing investment ideas, selling and cross-selling the firm's products, and for representing the firm with clients on important business issues Work with institutional buyers (pension, hedge funds, endowments, etc.), private investors, and corporations
4.) Who’s buying and selling what, how much are they buying and selling, how often are they doing it? 5.) Based on market dynamics, they must have a spur of the moment thesis on how changes affect the securities they are responsible for To sum up: Trading Generate trading ideas and analysis, and support all aspects of the market making trade execution process.
Two kinds of trading, flow v prop. Flow trading is more client driven where the majority of your trades and decisions are based off the sales-clients. – Bid $95: what the trader will buy the security at – Ask $96: what the trader will sell the security at - Last $96: what the last transaction was made at – The spread: the difference between the bid and the ask (– Bid/ask spread will depend on the liquidity and complexity of products) — The Investment Bank will employ its own capital to build trading positions which express the firm’s view on the markets and individual securities, which is what proprietary (or prop) trading is, when the firm makes trading decisions based on its own view of movement in the market. Prop trading is often much more profitable than Flow trading. The Investment Bank markets, allocates and stabilizes capital markets transactions originated by investment banking
1.) Emphasis on being current with market movements and developments 2.) As a junior member on a S&T desk you play a critical role in servicing clients 3.) No day is ever the same- from learning new products to structuring trades, the S&T environment is constantly changing 4.) Create innovative solutions to address client needs, execute “BIG” trades, P&L 5.) Speaking of your P&L, unlike many hierarchical professions, S&T is one the few that is almost entirely performance based. Your movements up and down the firm are almost solely determined by how much you bring into the firm. 6.) Lifestyle: Sales and trading professionals are the first-in-and-out in the investment bank. To get a jumpstart on the trading day, salespeople and traders normally get to the desk by 6:30am and often leave shortly after the markets close. NO WEEKENDS!
1.) To help clients manage risk, enhance yield and solve complex problems regarding risk/return 1.) Everyday you are in the trenches trying to understand client needs, and how best to meet them
ECNs: electronic communication networks, trades are made 24/7, it’s basically computer system that facilitates trading of financial products outside of listed stock exchanges , or OTC (over-the-counter) trading. Its cheaper (low transaction fees) and allows trades to be matched past traditional hours. Mention after-hour trading Indications: basically advertisements that post to the buy-side to solicit interest in a firm’s stocks. These indications (buy or sell) are based on prior day's customer activity, and the firm’s general proprietary view on the stock. So an example: A buy-side customer who wants to sell microsoft notices the buy indication, and the trade volumes that’s been advertising. It's very possible that he then calls the firm and negotiates a bid for some portion of the stock that they have for sale, and this generates an order that traders are able to work throughout the day. Unlocked and uncrossed: dealers jostling for position, sellers move to the ask side (driving ask prices down) while buyers move to the bid side (driving bids up). This often causes markets to be crossed (bid higher than ask) or locked (bid = ask). By 9:29, markets need to be uncrossed and unlocked.
1.) curriculum features extensive financial product and market-knowledge training, product talks and professional development classes, bond math, and credit modeling. 2.) The sales team interacts daily with the trading desks, but they also work with the banking team that does the securitization of the assets. For example, as a junior salesperson you will work with more senior salespeople and help to cover their clients. That includes understanding the structures and cash flows of the products you are selling, creating your own sales style to build relationships, and executing trades and pitching trade ideas.
1.) Must have a desire to work in an exciting environment 2.) Quick reaction time to ever-changing events and market conditions S&T is like a sprint, whereas investment banking is a marathon I know this is a very wordy slide, and this is by no means a comprehensive list of the qualities associated with a S&T Analyst, but just to give you an idea of what it takes to get the job done.
1.) This means joining other financial clubs and student organizations on campus 2.) For example, the FT is free- read it when you have a few minutes to spare between classes 3.) As a S&T Analyst you don’t necessarily need to be engulfed in Finance coursework- you need to be smart, and quick on your feet (it helps to be good with numbers) – Accounting – Calculus – Finance – Statistics/Regression course – Macro/Micro Economics – Game Theory 4.) Start reaching out to alumni in the financial markets- many say it’s WHO you know, not WHAT you know (Just because you CAN succeed doesn’t mean you WILL if you never get that interview- this industry is one of the hardest to break into- it’s very old fashioned in its recruiting methods) – Coming out of the Midwest, you have to set yourself apart
Thank you for your time.
Speak with client about retirement goals, risk tolerances, return goals, etc. and construct a portfolio that fits -Assist client in obtaining financing for purchases of homes, personal aircraft, appraise art collections, personal security, etc. -Place trades on behalf of the client. The client typically will speak with advisor when they want changes in their portfolio or advisor will contact client when they think changes need to be made. Advisor consults client on
-Must be able to convince prospective clients to trust you with managing their money. Have to sell yourself as the “real deal” , success in this business requires a confidence level that borders cockiness. Mingling with clients, making them feel good about themselves, remembering small details about them, checking up on them all very important -The only way to establish yourself in this business is to pound the pavement through cold calls, attending conferences where large concentration of potential clients could be, meeting with clients, etc. Helps to start out by taking over a book of business or being very well connected. Not typical career out of undergrad because it takes time to build up a network -Clients often panic when things are bad and want to sell or rush to buy sub-par assets when things are good.
-Success can be dependent on events outside of your control. Clients expect you to meet their goals. You have to treat each client as if they are the most important, never drop the ball on following up with clients, forgetting personal information, etc. -Increases in assets under management can disappear quickly if the market drops significantly, losing a portion of invested money. This is often compounded by angry clients who will blame you and withdraw their money. -Tough to get clients to trust you with their savings, especially if you are young. Have to be persistent, growth is slow at first an accelerates as you expand, typically salaried for first 2 years in order to have some time to build a book of business, if you don’t meet firm’s quotas you are fired -Other advisors from the same firm or even in your own office may be competing for the same client
-Size of book of business (and salary) can be very high, limited mainly by how hard you work and ability -Hours are not typically longer than 14 hours, especially once you are established in the business -Business is based on relationship building and interpersonal interaction. -Private wealth management firm’s and offices are located all over the globe, not just in New York, Chicago -As population increases and ages there will be an increasing demand for wealth management services
-Speak with people in the business -Stay up to date on the markets and current events -Build resume with classes, activities, grades, internships -What you know AND who you know
Wednesday, October 7th Justin Van Vleck Co-President of Operations Jeff Smith Head of Educational Series Ruoting Sun Stock Selection Committee Felix Popescu VP of Analyst Program Educational Series Careers on Wall St.
Investment Banking (Corporate Finance) Student Investment Association Wednesday, October 8 th , 2008 Presenter: Felix Popescu
Very entrepreneurial business with nearly unlimited upside
Work/Life balance, especially once established
High demand for wealth management services
Day in the Life 7:30am: Arrive at office and read up on the markets, WSJ, etc. 8:30am: Enter in tasks for the day, adjust some asset allocation models, conduct Monte Carlo analysis for a client’s portfolio 10:00am: Make some client calls, buy and sell securities on clients behalf 11:30am: Meet with new potential client to discuss financial goals, risk tolerance
Day in the Life Cont. 1:00pm: Watch a wholesaler (Vanguard, Fidelity, etc.) present over their complimentary lunch 2:00pm: Meet with potential referral partner at their office 5:00pm: Analyze client portfolios after market close, touch base with a few clients 6:00pm: Team meeting to discuss day’s activities and prepare for the next day, administrative tasks
Day in the Life 7:00pm: Grab a drink with a client and head home