Investment Banking
Big bucks and long hours are the hallmarks of the investment banking
industry. After all, keeping on top of the world’s financial markets can be
an almost 24/7 job. But the financial rewards—not to mention being a part
of some of the big-name business deals that you see in headlines—can make
the grueling hours an adrenaline-based rush.
Investment banking isn't one specific service or function. It is an
umbrella term for a range of activities: underwriting, selling, and trading
securities (stocks and bonds); providing financial advisory services, such
as mergers and acquisition advice; and managing assets. Investment banks
offer these services to companies, governments, non-profit institutions,
and individuals.
The action and players in investment banking are still centered around Wall
Street and midtown Manhattan in New York City along with a few other money
centers around the world, such as San Francisco, London, and Tokyo, but the
list of players is getting smaller as the industry consolidates. Today,
leading banks include Merrill Lynch, Goldman Sachs, Morgan Stanley,
Citigroup, Credit Suisse, and JPMorgan Chase. These and other firms are
regular visitors to campus career centers.
What You'll Do
The intensely competitive, action-oriented, profit-hungry world of
investment banking can seem like a larger-than-life place where deals are
done and fortunes are made. In fact, it's a great place to learn the
ins and outs of corporate finance and pick up analytical skills that will
remain useful throughout your business career. But investment banking has a
very steep learning curve, and chances are you'll start off in a job
where the duties are more Working Girl than Wall Street.
Wall Street is filled with high-energy, hardworking young hotshots. Some
are investment bankers who spend hours hunched behind computers, poring
over financial statements and churning out spreadsheets by the pound.
Others are traders who keep one eye on their Bloomberg screen, a phone over
each ear, and a buyer or seller on hold every minute the market's in
session. Traders work hand in hand with the institutional sales group,
whose members hop from airport to airport trying to sell big institutions a
piece of the new stock offering they have coming down the pipeline. Then
there are the analytically minded research analysts, who read, write, live,
and breathe whichever industry they follow, 24/7.
Who Does Well
You shouldn't go into banking just for the money—the lifestyle is too
demanding. To survive in investment banking, much less to do well,
you'll need to like the work itself, which requires the research
ability of a skilled investigative journalist, the focused attention of a
surgeon, and the physical endurance (to withstand the long hours) of a
marathon runner. Of course, you also have to have top-notch analytical
skills, which allow you to spot market trends and oncoming industry
changes.. And, quite honestly, even if you love the work, an investment
banking career can still be a tough road. If the market or your industry
group is in a slump (or if your firm suddenly decides to get out of a
certain segment of the business), there's always the chance that you
may find a pink slip on your desk Monday morning.
But, if you like fast-paced, deal-oriented work, are at ease with numbers
and analysis, have a tolerance for risk, and don't mind putting your
personal life on hold for the sake of your job, then investment banking may
be a great career choice. But if this doesn't sound like you, a job in
investment banking could turn out to be a bad dream come true.
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First, if you're an undergraduate, you'll want to try to get an
internship—it's the best way to secure an eventual offer. If you're
an undergraduate from an Ivy League school with a great GPA, bidding
recruiting points is still a favorable option—however, college recruiters
are usually sent from the prestigious bulge-bracket firms, and not the
smaller, specialized niche firms, or boutiques. It's important to
discern the type of bank for which you are best suited, so conduct your own
independent research. Big firms tend to have more turnover than smaller
niche firms, which may better nurture their investment in training you.
If you're not an Ivy League graduate, and recruiters haven't been
breaking down your door, networking is your best bet. Use your school's
alumni and your neighbors and acquaintances to get in touch with someone at
the I-bank of your choice. If you're a good student who is truly
interested, you've got a shot.
If you have an MBA or other advanced business certification, you'll be
paid more for a position than someone with a fresh BA. But those with prior
experience always get first shot, so be sure to get an internship. Industry
expertise and prior corporate finance work can also be a way in, but
you'll have to be patient.
If your degree isn't in business, take heart in the knowledge that
banks are increasingly encouraging applications from candidates with
specialized resumes in order to better appeal to a growing client base.
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Undergrads and MBAs from top schools are recruited for a number of openings
that is small even in the best of times. Competition is fierce, so if
you’re not from a top-tier school, you may need to be more resourceful and
persistent than those who are. Doing an internship in investment banking is
essential to breaking into the field in today’s business environment.
Networking is key; make use of your alumni network.
Undergrads vie for two-year positions as analysts. If you do well,
depending on the firm, you may get to stay for a third year, perhaps even
abroad.
MBAs compete for fast-track associate slots, and international assignments
may be available for those who want them.
Midcareer people are recruited by headhunters or hired on an ad hoc basis
for positions at various levels. Though relatively few people come into the
industry from other fields, it can be done, especially by those who have a
technical background in a specific industry and an aptitude for and
interest in finance. Otherwise, expect to start at the bottom.
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While the various groups within an investment bank support each other, the
work and responsibilities in each group vary.
Corporate Finance
Investment bankers are like financial consultants for corporations—which is
precisely where the Corporate Finance Group comes into play. As a member of
Banking or CorpFin, you serve the sellers of securities—Fortune 1000
companies in need of cash to fund growth, and private companies that are
looking to complete an IPO—by buying all the shares or all the bonds a
company has for sale, which are then resold by your firm's sales force
to investors on the market.
Many investment banks divide their corporate finance departments into
industry subgroups, such as technology, financial institutions, health
care, communications, entertainment, utilities, and insurance, or into
product groups such as high-yield, private equity, and investment-grade
debt.
As an investment banker in corporate finance, you will underwrite equity
and debt (bond) offerings, help firms devise and implement financial
strategies, analyze their financial needs (such as how to structure balance
sheets and when and how to proceed with funding initiatives), and work with
the sales and trading departments to determine valuations for new
offerings.
Mergers and Acquisitions
The mergers and acquisitions group (known as M&A) provides advice to
companies that are buying another company or are themselves being acquired.
M&A work can seem very glamorous and high-profile. At the same time,
the work leading up to the headline-grabbing multibillion-dollar
acquisition can involve a herculean effort to crunch all the numbers,
perform the necessary due diligence, and work out the complicated structure
of the deal. As one insider puts it, "You have to really like spending
time in front of your computer with Excel." Often, the M&A team
will also work with a CorpFin industry group to arrange the appropriate
financing for the transaction (usually a debt or equity offering). In many
cases, all this may happen on a very tight timeline and under extreme
secrecy. M&A is often a subgroup within corporate finance; but in some
firms, it is a stand-alone department. M&A can be one of the most
demanding groups to work for.
Public Finance
Public finance is similar to corporate finance except that instead of
dealing with corporations, it works with public entities such as city and
state governments and agencies, bridge and airport authorities, housing
authorities, hospitals, and the like. Although the basic services
(financial advisory and underwriting) and the financial tools (bonds and
swaps, but no equity) are similar to those used for private sector clients,
numerous political and regulatory considerations must be assessed in the
structuring of each deal. A particular key issue involves how to get and
maintain tax-exempt status for the financial instruments the client will
use.
Research
Research departments are generally divided into two main groups:
fixed-income research and equity research. Both types of research can
incorporate several different efforts, including quantitative research
(corporate financing strategies, specific product development, and pricing
models), economic research (economic analysis and forecasts of U.S. and
international economic trends, interest rates, and currency movement), and
individual company research. It’s important to understand that these are
"sell-side" analysts (because they in effect "sell" or
market stocks to investors), rather than the "buy-side" analysts
who work for the institutional investors themselves.
As a researcher, you'll meet with company management and analyze a
company's financial statements and operations, provide written and oral
updates on market trends and company performance, attend or organize
industry conferences, speak with the sales force, traders, and investment
bankers about company or industry trends, develop proprietary pricing
models for financial products, make presentations to clients on relevant
market trends and economic data, offer forecasts and recommendations, and
watch emerging companies.
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All right, like any good banker, you want the bottom line. Exactly how much
are these guys going to pay you to sign your life away? Salaries at
investment banks, even for nonprofessional staff, almost always consist of
a base salary plus a fiscal year-end bonus. Bonuses are determined at the
end of each year and are based on the performance of Wall Street, as well
as the performances of your firm and department and your contribution to
them. If your firm has a year like Goldman Sachs did in 2006, those bonuses
can skyrocket. Base salaries tend to be relatively low at the entry level
(well, let’s say moderate), and bonuses are discretionary. While the real
money in investment banking comes from bonuses, your take-home pay from
year to year can go through swings of more than 100 percent, especially
when you move up in seniority.
Another useful point: Firms often have different methods of calculating
employee bonuses. Some allocate a portion of profits to a particular
department while others divvy up the proceeds among the departments
according to performance. Others use a commission structure based on
revenue instead of profit. Some firms are more generous than others, and
policy can change, too.
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Undergraduates: $45,000 to $55,000 with a possible $5,000-plus signing
bonus at bulge-bracket firms, plus an annual bonus contingent on market
success.
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MBAs: $100,000 to $170,000, including bonuses, for associates; for VPs
this can shoot up to $200,000 to $300,000 or more.
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Summer interns: up to $2,000 per week.
A final note: Investment banking opportunities, of course, exist outside
the bulge bracket and outside New York. But if you go to work for a
boutique or regional bank, don’t be surprised if your compensation is not
as hefty as that of your bulge bracket peers.