An Overview of Investment Banking and Recruiting

Presented by:Jessica DelfinoWilliam 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 DelfinoHighlights ProducerNBC Sports, Paris, London, Los Angeles, New Yorkjessicadelfino9@gmail.com

William KimAnalyst – Municipal Markets/DCM/ECMMerrill Lynch & Co., New Yorkwilliamkim1@gmail.com

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

▫ Raises funds in the Capital Markets and advises clients

Middle OfficeRisk 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 OfficeOperations

▫ 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

• 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 ofdeals irrespective of industries

Industry Groups Product Groups

Primary Groups within “IBD”What is Investment Banking?

Managing Director

Executive Director2

Director

Associate

MBA1

Analyst2 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 MBA2 Every firm has a different corporate structure

What is Investment Banking?Hierarchy and Typical Time Spent in Each

Position

• 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 29th, 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)

What is Investment Banking?The Industry Today

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

The Role of an Analyst

Recruiting

RecruitingFull 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

RecruitingSummer 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

RecruitingCanada 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

RecruitingCanada 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)

Canada New York

• 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

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?

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

Bulge Bracket

Boutique

• 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

InterviewsWhat to ExpectFirst 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

InterviewsWhat Comes NextOffer 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)

InterviewsIntroduction 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?

InterviewsTechnical 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?

InterviewsYour 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.

InterviewsGeneral 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