What Is Investment Banking? A segment within the financial services industry A network of...
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Investment Banking Overview
“At a certain point, money is meaningless. It ceases to be the goal. The game is what counts.” – Aristotle
Onassis
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What Is Investment Banking?
A segment within the financial services industry
A network of intermediaries that assists clients who need capital and those looking to invest capital
Commonly referred to in terms of “buy side” and “sell side” lines of business
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The Largest Firms By Advisory Fees
J P Morgan
B of A Merrill Lynch
Goldman Sachs
Morgan Stanley
Citigroup
Deutsche Bank
Credit Suisse
Barclays
Wells Fargo
RBC Capital Markets
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Sample of Largest Firms By Assets
Managed Blackrock
UBS
Allianz
Vanguard
State Street
PIMCO
Fidelity
AXA Group
J P Morgan
Credit Suisse
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What Is The “Sell Side?”
Involves trading or the promotion of securities – research develops investment ideas, sales teams pitch the ideas, buy side clients execute the ideas through traders
Primary roles include: Facilitation of transactions – serve as resource for
particular, unique transactions Market making – buy and sell stock on a regular basis at a
publicly quoted price Underwriting of securities – raise capital for clients from
investors through public offerings Equity and debt research (equity research analysis) –
develop opinion on value, risk, and volatility of a covered security for communication to clients
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What Is The “Buy Side?”
Involves clients looking to purchase (“buy”) investment securities or services. You can also have buy-side equity analysts…but they would work exclusively for the buy side entity
Buy side entities/clients include: Private equity funds Mutual funds Life insurance companies Hedge funds
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The Largest Investment Banks
Provide A Wide Range Of Services
Mergers and acquisitions advice Hostile takeover advice Sale of company or certain division/assets Represent potential acquirers Restructuring advice
Access to debt and capital markets Create demand for client’s to be issued
securities Create specialized securities / derivatives
Synergies with their commercial bank
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Access To Capital Markets Is Primary
To Their MissionDebt Capital
Markets Fixed income
derivatives
Debt instruments sales & trading
Syndicated loans
Fixed income research
Equity Capital Markets
Equity derivatives
Equity instruments sales & trading
Equity research
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Many Investment Banks Also Offer
Access To Commercial Banking Services
Treasury / cash management services
Operating lines of credit
Lease financing
Letters of credit
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Functional Areas May Be Thought Of In Broad
Terms Investment banking Corporate Finance Coverage / Industry Groups -
advise clients Corporate Finance Product Groups – help
execute transactions
Financing solutions Capital Markets Product Groups – raise capital
for clients
Secondary markets Sales & Trading (equities, commodities, FX, etc) Research Proprietary trading & risk management
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Industry Groups Are Different Than Product
Groups Industry Groups Manage specific transactions for clients Cover all clients within a specific industry Generate acquisition ideas, evaluate share
buyback programs, assist with optimal capital structure
Product Groups Specialize in a particular service or instrument
Secondary markets Sales & Trading (equities, commodities, FX, etc) Research Proprietary trading & risk management
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In Summary…
Investment banks are in business to connect clients that need capital with those entities looking to provide capital
The industry thinks of itself in terms of buy side and sell side responsibilities
Opportunities exist in product areas, industry groups, and support functions
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Investment Banking
Interview Preparation
“Tell me why you would make a great investment banker…”
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Your Interview Preparation Should
Include… A great resume’
A thorough understanding of what is investment banking
Confidence in what the particular job responsibilities will be
Why investment banking is the right career choice for you
Why this firm is the right fit
A solid grip on technical areas
Practicing your passion
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A great resume’ communicates…
Transparent decision making
Your value
Your desire
Relevant experience
Technical abilities
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Investment Banking Covers Many Areas
Buy side vs sell side
Industry vs product vs support groups
Equities vs debt vs commodities vs FX
Regional vs global banks
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What Functional Area Is Of Most
Interest? Investment banking
Product / industry groups
Financing solutions
Secondary markets Sales & trading Research Proprietary trading
Support areas Treasury Risk management
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Investment Banking Is The Right Career Choice Because…
Be able to explain the origin of your interest
You’ve taken steps to prepare for a banking job
You understand the industry and role you’d play
There are areas of work in the past that were exciting to you and you’ll see them again in banking
There are aspects of work in the past in which you have excelled and you’ll see them again in banking
It excites you!
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A Particular Bank Is The Right Choice
Because… You understand their culture and you’re a fit
They have a particular area of strength that is of interest to you
Their associate program holds some unique quality of value to you
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You Must Have A Solid Grip On
Technical Items Thorough understanding of financial statements and how they work together Balance sheet, income statement, statement of cash flows
Equity vs enterprise value Equity value + net debt + pfd stock + minority int = Enterprise
value
Time value of money Present value Future value
Valuation methodologies Discounted cash flows Public company comparables Acquisition comparables LBO analysis
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You Must Also Demonstrate Your
Passion Are you “living” finance outside of the classroom? Be knowledgeable of current deals in process Know key rates (10 year Treasury, Libor) Understand domestic and international political
environments Be familiar with stock market and key commodity
trends (S&P 500, Nasdaq 100, gold, oil) Know approximate exchange rates for key trade
currencies (US dollar, British pound, Euro, Yen, etc.) Study financing spreads and levels (new bond issues
pricing, debt spreads over Libor, etc.)
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Anticipating Questions Is Key To
Success What is investment banking?
Why investment banking?
Why would you be valuable to the firm?
What product or industry group is of interest to you?
What would your responsibilities be in your role?
What do you like to do in your spare time?
Where do you need to improve the most?
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Anticipating Questions Is Key To
Success Do you invest money now?
When have you failed?
When have you led a team?
Talk about an ethical dilemma you have faced.
Discuss a recent merger or acquisition.
Where is the NASDAQ trading today?
Define EBITDA and what it represents?
Discuss the shape of a WACC curve and what the curve represents.
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Be Yourself, But Demonstrate Your
Desire Show positive, constructive energy
Show the steps you have taken to prepare for this career
Demonstrate your grasp of key financial concepts
Highlight your passion…are you “living” finance now?