Year: 2007

What do Private Equity firms look for when hiring bankers?

First and foremost, private equity firms want Analysts that have had good deal experience.  That is, Analysts that worked on, and played significant roles on live transactions.  Private equity firms also want Analysts with excellent financial modeling, valuation and other technical skills.  In addition, its important to demonstrate a solid understanding of the business side of things.  In other words, what are the key drivers of a company’s growth, where are the risks, what types of costs might be excessive, etc.  Lastly, but just as important, PE shops want to hire Analysts who have a high level of maturity and have excellent communication skills.  Note that Analysts who move to private equity firms are generally granted the title of Associate.

What are my odds of getting into Private Equity, not having been an Analyst?

Unless your uncle is Henry Kravis, your odds are, unfortunately, pretty slim.  Even the large private equity firms are tiny relative to banks and employ few people.  While PE firms may hire laterally (that is, from other private equity firms), the only way for most people to enter the industry is out of a good investment banking analyst program (either pre or post-MBA) or at the very senior level (i.e. CEO).  For better or worse, that’s life.

What are some exit opportunities after being an Analyst?

Being an Analyst at an investment bank is a great entree into other areas of finance.  These days, many Analysts move into the world of Private Equity or Hedge Funds.  Others go straight into Business School (MBA Programs) or occasionally law school.  Another possibility is to move into a corporation, large or small, in a corporate development capacity.  Some Analysts leave finance altogether to start businesses.

How long should my cover letter be?

I’m a big fan of SHORT cover letters.  Basically, in one sentence, state the job you are applying for or how you heard about it.  Mention that you’ve enclosed/attached your resume.  Then in not more than 2-3 sentences mention some relevant facts about yourself.  Lastly, thank them and tell them how they can reach you or that you will follow up.  That’s it.

Is it true that as an investment banker, I get free dinner every night?

Yes, at most banks if you work past 8:00 or 9:00 at night (though you don’t necessarily have to wait until that time to eat), you can have dinner delivered to you on the bank’s tab (generally up to about $35).  Since Analysts generally have no lives, and expect to be working far past 8:00, they will often congregate together in a conference room to eat and relax for a little while.  Associates, more often eat at their desks as they may still have the hopes of getting home before their loved ones or friends are asleep.  VP’s and above are usually gone by then but it’s always funny when a late working and hungry Managing Director has to ask an Analyst to order them food because they don’t know how to use Seamless Web (the standard food ordering website subscribed to by most banks in New York).

Of course, the consequence of having $35 each night to order dinner is that many Analysts gain a lot of weight.  After all, if the company’s paying, let’s max out and add that Tiramisu to my order.  More enterprising Analysts, stealthily use some of their daily $35 to pay for groceries for their apartments.

What if I’m asked a technical question to which I don’t know the answer? How should I handle that?

If you have no idea of the answer, say you don’t know or you don’t remember or you’d have to think about it.  Technical questions are not just posed to see if you know things but also to see how you handle stress.  You’ll generally score more points in an interview if you calmly, coolly and matter of factly, state that you don’t the answer than you will fumbling around for ten minutes trying to B/S your way through it.  And if you know part of the answer, state the part you know, what you don’t know and move on.

What are your weaknesses?

Even more so than the question about strengths, it’s unusual to be asked about your weaknesses.  There is no good way to answer this question so the best advice is to try to move on as quickly as possible.  Obviously you don’t want mention real weaknesses (I’m dumb, I’m lazy, I require 12 hours of sleep a night).  You also don’t want to say things that make you look silly like “I work too hard” and you can’t say you don’t have any weaknesses because you’ll come off as too arrogant.  So try to think of something relatively innocuous that also might highlight a strength.  For example, “I can get occasionally get impatient with peers/coworkers who don’t have the same abilities as me or don’t show the same commitment that I do.”  Or, “Sometimes I can be so focused with or driven by the task on hand that I wind up tuning out other aspects of my life.”  You can also usually say something like, “I think my skills are very good compared with my peers but, of course, I’m new to investment banking, and I obviously need more experience.  Experience which I’m confident I’ll get working for you…”

Occasionally, a really difficult interviewer will ask you for 3 weaknesses, knowing that your first 2 will be bullshit answers.  To which I would respond that my major weakness is, “I’m really bad at bullshit interview questions.”

What are your strengths?

This is one of those generic interview questions that you are less likely to get in banking interviews.  If you do get this question, this is one of your best opportunities to make your case that you’d be a good banker.  Some of the skills that you probably want to highlight include your analytical/quantitative skills (especially for an Analyst), communication skills (especially for an Associate), ability to learn quickly, detail orientedness and ability to work really hard.  You should definitely be prepared to back up what you state as your strengths, using one or two concrete examples from past jobs or school.

What is goodwill and how is it calculated?

Goodwill, a type of intangible asset, is created in an acquisition and reflects the value (from an accounting standpoint) of a company that is not attributed to its other assets and liabilities.  Goodwill is calculated by subtracting the target’s book value (written up to fair market value) from the equity purchase price paid for the company.  This equation is sometimes referred to as the “excess purchase price.”  Accounting rules state that goodwill no longer should be amortized each period, but must be tested once per year for impairment.  Absent impairment, goodwill can remain on a company’s balance sheet indefinitely.

If a company with a low P/E acquires a company with a high P/E in an all stock deal, will the deal likely be accretive or dilutive?

Other things being equal, if the Price to Earnings ratio (P/E) of the acquiring company is lower than the P/E of the target, then the deal will be dilutive to the acquiror’s Earnings Per Share (EPS).  This is because the acquiror has to pay more for each dollar of earnings than the market values its own earnings.  Hence, the acquiror will have to issue proportionally more shares in the transaction.  Mechanically, proforma earnings, which equals the acquiror’s earnings plus the target’s earnings (the numerator in EPS) will increase less than the proforma share count (the denominator), causing EPS to decline.

What factors can lead to the dilution of EPS in an acquisition?

A number of factors can cause an acquisition to be dilutive to the acquiror’s earnings per share (EPS), including: (1) the target has negative net income, (2) the target’s Price/Earnings ratio is greater than the acquiror’s, (3) the transaction creates a significant amount of intangible assets that must be amortized going forward, (4) increased interest expense due to new debt used to finance the transaction, (5) decreased interest income due to less cash on the balance sheet if cash is used to finance the transaction and (6) low or negative synergies.

Walk me through an accretion/dilution analysis…

The purpose of an accretion/dilution analysis (sometimes also referred to as a quick-and-dirty merger analysis) is to project the impact of an acquisition to the acquiror’s Earnings Per Share (EPS) and compare how the new EPS (“proforma EPS”) compares to what the company’s EPS would have been had it not executed the transaction.

In order to do the accretion/dilution analysis, we need to project the combined company’s net income (“proforma net income”) and the combined company’s new share count.  The proforma net income will be the sum of the buyer’s and target’s projected net income plus/minus certain transaction adjustments.  Such adjustments to proforma net income (on a post-tax basis) include synergies (positive or negative), increased interest expense (if debt is used to finance the purchase), decreased interest income (if cash is used to finance the purchase) and any new intangible asset amortization resulting from the transaction.

The proforma share count reflects the acquiror’s share count plus the number of shares to be created and used to finance the purchase (in a stock deal).  Dividing proforma net income by proforma shares gives us proforma EPS which we can then compare to the acquiror’s original EPS to see if the transaction results in an increase to EPS (accretion) or a decline in EPS (dilution).  Note also that we typically will perform this analysis using 1-year and 2-year projected net income and also sometimes last twelve months (LTM) proforma net income.

What are the different types of groups within an investment bank?

Broadly speaking, there are two types of groups within a typical investment bank (or investment banking division):  product groups and industry groups (also called sector groups or domains).  The three most well known product groups are mergers and acquisitions (M&A), leveraged finance (lev fin) and restructuring.    Bankers in product groups have product knowledge and tend to execute transactions (respectively, M&A transactions, leveraged buyouts (LBO’s) and restructuring transactions/bankruptcies).

Bankers in industry groups cover specific industries and tend to do more marketing activity (pitching).  Industry bankers tend also to have more of the relationships with companies’ senior management than do product bankers (though some senior product bankers have excellent relationships as well).  Examples of common industry groups include FIG (Financial Institutions Group), Healthcare, Consumer/Retail, Industrials, Energy and Utilities, Natural Resources, TMT (Telecom, Media and Technology), Gaming and Lodging and Real Estate.  Often subgroups exist within the broader group.  For example, a Healthcare group may be segregated into biotechnology, medical devices, managed care, pharma, etc.  Though not covering a specific industry, one other group that falls under the category of “industry” groups is Financial Sponsors.  Bankers in a Financial Sponsors group cover (have relationships with and market their services to) private equity firms.

How do we use the Treasury Stock Method to calculate diluted shares?

To use the Treasury Stock Method, we first need a tally of the company’s issued stock options and weighted average exercise prices.  We get this information from the company’s most recent 10K.  If our calculation will be used for a control based valuation methodology (i.e. precedent transactions) or M&A analysis, we will use all of the options outstanding.  If our calculation is for a minority interest based valuation methodology (i.e. comparable companies) we will use only options exercisable.  Note that options exercisable are options that have vested while options outstanding takes into account both options that have vested and that have not yet vested.

Once we have this option information, we subtract the exercise price of the options from the current share price (or per share purchase price for an M&A analysis), divide by the share price (or purchase price) and multiply by the number of options outstanding.  We repeat this calculation for each subset of options reported in the 10K (usually companies will report several line items of options categorized by exercise price).  Aggregating the calculations gives us the amount of diluted shares.  If the exercise price of an option is greater than the share price (or purchase price) then the options are out-of-the-money and have no dilutive effect.

The concept of the treasury stock method is that when employees exercise options, the company has to issue the appropriate number of new shares but also receives the exercise price of the options in cash.  Implicitly, the company can “use” this cash to offset the cost of issuing new shares.  This is why the diluted effect of exercising one option is not one full share of dilution, but a fraction of a share equal to what the company does NOT receive in cash divided by the share price.

I’ve heard that bankers are arrogant. Should I be arrogant in an interview to show that I will fit in?

It is certainly true that many bankers have arrogant tendencies.  But no, you should never be arrogant in an interview.  Confident yes, but arrogant no.  You obviously want to give the impression that you’re smart, qualified, hard working, etc.  And it’s okay to confidently and explicitly talk about those traits in an interview, as long as you can back them up and as long as you do it in a respectful but not arrogant manner (regardless of the demeanor of the interviewer).

What is the typical process for a lateral hire or someone outside the industry?

Assuming you’ve passed the first steps of getting your resume to the right person and that they want to interview you, the next step is to schedule your first round interview.  You will typically have one or two back-to-back 30 minute interviews.  If you are interviewing to be an Analyst, you will often meet with Associates and/or VPs and if you are interviewing for an Associate position, you will probably meet with VPs and/or Directors.  At some banks, especially bulge brackets, one of the first round interviewers might be someone from the HR department.  If you are from out-of-town, your first round will probably be a phone interview.

If your first round interviews go well, then you will be invited to meet with more bankers on site.  In total, you might meet with anywhere from four to twelve or more bankers over one or two days.  You will probably meet with bankers at all different levels (Associate to MD for an Analyst position, VP to MD for an Associate position), including the head of the group with which you are interviewing.  If all goes well with the additional interview rounds, then someone (either HR or a banker) will let you know that you will be receiving an offer.

I’m still in school (undergrad or MBA). What is the typical recruiting process?

For both undergraduates and MBAs, investment banks typically have a number of “core” schools at which they recruit.  In the early fall, the banks will come to campus for informational presentations and receptions to give students an opportunity to learn more about the bank and to meet some bankers.  These events are also an opportunity for the bankers to begin to identify potential good candidates.  A little later in the fall (typically in late September or October), banks will hold first round interviews on campus.   It is often competitive for students to win places on the interview schedule.  Some banks and some schools will leave a number of interview slots open to students, through a lottery or other mechanism who were not directly selected for an interview.

Generally, students will have one or two 30 minute interviews.  Second (and typically final) round interviews generally take place at the investment bank at what are known as “super” days (usually occurring either on a Friday or Saturday).  Banks will normally pay for out-of-town candidates to travel to the bank.  During these “super days,” candidates can expect to have anywhere from 4 to 10 or more interviews of 30-45 minutes in length each.  Banks usually make their decisions very quickly regarding to who they will offer full-time positions.  Candidates are contacted accordingly, often that same day, with the good or bad news.

Those that are being offered positions will receive a formal offer package.  The offer package will include salary, signing bonus and a host of HR documents.  Most of the time, the offer will have an expiration date, known as an “exploding offer.”  While some schools try to crack down on exploding offers, banks use them to pressure candidates to accept and to try to prevent candidates from using the offer as negotiating leverage with another investment bank or other institution.

How can I get better at interviewing?

The same way you get to Carnegie Hall:  practice, practice, practice.  In front of a mirror, in the shower, whatever works for you.  Practice walking through your resume and telling your story and practice answering some of the common interview questions, both fit and technical.  And if you can, do mock interviews with friends and ideally, folks in banking.  Even better, if you have the opportunity to schedule interviews with a number of firms, schedule the less desirable firms first and use those as practice.  You want to get to the point where you can comfortably interview but without sounding too rehearsed in your answers.

Is it okay to be nervous in an interview?

Almost everybody, at every level who interviews is at least a little bit nervous.  It’s a stressful situation. Always keep in mind that at some point, the person who is interviewing you was on your side of the table.  So yes, its perfectly okay to be a little nervous.  But…you can’t be too nervous.  If you sweat profusely or have trouble speaking without nervous stuttering then that’s a problem.  To a large extent, interviewing skills are similar to the types of skills you will need to speak to (pitch, perhaps) or be questioned by a client.  Therefore, being too nervous will get held against you as it may be a sign that you won’t be able to be put in front of a client.  The more practice you have interviewing, the more comfortable you will be.

Which is less expensive capital, debt or equity?

Debt is less expensive for two main reasons.  First, interest on debt is tax deductible (i.e. the tax shield).  Second, debt is senior to equity in a firm’s capital structure.  That is, in a liquidation or bankruptcy, the debt holders get paid first before the equity holders receive anything.  Note, debt being less expensive capital is the equivalent to saying the cost of debt is lower than the cost of equity.

When using the CAPM for purposes of calculating WACC, why do you have to unlever and then relever Beta?

In order to use the CAPM to calculate our cost of equity, we need to estimate the appropriate Beta.  We typically get the appropriate Beta from our comparable companies (often the mean or median Beta).  However before we can use this “industry” Beta we must first unlever the Beta of each of our comps.  The Beta that we will get (say from Bloomberg or Barra) will be a levered Beta.

Recall what Beta is:  in simple terms, how risky a stock is relative to the market.  Other things being equal, stocks of companies that have debt are somewhat more risky that stocks of companies without debt (or that have less debt).  This is because even a small amount of debt increases the risk of bankruptcy and also because any obligation to pay interest represents funds that cannot be used for running and growing the business.  In other words, debt reduces the flexibility of management which makes owning equity in the company more risky.

Now, in order to use the Betas of the comps to conclude an appropriate Beta for the company we are valuing, we must first strip out the impact of debt from the comps’ Betas.  This is known as unlevering Beta.  After unlevering the Betas, we can now use the appropriate “industry” Beta (e.g. the mean of the comps’ unlevered Betas) and relever it for the appropriate capital structure of the company being valued.  After relevering, we can use the levered Beta in the CAPM formula to calculate cost of equity.

What is Beta?

Beta is a measure of the riskiness of a stock relative to the broader market (for broader market, think S&P500, Wilshire 5000, etc).  By definition the “market” has a Beta of one (1.0).  So a stock with a Beta above 1 is perceived to be more risky than the market and a stock with a Beta of less than 1 is perceived to be less risky.  For example, if the market is expected to outperform the risk-free rate by 10%, a stock with a Beta of 1.1 will be expected to outperform by 11% while a stock with a Beta of 0.9 will be expected to outperform by 9%.  A stock with a Beta of -1.0 would be expected to underperform the risk-free rate by 10%.  Beta is used in the capital asset pricing model (CAPM) for the purpose of calculating a company’s cost of equity.  For those few of you that remember your statistics and like precision, Beta is calculated as the covariance between a stock’s return and the market return divided by the variance of the market return.

How do you calculate the cost of equity?

To calculate a company’s cost of equity, we typically use the Capital Asset Pricing Model (CAPM).  The CAPM formula states the cost of equity equals the risk free rate plus the multiplication of Beta times the equity risk premium.  The risk free rate (for a U.S. company) is generally considered to be the yield on a 10 or 20 year U.S. Treasury Bond.  Beta (See the following question on Beta) should be levered and represents the riskiness (equivalently, expected return) of the company’s equity relative to the overall equity markets.  The equity risk premium is the amount that stocks are expected to outperform the risk free rate over the long-term.  Prior to the credit crises, most banks tend to use an equity risk premium of between 4% and 5%.  However, today is assumed that the equity risk premium is higher.

What is WACC and how do you calculate it?

The WACC (Weighted Average Cost of Capital) is the discount rate used in a Discounted Cash Flow (DCF) analysis to present value projected free cash flows and terminal value.  Conceptually, the WACC represents the blended opportunity cost to lenders and investors of a company or set of assets with a similar risk profile.  The WACC reflects the cost of each type of capital (debt (“D”), equity (“E”) and preferred stock (“P”)) weighted by the respective percentage of each type of capital assumed for the company’s optimal capital structure.  Specifically the formula for WACC is:  Cost of Equity (Ke) times % of Equity (E/E+D+P) + Cost of Debt (Kd) times % of Debt (D/E+D+P) times (1-tax rate) + Cost of Preferred (Kp) times % of Preferred (P/E+D+P).

To estimate the cost of equity, we will typically use the Capital Asset Pricing Model (“CAPM”) (see the following topic).  To estimate the cost of debt, we can analyze the interest rates/yields on debt issued by similar companies.  Similar to the cost of debt, estimating the cost of preferred requires us to analyze the dividend yields on preferred stock issued by similar companies.

Am I likely to be asked brainteasers in an interview?

You might.  Personally, I’ve never been asked a brainteaser in an interview for a banking position.  But I’d say it’s more common for Analyst interviews than for Associate interviews.   See Interviewing – Brainteasers for some common ones.

Note that you are much less likely to get the types of analytical questions or “case studies” common in consulting interviews (e.g. “how many ping pong balls fit into the Empire State Building?” or “how many gas stations are there in the United States?).

If a company incurs $10 (pretax) of depreciation expense, how does that affect the three financial statements?

The most common version of this type of question.  Note that the amount of depreciation may be a number other than $10.  To answer this question, take the three statements one at a time.

First, the income statement:  depreciation is an expense so operating income (EBIT) declines by $10.  Assuming a tax rate of 40%, net income declines by $6.  Second, the cash flow statement:  net income decreased $6 and depreciation increased $10 so cash flow from operations increased $4.  Finally, the balance sheet:  cumulative depreciation increases $10 so Net PP&E decreases $10.  We know from the cash flow statement that cash increased $4.  The $6 reduction of net income caused retained earnings to decrease by $6.  Note that the balance sheet is now balanced.  Assets decreased $6 (PP&E -10 and Cash +4) and shareholder’s equity decreased $6.

You may get the follow-up question:  If depreciation is non-cash, explain how this transaction caused cash to increase $4.  The answer is that because of the depreciation expense, the company had to pay the government $4 less in taxes so it increased its cash position by $4 from what it would have been without the depreciation expense.

How do you calculate fully diluted shares?

To calculate fully diluted shares, we need to add the basic number of shares (found on the cover of a company’s most recent 10Q or 10K) and the dilutive effect of employee stock options.  To calculate the dilutive effect of options we typically use the Treasury Stock Method.  The options information can be found in the company’s latest 10K.  Note that if the company has other potentially dilutive securities (e.g. convertible preferred stock or convertible debt) we may need to account for those as well in our fully diluted share count.

What is the difference between basic shares and fully diluted shares?

Basic shares represent the number of common shares that are outstanding today (or as of the reporting date).  Fully diluted shares equals basic shares plus the potentially dilutive effect from any outstanding stock options, warrants, convertible preferred stock or convertible debt.  In calculating a company’s market value of equity (MVE) we always want to use diluted shares.  Implicitly the market also uses diluted shares to value a company’s stock.

Why do you subtract cash in the enterprise value formula?

Cash gets subtracted when calculating Enterprise Value because (1) cash is considered a non-operating asset AND (2) cash is already implicitly accounted for within equity value.  Note that when we subtract cash, to be precise, we should say excess cash.  However, we will typically make the assumption that a company’s cash balance (including cash equivalents such as marketable securities or short-term investments) equals excess cash.

What is Minority Interest and why do we add it in the Enterprise Value formula?

When a company owns more than 50% of another company, U.S. accounting rules state that the parent company has to consolidate its books.  In other words, the parent company reflects 100% of the assets and liabilities and 100% of financial performance (revenue, costs, profits, etc.) of the majority-owned subsidiary (the “sub”) on its own financial statements.  But since the parent company does not 100% of the sub, the parent company will have a line item called minority interest on its income statement reflecting the portion of the sub’s net income that the parent is not entitled to (the percentage that it does not own).  The parent company’s balance sheet will also contain a line item called minority interest which reflects the percentage of the sub’s book value of equity that the parent does NOT own.  It is the balance sheet minority interest figure that we add in the Enterprise Value formula.

Now, keep in mind that the main use for Enterprise Value is to create valuation ratios/metrics (e.g. EV/Sales, EV/EBITDA, etc.)  When we take, say, sales or EBITDA from the parent company’s financial statements, these figures due to the accounting consolidation, will contain 100% of the sub’s sales or EBITDA, even though the parent does not own 100%.  In order to counteract this, we must add to Enterprise Value, the value of the sub that the parent company does not own (the minority interest).  By doing this, both the numerator and denominator of our valuation metric account for 100% of the sub, and we have a consistent (apples to apples) metric.

One might ask, instead of adding minority interest to Enterprise Value, why don’t we just subtract the portion of sales or EBITDA that the parent does NOT own.  In theory, this would indeed work and may in fact be more accurate.  However, typically we do not have enough information about the sub to do such an adjustment (minority owned subs are rarely, if ever, public companies).  Moreover, even if we had the financial information of the sub, this method is clearly more time consuming.

Why can’t you use EV/Earnings or Price/EBITDA as valuation metrics?

Enterprise Value (EV) equals the value of the operations of the company attributable to all providers of capital.  That is to say, because EV incorporates all of both debt and equity, it is NOT dependant on the choice of capital structure (i.e. the percentage of debt and equity).  If we use EV in the numerator of our valuation metric, to be consistent (apples to apples) we must use an operating or capital structure neutral (unlevered) metric in the denominator, such as Sales, EBIT or EBITDA.  These such metrics are also not dependant on capital structure because they do not include interest expense.  Operating metrics such as earnings do include interest and so are considered leveraged or capital structure dependant metrics.  Therefore EV/Earnings is an apples to oranges comparison and is considered inconsistent.  Similarly Price/EBITDA is inconsistent because Price (or equity value) is dependant on capital structure (levered) while EBITDA is unlevered.  Again, apples to oranges.  Price/Earnings is fine (apples to apples) because they are both levered.

What are your long-term plans?

This is a bit of a tricky question.  You obviously want to demonstrate you are committed to investment banking but you don’t want to come across as obviously disingenuous by stating that banking is the only job you’ll ever want to do.  If you are interviewing for an Analyst position, I don’t think you need to be committed to banking for the long-term (since being an Analyst position is a 2-year position).  I would mention that you are really excited about and committed to becoming an Analyst and that you want to learn as much as possible, get as much experience, etc. while you are an Analyst.  But I think it’s okay to say that you’ll see what happens after your Analyst position is up (i.e. going to business school, moving on to other jobs like private equity or hedge funds, etc.)

If you are interviewing for an Associate position, then you need to demonstrate a little bit more commitment to banking.  I would definitely recommend stating that you see yourself as a banker for the foreseeable future (call it 3-5 years).  However, I don’t think that you need to state that you are certain to be a banker for the rest of your life but I wouldn’t say that that is out of the question either.

Are you interviewing for jobs other than investment banking?

This can be another tricky one.  If you are interviewing out of undergrad or B-School, I would emphasize that you are only interviewing with investment banks or at least that banking is by far your main focus.  If you are trying to switch careers, interviewers are going to understand that getting a job in banking is more difficult and that you may need to cast a wider net.  In these instances, I think that as long as you state that banking is your top choice, it’s okay to mention that you are interviewing with other institutions, provided that they are in finance and require similar skill-sets (e.g. equity research, corporate banking, etc.)  Whatever you do, don’t state (even if it is true) that you are looking at banking, consulting, hedge funds, private equity and also considering going to cooking school.  You’ll come across as unfocused and not serious about being an investment banker.

With what other banks are you interviewing?

Interviewing is about marketing yourself and you do want to give them impression that you are desired by other banks.  On the other hand, you don’t want to lie.  Always keep in mind that banking is a small industry where bankers know bankers at other banks.  If you are interviewing with other investment banks say so.  If they are prestigious or comparable to this firm, name them.  If they are less prestigious, then just mention that you are interviewing with “a number of boutiques.”  If they ask you to name them, then mention one or two.  If you have no interviews lined up, state that you are “talking to a number of banks” and try to move the conversation along.

Why do you want to work at our bank?

This is your opportunity to (1) show you know a little about the bank and (2) kiss the ass a bit of the person with whom you are interviewing. Just don’t go overboard with #2.

If you have friends that work for this bank, say so, and mention that they are really enjoying their experiences.  If you are interviewing with a bulge bracket bank, mention how you are excited about the prospect of getting a broad experience and learning about different products or industries.  If you are interviewing with a boutique, talk about how you like the idea of a smaller firm, where you might have more responsibility and more interaction with clients and senior bankers.  Without a doubt (unless this is the first person with whom you’ve ever met), state how you’ve really liked all of the people from this bank that you’ve met before.

If you have previously had the opportunity (for example, in prior interviews or at recruiting receptions) to ask other bankers from this firm (or better yet, this particular interviewer) why they like working at this bank, then by all means recycle these answers!  If they say the culture is great, you say you want to work here because the culture is great.  If they say dealflow is strong, you say you want to work here because the dealflow is strong.  You get the idea…

Will headhunters be helpful to me in my job search?

It is important to understand that headhunters (executive search firms) get paid by the investment banks when they place people at those firms.  The implication of this is that headhunters want to spend their time on people who are likely to get hired, and those are going to be people with prior banking experience:  lateral hires.  So it’s not to say that a headhunter will never be helpful to someone without banking experience, but this occurs pretty infrequently.  Bottom line, it can’t hurt to give headhunters a call, but don’t hold your breath.

What kind of questions can I expect?

There are two general types of questions that you will likely be asked in interviews:  (1) fit or qualitative questions and (2) technical questions.  Sometimes you may be asked both types of questions in the same interview.  In other instances, you might have multiple interviews, with one or more being purely qualitative/fit and one or more being purely technical.

The primary use of fit questions is for the interviewer to make an assessment of whether you have the right attitude and skill-set to be a successful investment banker.  Most importantly, interviewers will want to understand why you want to be a banker and whether you are someone they would want working FOR them.  The secondary purpose of fit questions is to assess whether you are someone they would want to work WITH.  Some refer to this is the airport test.  How would they feel if they were stuck in an airport with you for 4 hours?  See Interviewing – Qualitative (Fit) Questions for examples of some commonly asked fit questions.

Technical questions test your knowledge of subjects relevant to investment banking such as accounting, finance and valuation.  The types of technical questions will likely vary based on your background and the role for which you are interviewing.  For example, students with finance or accounting degrees that are interviewing for Analyst jobs will likely get asked a greater number of technical questions than students that do not have finance/accounting degrees.  Likewise, MBA students interviewing for Associate positions can expect technical questions with greater complexity and real-world application than Analyst applicants.  Interviewees with banking experience should expect questions about their deal experience, which may come in addition to, or in lieu of, traditional “textbook” technical questions.  See Interviewing – Technical Questions for examples of common technical questions.

Are the hours really as bad as I’ve heard they are?

For the most part, yes!  At bulge bracket banks and top boutiques, Analysts can routinely expect to work 90-100 hours per week or even more.  A typical work day during the week might be 10:00 am until 2:00 am.  Analysts will also typically work both days on the weekend.  During a particularly busy time (working on a big pitch or at the beginning stages of deal), it is not uncommon for Analysts to work all night (“pull an all-nighter”) or even multiple all-nighters in a row.  Hopefully (for the Analyst’s sake and for others), they have the time to at least go home to shower and change clothes.

Associates generally have a slightly better schedule (emphasis on “slightly”).  Associates might average 80-90 hours per week with a typical weekday schedule being 9:00 am until perhaps 11:00 pm and working either Saturday or Sunday.  Associates on occasion will also find themselves pulling all-nighters.  At the Vice President level, the hours start to improve significantly.  VP’s, if they have to work weekends or late nights, can often do so from home.  Managing Directors have a much more normal work schedule, when they are not traveling.  MD’s tend to come in early (between 7:00 am and 9:00 am) and leave relatively early (6:00 pm – 7:00 pm).  However, MD’s are often on the road, traveling perhaps 3 out of every 5 days on average.

It should be noted also, that the hours at boutique banks can vary significantly.  As mentioned above, some boutiques tend to have similar work requirements to bulge bracket banks.  However, the lifestyle at many other boutiques can be substantially better.

Should I include interests on my resume?

My personal view on a resume section for interests is that it can hurt you more than it can help you.  Yes, if your passion is medieval Icelandic art, and it just so happens that your interviewer also loves medieval Icelandic art, then it probably helps.  But those instances are pretty darn rare.  If you do need to fill up some space on your resume (e.g. if you are still in undergrad) and your interests are “interesting” then put them on your resume.  If you do need more space to fit you resume on one page, this section should be the first thing to be removed.

If you do include interests, whatever you do, make sure than you can speak intelligently about them in an interview because someone will ask.  For example, if you list reading as an interest, make sure to have a few books (not Harry Potter) that you can speak about that you’ve read recently.

Should I include skills on my resume?

My general view on skills is that if they are relevant and/or interesting then yes, include them at the bottom of your resume.  However, if you need more space to fit your resume on one page, skills are one of the first things that should go.  Language skills especially (except Latin) should be included as they might actually one day be relevant to your banking job.  Computer skills are okay to list if they include REAL computer skills (e.g. programming languages) but PLEASE don’t list Microsoft Word, Excel, Outlook etc. as a skill.  It’s pretty much assumed in today’s world that if you can speak English and have half a brain, then you are familiar with Microsoft Office!

Should I include my SAT/GMAT scores on my resume?

If you are still in school or a couple of years out of school, and your test scores are very good (i.e. 700 or above for GMATs, ??? for SATs), then, yes it is okay to include your test scores.  In fact, some people may assume that if you do not include your test scores, then you scored below these thresholds.  However, once you are more than a couple of years out of school, I personally think it is tacky to include test scores, regardless of how high you scored.