Author: Andrew

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.

Should I include my GPA on my resume?

As with standardized test scores, if your GPA is very good (generally 3.5 is considered the threshold) and have graduated within the last few years, then you should include your GPA.  If you are applying to Analyst jobs while still in undergrad, you probably should put your GPA on you resume regardless, unless it is really bad (if you don’t include it, readers may assume it is really bad).  If your GPA in your major was better than your overall GPA, then include that too.

Walk me through a Discounted Cash Flow (“DCF”) analysis…

In order to do a DCF analysis, first we need to project free cash flow for a period of time (say, five years).  Free cash flow equals EBIT less taxes plus D&A less capital expenditures less the change in working capital.  Note that this measure of free cash flow is unlevered or debt-free.  This is because it does not include interest and so is independent of debt and capital structure.

Next we need a way to predict the value of the company/assets for the years beyond the projection period (5 years).  This is known as the Terminal Value.  We can use one of two methods for calculating terminal value, either the Gordon Growth (also called Perpetuity Growth) method or the Terminal Multiple method.  To use the Gordon Growth method, we must choose an appropriate rate by which the company can grow forever.  This growth rate should be modest, for example, average long-term expected GDP growth or inflation.  To calculate terminal value we multiply the last year’s free cash flow (year 5) by 1 plus the chosen growth rate, and then divide by the discount rate less growth rate.

The second method, the Terminal Multiple method, is the one that is more often used in banking.  Here we take an operating metric for the last projected period (year 5) and multiply it by an appropriate valuation multiple.  This most common metric to use is EBITDA.  We typically select the appropriate EBITDA multiple by taking what we concluded for our comparable company analysis on a last twelve months (LTM) basis.

Now that we have our projections of free cash flows and terminal value, we need to “present value” these at the appropriate discount rate, also known as weighted average cost of capital (WACC).  For discussion of calculating the WACC, please read the next topic.   Finally, summing up the present value of the projected cash flows and the present value of the terminal value gives us the DCF value.  Note that because we used unlevered cash flows and WACC as our discount rate, the DCF value is a representation of Enterprise Value, not Equity Value.

How do you use the three main valuation methodologies to conclude value?

The best way to answer this question is to say that you calculate a valuation range for each of the three methodologies and then “triangulate” the three ranges to conclude a valuation range for the company or asset being valued.  You may also put more weight on one or two of the methodologies if you think that they give you a more accurate valuation.  For example, if you have good comps and good precedent transactions but have little faith in your projections, then you will likely rely more on the Comparable Company and Precedent Transaction analyses than on your DCF.

Of the three main valuation methodologies, which ones are likely to result in higher/lower value?

Firstly, the Precedent Transactions methodology is likely to give a higher valuation than the Comparable Company methodology.  This is because when companies are purchased, the target’s shareholders are typically paid a price that is higher than the target’s current stock price.  Technically speaking, the purchase price includes a “control premium.” Valuing companies based on M&A transactions (a control based valuation methodology) will include this control premium and therefore likely result in a higher valuation than a public market valuation (minority interest based valuation methodology).

The Discounted Cash Flow (DCF) analysis will also likely result in a higher valuation than the Comparable Company analysis because DCF is also a control based methodology and because most projections tend to be pretty optimistic.  Whether DCF will be higher than Precedent Transactions is debatable but is fair to say that DCF valuations tend to be more variable because the DCF is so sensitive to a multitude of inputs or assumptions.

Do you have any questions for me?

At the end of almost every interview, you will be asked if you have any questions.  This is your opportunity to learn more about the job and the firm.  By asking good questions, it is also a chance for you to open up the interview into more of a conversation.

However, even if you have little interest in the job, or if you’ve already had all of your questions answered by the other 8 people with whom you interviewed that day, you should always be prepared with 3-4 questions that you can ask an interviewer.  Here’s a few examples:

– How long have you been with the bank and how has your experience been?
– What do you like best about working here.  Worst?
– How do you compare working here with other banks at which you have worked?
– How is the dealflow?
– On what types of deals are you currently working?
– What kind of responsibility does the typical Analyst/Associate receive?
– Can you tell me about your training program?
– How do Analysts/Associates get staffed?

Walk me through your resume…

The majority of interviews will start out with you being asked to introduce yourself and your background or “walk me through your resume.”  There are two reasons for this.  First, the interviewer wants to hear your “story” and second, it gives the interviewer a chance to quickly read over your resume while you are talking.  More often than not, he or she hasn’t had the time to read it before you walked in the interview room.

The opportunity to walk through your resume is your chance to talk about your background and to make your case why you want to be an investment banker.  The most important thing is that you tell a story that makes sense to the interviewer and shows a progression leading up to you being a banker.  Even if the choices that you’ve made (schools, degrees, jobs) don’t follow a natural progression, you need to describe your experiences in a manner that flows convincingly.  Now, that isn’t to say that you necessarily need to find commonality in everything you’ve done, or “weave a thread” through each job, as long as you can demonstrate some sensible flow.  For example, highlight how each job enabled you to take more responsibility or required more finance knowledge than the one before it.  Even if you’ve switched careers or reversed directions, talk about what you’ve learned from those decisions that make you a good investment banking candidate.

Remember, this is your opportunity to make a first impression and perhaps your only opportunity to make your case as you see fit, so don’t underestimate the importance of this part of the interview.

Why do you want to be an investment banker?

As someone trying to break into the industry, this is the most important question that you can be asked.  And even if you are not asked this explicitly, other questions will likely try to elicit from you the same information.  Most people trying to get a banking job have the intellectual abilities to be a banker.  The question is do they have the attitude, the mindset, the willingness to sacrifice and the attention to detail.  There are a range of answers that will help you portray that you have both the ability and attitude to be a banker.  Here are a few:

– I’ve always enjoyed the aspects of my past jobs/classes in school that involve corporate finance.
– I like the fast paced environment of banking as I’ve always excelled in pressure situations.
– I am excited to be able to work on many projects at the same time and the fact that I’ll never be bored.
– I can’t wait to be in an environment where I’ll always be learning.
– Even though I know I’ll be playing a junior role for a number of years, I like that ultimately I will be able to help advise senior management of companies.
– I enjoy reading about M&A transactions in the newspaper.
– All of the bankers that I have met are really smart and I want the opportunity to work with them and learn from them (just make sure you say this one with a straight face)

Whatever responses you give, make sure that you can back them up with actual stories and details from your experiences.

What is an investment bank?

While there is no precise definition of an investment bank, generally speaking, an investment bank is an institution that advises and raises money for companies, governments and wealthy individuals.  The large investment banks (“bulge bracket”) that most of us are familiar with (e.g. Goldman Sachs, Morgan Stanley, Merrill Lynch, etc.) do many other things besides traditional “investment banking.”  For example, they have departments that sell and trade various securities (Sales and Trading/Capital Markets), provide research to institutions and individuals about such securities (Sell-Side Research), manage the investments of institutions (Asset Management), advise and manage the money of wealthy individuals, their families and estates (Private Client Services/Private Banking/Private Wealth Management), trade the bank’s own money (Proprietary Trading), and others.

On this site, when we speak about investment banking, we are speaking of the division within the investment bank that specifically advises companies (and occasionally governments) on (1) transactions, such as a merger, acquisition or leveraged buyout, and (2) capital raisings such as an initial public offering (IPOs) or debt issuance.

What is the general role of the Managing Director?

As the senior level banker, the role of the Managing Director (“MD”) is mostly one of client development.  The MD will likely be the one with the senior level company relationships (CEO, CFO, head of Corporate Development) and is typically responsible for spearheading marketing efforts.  On a live transaction, the MD often plays only a minor role, getting involved when difficulties arise in the deal and during high level negotiations.

What is the general role of the Director/Senior Vice President (SVP)?

Depending on the person (and sometimes the bank), the Director or SVP may either act more like a Managing Director (play a high level client development role) or more like the VP (play a project manager role).  Sometimes, the Director/SVP’s role will depend also on the specific situation and/or other dealteam members.  Ultimately, for Director/SVPs to be promoted to Managing Director, they will have to demonstrate that they can form client relationships and have the ability to market and to bring in new business.

What is the general role of the Vice President (VP)?

The primary role of the Vice President is to be the “project manager,” whether for marketing activities or on a transaction.  It is the VP that typically decides the structure (usually the Table of Contents or “TOC”) of the presentation (e.g. a pitchbook).  On live engagements, the VP is typically the banker “running the deal.”  The VP must manage the client, manage the senior bankers and manage the Analysts and Associates that are actually doing the work.  It is often at the VP level that bankers begin to form valuable relationships with clients.  Depending on the individual and also the bank, some VPs will start to play a role in client development and marketing.

What is the general role of the Associate?

Associates are typically either folks directly out of top MBA programs or Analysts that have been promoted.  Typically, bankers will be at the Associate level for three and a half years before they are promoted to Vice President.  Associates are also categorized into class years (i.e. First Years, Second Years and Third Years or say, Class of ’05, ’06 and ’07).

First and foremost, the Associate’s role is to check the work of the Analyst.  In reality however, “checking the work” sometimes takes the following form:

Analyst:  “I’m finished with the valuation”
Associate: “Is it right?”
Analyst:  “I think so”
Associate:  “Well, check it again and come back when you are SURE it is right”

In addition to overseeing the Analyst’s work, the Associate will often help write the text for the presentations as well as do much of the modeling work.  On live transactions, the Associate, while also playing an administrative role with the Analyst, will likely have significant ongoing interaction with the client and with the opposing investment bank (i.e. the buyer’s advisor if the Associate is on a sell-side deal).

What is the general role of the Analyst?

Analysts are typically men and women directly out of undergraduate institutions who join an investment bank for a two-year program.  Top performing Analysts are often offered the chance to stay for a third year, and the most successful Analysts can be promoted after three years to the Associate level.

As Analysts are the bottom rung on the investment banking ladder, they do the bulk of the work.  Broadly speaking there are three types of work that Analysts do:  presentations, analysis and administrative tasks.  Presentation work involves the putting together and writing of various PowerPoint presentations including marketing documents (“Pitches” or “Pitchbooks”) and documents for live transactions (for example, a presentation to management or the Board of Directors).   These PowerPoint presentations get printed in color and are bound with professional looking covers for meetings with clients and prospective clients.

The second main task of an analyst is analytical work.  Pretty much anything done in Excel is considered “analytical work.”  Examples include entering historic company data from public documents, analyzing such data for valuation purposes and projecting a company’s financial statements (“modeling”).  Administrative work, being the third type of task, involves things like scheduling and setting up conference calls and meetings, making travel arrangements and keeping a list of dealteam members up to date.  While on live transactions, Analysts often refer to themselves as “glorified admins,” given all of the administrative work for which they are responsible.

What is the typical hierarchy/ladder within an investment bank?

Just about all investment banks have the same strict hierarchy or ladder of professionals.  From junior to senior, the typical hierarchy is (1) Analyst, (2) Associate, (3) Vice President, (4) Senior Vice President/Director and (5) Managing Director.  Some banks deviate from this hierarchy a bit, for example having the Senior Vice President and Director be separate positions.  Other banks, especially non-U.S. banks, have the same hierarchy but with somewhat different names for each position (Associate Director for Associate, Director for Vice President and Executive Director for SVP).  One exception for U.S. banks is that Bear Stearns calls the Senior Vice President/Director position a Managing Director, and calls Managing Directors, Senior Managing Directors.  However, regardless of the names, the general job functions of each relative position tend to be consistent bank to bank.

What is a boutique bank?

Pretty much all banks that are not considered “bulge bracket” are referred to as being boutiques.  Boutiques, while ranging in size from a few professionals to hundreds or even thousands of professionals, can generally be categorized into three types:  (1) those that specialize in one or more products, (2) those that specialize in one or more industries and (3) those that specialize in small or mid-sized deals and small or mid-sized clients (generally less than $500 million).

There are boutiques that specialize in any number of the products that bulge bracket banks offer.  Boutiques known for M&A, for example, often compete with the bulge bracket banks for M&A transactions.  A few examples include Lazard, Greenhill, Evercore and Gleacher.  Other boutiques offer many different products but specialize in one or more industries.  Such boutiques often compete with the bulge bracket banks on the basis of their industry knowledge and expertise.  A few examples include Cowen & Co. (healthcare), Allen & Co. (media) and Thomas Weisel Partners (technology).  The third type of boutique, those that offer many products and cover many industries but compete only for “middle market” or smaller deals include Jefferies & Co., Piper Jaffray, Raymond James and Robert W. Baird.  Many of these middle market boutiques are regionally focused. Some boutiques, including several of the M&A focused banks, are considered to be as (or even more) prestigious as the bulge bracket banks.

What is a bulge bracket bank and who are they?

The term “bulge bracket” generally refers to the large investment banks that cover most or all industries and offer most or all of the various types of investment banking services.   While there is no official list of bulge bracket banks, most people would consider the following banks to be bulge bracket:
Bank of America
Barclays
Citigroup
Credit Suisse
Deutsche Bank
Goldman Sachs
JP Morgan
Morgan Stanley
UBS
Bear Stearns
Lehman Brothers
Merrill Lynch

Note: in this market environment, this list may change at a moment’s notice