I found the following information in the Wetfeet Insider Guide to Careers in Investment Banking. This post follows on from my previous post on Investment Banking Interview Questions and Tips.

The following are good generic questions that will fit most investment banking interviews. However, you’ll want to think of additional ones that apply specifically to the company with which you’re interviewing. One important reminder: If you’ve already covered any of this material in your interview, don’t revisit it. You’ll appear inattentive and unfocused.

A word to the wise: We’ve grouped our questions according to our sense of relative risk. Those in the “Safe” section are meant to be boring and innocuous, while those in the “Well Done” section will help you put the fire to your interviewer’s feet.

Safe Questions

• What kind of person are you looking for? (This question will provide useful information on personal characteristics you should emphasize.)
• What makes a person successful in this business?
• What made you choose this firm over other firms?
• What is a typical career path in the (corporate finance, sales, trading, research) department?
• How much of an analyst/associate’s time is spent pitching new business?
• Is there a formal mentoring program for new analysts/associates?
• If I’m a CEO, why would I choose your firm to take my company public?

Medium

• Beyond the league tables, what differentiates your firm from other firms?
• How is an analyst/associate assigned from the generalist pool to a project?
• How long does it take most people here to become managing directors?
• Can one request specific teams, industries, or product groups?
• How well do the firm’s different divisions work together?
• What’s the path? Are there specific benchmarks you have to hit?
• What are the firm’s biggest challenges and opportunities in the next 2 years?
• What aspect of your job do you find most frustrating?

Well Done

• How has increased consolidation in the industry affected your firm, both positively and negatively?
• If the company has merged: What new business has resulted from the merger? How well have the two cultures mixed?
• How would your firm fare relative to the competition if interest rates suddenly skyrocketed? If oil prices plummeted? (Or whatever else you can think of along these lines, to help you gauge how prepared the firm is for future possibilities.)
• If the company has not merged: Do you think the company needs to acquire or merge with a competitor in the near future?
• How committed is the firm to building its XYZ business? (Investment banks are known to eliminate entire departments when they underperform against expectations, and if you happen to work for one of those departments, that is not usually good news..)
• What percentage of the managing directors are female or minority?

Practising investment banking / finance interview questions will be crucial in order to distinguish yourself from the next commerce / law graduate with first class honours who probably has a very similar resume to yourself.

How to get into investment banking

Whilst I do not speak from experience, I hope the following investment banking interview questions and tips which I have pulled together from research across the internet will help graduates considering a role in investment banking. I query whether now (mid 2008) is the most ideal time to be jumping into investment banking but I’ll get to that another day.

Expected Investment Banking Interview Questions

Ultimately, investment banking interviewers want to know two things regardless of the role you are applying for:

1. Why do you want to go into the investment banking?

2. Why do you want a job with the particular firm you are applying for?

From my analysis of a couple of insider surveys done by Wetfeet, the key is to be prepared by having thought well about these questions before the interview. Research into the firm and where the banking division (trading / M & A /advisory / etc) is placed comparatively to its competition (League tables) is a good place to get started when thinking about these questions.

However, to stand out, originality and some degree of understanding of the culture of the firm would probably be required to differentiate you from the talented competition.

Investment banking interviewers will be looking for different skill sets depending on the type of investment banking job you’re pursuing. Types of Investment Banking jobs can be seen in my post what is involved in a career in investment banking.

“One insider who worked in corporate finance after college and pursued a sales position after business school observes that in her corporate finance interviews, the recruiters focused on her analytical skills and experiences, while her sales interviews were more weighted toward evaluating her people skills, particularly those related to negotiation, relationship building, and persuasion.” Wetfeet Insider Guide to Investment banking

Common Investment Banking Interview Questions

Being prepared for the following questions will give you the best chance at performing in the interview:

1. What most excites you about a (corporate finance, research, sales, trading) job?
2. What can you tell me about a couple of stocks that you follow?
3. Why do you want to work for this bank versus our competitors?
4. Who is our competition (in the major categories)?
5. Tell me about your leadership experience…
6. Tell me about a high-stress situation you’ve been in. How did you handle it?
7. What could you do better the next time?
8. What did the stock market do last week?
9. The Fed recently lowered interest rates. Do you think the move will be sufficient to stimulate the stock market? Why, or why not?
10. In which areas is our firm the strongest? The weakest?
11. What other banks are you interviewing with?
12. What career opportunities are you exploring other than investment banking?
13. Sales/trading: Pretend that I’m a portfolio manager for Investment bank A. Explain to me why I should buy the latest IPO the firm has underwritten…
14. Research: You’ve just been hired as our firm’s new finance industry analyst. In 2 weeks, you’re scheduled to address a growth-stock conference on industry trends. How would you prepare?
15. Corporate finance: In a merger discussion, ABC Systems says Magnatech is worth $23 per share; Magantech says $34 is more in the ballpark. Who’s right, and how would you arrive at a valuation?

Investment Banking Interview Tips

Finally, following the following tips likely prove useful depending on the role you are applying for:

1. Be prepared to be able to explain how to value a company
2. Be prepared to work with a few numbers in the interview
3. Be prepared to promote your individual advantages as opposed to the next interviewee (speak other languages, finance experience, successful investing history, people you know within the firm and hence cultural fit)
4. Be honest
5. Focus your skills and experience towards the particular role you are applying for (eg, a career in Mergers and Acquisitions required different skills to a career in sales and trading)

I hope the above information helps you in your path to becoming an investment banker! If its not for you, try my post on Law firm summer clerkship tips, resume advice and law firm career site links.

Mergers and Acquisitions

To many in the finance industry and the general population, mergers and acquisitions work can seem very glamorous and high profile. The mergers and acquisitions group (known as M&A) provides advice to companies that are buying another company or are themselves being acquired.

At the same time, the work leading up to the headline-grabbing multibillion-dollar acquisition can involve a Herculean effort to crunch all the numbers, perform the necessary due diligence, and work out the complicated structure of the deal. The guide noted that one insider said, “You have to really like spending time in front of your computer with Excel.”

Often, the mergers and acquisitions team will also work with a Corporate Finance industry group to arrange the appropriate financing for the transaction (usually done through a debt or equity offering).

In many cases, all this may happen on a very tight timeline and under extreme secrecy and pressure. Mergers and acquisitions is often a subgroup within corporate finance; but in some firms, it is a stand-alone department. Mergers and acquisitions can be one of the most demanding groups to work for.

What do Mergers and Acquisitions Groups do?

• Advise firms on merger and acquisition strategies
• Determine target company valuations using a number of different valuation techniques
• Help the target of a hostile acquisition arrange a defensive strategy where appropriate
• Conduct due diligence on a target or acquiring company (this includes examining the financial results and other business factors that will affect the value of an acquisition)
• Negotiate price, terms, and conditions of an acquisition or merger
• Work with the other company’s advisory team and the lawyers to structure the deal

A Career in Mergers and Acquisitions; Who Does Well?

Like corporate finance, mergers and acquisitions requires detail-oriented thinking, a knack for using numbers to understand business patterns, problem-solving skills, an ability to think critically about the numbers you’re working with. Add to this, excellent communication and people skills and you have a potential mergers and acquisitions candidate.

Also like corporate finance, lawyers, MBAs, and experience candidates with specific industry knowledge make good mergers and acquisitions candidates. Many entry-level candidates try to get an internship to increase their chances of eventually getting full-time offers and the Guide discusses methods of attaining these internships. Selection is competitive to say the least.

Investment Banking Interview Questions and Tips can be found in my article on Investment Banking Interview Questions and Tips.

Mergers and Acquisitions Job Tips

The M&A department usually recruits under the Corporate Finance or investment banking umbrella, although within the group you may find further specialization along industry lines. The work here tends to be intense and very deal-focused, and the hours are unpredictable.

“You might be staffed on five transactions and not much is happening. Then one turns live, and you have to cancel your weekend plans,” says an insider. “Or you could be very busy, and the next day something happens and work gets pushed back a week and suddenly your weekend is free.”

The job provides an excellent introduction to the high-stakes, power centric movement of the corporate world. It is common for insiders to report that personal ambition is a big success factor in mergers and acquisitions.

“You can learn the technical skills like accounting and modeling,” says one first-year associate. “It’s not so easy to learn how to be driven and to take responsibility, to own the deal.”

If you are the type of person to be depressed by the thought of spending 3 or more weeks of your life crunching numbers for a deal that may never happen, the Guide suggested that there may be better alternatives in Corporate Finance.

Example of a Mergers and Acquisitons Deal

IBM Corporation decides it has an opportunity to strengthen its hardware business by acquiring an innovative developer of communications software. It approaches an investment bank to get advice on the potential deal. The bankers help IBM secretly value the target company’s assets and the potential value of its products to IBM (which may be higher than their current value because of the opportunities to link with IBM hardware and because of Big Blue’s marketing muscle).

The mergers and acquisitions group then develops IBM’s acquisition strategy and makes contact with the target company. Once the offer is made, the target company will consult its own investment bankers. They help the target evaluate IBM’s proposal, determine various strategies for defending against or negotiating with IBM, and work out a deal that will be in the best interest of the company’s shareholders. After some back and forth, the sides agree on a price (usually a combination of equity and debt), sign the documents, and merge.

I have sourced the majority of the information above from the Wetfeet Insider Guide to Careers in Investment Banking; click here to read about what is involved in a career in investment banking.

After reading The Accidental Investment Banker by Jonathan Cree, I decided my first blog on investment banking and corporate finance was due.

From my understanding of investment banking, many people simply don’t understand it. Is it banking? Is it investing? Is it Gordon Gecko in the movie Wall Street or is he a trader? What is the difference between an investment banker and an equity trader? What do investments bankers actually do?

One finance degree short of an answer, it took me a fair while to truly come to grips with the concept of investment banking. However, now that I have, I feel the short summary below will give a very good indication to those considering a career in investment banking or those wishing to understand investment banking better.

What is investment banking and what do investment bankers do?

As companies grow, they need capital. In many cases, in order to raise capital and for other related advisory services, companies go to investment banks. Investment banks provide a range of services relating to the raising of capital and act as advisors to the world’s corporate leaders…

Now, some more detail. An investment bank does not have an inventory of cash deposits to lend as a commercial bank does. In essence, an investment bank acts as an intermediary, and matches sellers of stocks and bonds with buyers of stocks and bonds.

Investment banks primarily provide the following services:

• Financial and strategic planning advice to companies.
• Creating and issuing stock and bond offerings to either private investors or the public typically through an IPO.
• The underwriting (guaranteeing) of such offerings.
• Mergers and Acquisitions advise
• Sales and trading
• Market making
• Research functions

Thus if you are considering a career in investment banking, you need to think critically about which section would suit you best. I have found the Vault Guide to Investment banking and the Wetfeet Insider guide to Investment banking particularly useful in this endeavour.

Investment Banking Interview questions can be found in my article on Investment Banking Interview Questions and Tips.

Capital Raising and Underwriting Services

In order to raise capital for companies, investment banks issue and sell those clients’ stock, debt or some related financial instrument. The investment bank then advises the client on a reasonable price through a number of company valuation and testing mechanisms that I will discuss in a later blog.

At this point, the investment bank buys the securities and sells them to investors either privately or through a public offering of shares. The investment bank makes its money on what is known as the ‘spread’ which is the difference between the price it pays the client for the securities (the underwritten price) and the price at which it resells the securities.

Financial Advisory Services

Investment banks advise companies, government entities, and other institutions
about their financial strategies and the most effective use of the financial markets. One of the most common and publicised service is mergers and acquisitions advice where investment banks advise companies on appropriate M & A targets, strategies, company valuation and the bidding process.

Other financial advisory services include investment strategies, international business advice and corporate options strategy formulation advice.

Sales and Distribution

It is difficult to be an investment bank if you cannot sell the securities that you are underwriting. In fact, they would be in a particularly illiquid position if they had underwritten 70% of the newly issued shares in a company but had not distribution channels or method of selling them. The majority of the underwritten securities are sold to institutional investors such as pension funds, money management firms, mutual funds, and other large-quantity buyers. The institutional sales role advises these investors and typically establishes these important relationships through travelling, hand-holding and significant Schmoozing according to the Vault Guide that I referred to earlier.

Many investment banks also have or are considering adding a retail sales force of stockbrokers to target individual investors but this business is more typical of broking and is not traditionally associated with investment banking.

“To be an effective underwriter, an investment bank must have a wide distribution network and a knowledgeable sales force that can consistently find buyers for all of the stocks, bonds, and other financial instruments that the I-bank underwrites.”

Trading and Market-Making Services

Most investment banks actively trade securities in the stock market to support the institutional and retail sales efforts thereby providing liquidity (cash) and market prices to their investors.

As a result, when an investment bank decides to market a particular stock, they typically stand ready with their own (underwritten) capital to buy and sell the stock at the publicly traded prices. A firm can make a market either on the exchange floor for listed stocks or on its own trading desk for over-the-counter stocks. Traders typically focus on one group of stocks at a time, often becoming specialists in a particular industry.

Research Services

Finally, most investment banks require a research division to complement their advisory services. This division focuses on the latest company news, economic trends, and potential opportunities in order to maximise opportunities for both the investment banks and its clients.

This research role used to play an important role in the underwriting process but in recent times investment banks have faced public and regulatory outcries over conflicts of interest that can arise as a result of investment bankers and researchers working together. In order to end the legal scrutiny over their operations, investment banks are now attempting to outline the separation between their banking and research arms similar to the ‘Chinese wall’ approach of many prominent law firms.

I will be writing many more blogs on investment banking in the future with the next blog to focus on buy-side vs sell-sell investment banking.