Wednesday, May 21, 2008

MBA Career Series: Investment Banking (Updated)

Disclaimer: I explain the process as I saw it or as it was described to me by people in other schools. This process is fairly consistent across most US B- Schools.

Investment Bank (IB) is one of the two big career buckets that students in Bschool typically pursue. It is not possible to give a comprehensive definition of everything that IB entails in a post, so I will stop with a "brief" introduction that gives a rather superficial taste of what this career path is.

What is this job?

Traditional IB jobs involve (but not limited to) working on M & A, IPO and raising funds in Capital Markets among many many other activities.

M&A: Mergers & Acquisitions is an important service that an I-Bank offers to companies which seek to merge with or acquire other companies. For example if Company A wants to merge with or acquire Company B. Both companies would have a bank consulting them on the negotiation and valuation process. The price of the deal and the stock purchase price are negotiated and built by the I-bank. Typically there are more Company A equivalents in the market who partner with I-Banks and search for appropriate targets to acquire. Company B equivalents are hard to find. It is a relatively easier deal for an I-Bank to partner with a company who seeks to bought than partnering with a company which seeks to buy. For example: It was reported that in the recent attempt by Microsoft to buy Yahoo; Morgan Stanley and Blackstone group were the Investment Banks partnering Microsoft while Lehman and Goldman Sachs were the Banks partnering with Yahoo. An instance of a merger & acquisition project is called a 'deal'. The team that works in this deal is called a 'deal team'. While there is no typical structure to a deal team - a deal team could possibly be assembled in a pyramid structure. With higher number of Analysts and Associates at the bottom of the pyramid and smaller number of more senior people at the top of the pyramid. The deal team try and evaluate the deal based on the mutual value that the companies bring to each other, the over all sense in them joining, and on whether joint-entity would be more beneficial than going alone.

IPO: An investment bank helps companies come up with an Initial Public Offering. A privately owned company may decide to do a public offering of company ownership in order to obtain more financial resources for future investments on projects. This allows potential shareholders to invest money in a company and own a share of the company's profits. While this results in more cash inflow there are cons to an IPO. The company going for an IPO would need to comply with increased/more stringent laws and disclosure policies as a result of an IPO. An investment bank finds potential investors and helps a company build a profile and share price for IPO. An investment bank earns a cut of the IPO offering, which is typically around 7-9%. However for companies that IPO greater than a billion dollars the cut maybe less - around 5-6% (Just a random example). For example: Google had a complicated IPO. It really did not need to go for an IPO but it wanted resources for acquisitions. At the same time it did not want to open itself up to the vagaries of institutional investors and wanted greater spread and distribution of its stock. It eventually went on to do an IPO using an unconventional variant of a dutch auction and in doing so partnered with up to 10 investment banks including Goldman Sachs, Morgan Stanley, and CS First Boston for underwriting.

As you can see an I-Bank does not work alone when partnering with a company but as part of 'deal team' you could be an associate working along with Associates from other banks. The above-mentioned functions are among the main activities done by an I-Bank. Other notable functions of an I-Bank include but is not limited to Sales and Trading, Merchant Banking, Investment Management etc. Anyway - the idea here is to give a basic introduction.

Recruiting Process:

The key aspects of I-Bank recruiting are as follows. Most of which are common for other career paths but the magnitude of each element varies.

Networking: IB recruiting has a complicated, long and intense networking process. Networking is defined as the process in which a candidate connects and holds conversations with people who work for an I-Bank. The professed purpose is learn more about working at the I-Bank by talking with an employee first-hand. However, the real purpose is to get a spot on the Bank's interview list. In the case of an I-Bank networking extends beyond just a spot on the interview list and has bearing on job decisions. This is a rather complicated process because you need to push in your ulterior agenda without making it obvious. I found the small talk and the 'connection' part reasonably challenging. With the exception of Goldman Sachs, networking is the vital and most important aspect of getting a interview spot and a job.

Meet The Banker: The banks visit the school in early fall (September) for internship recruiting purposes. Within the first 1 month after joining school, you might see most of the interesting banks visit campus for a presentation and a reception. The post-presentation 'reception' is a mixer between Bank Associates and students. The bankers hang around and answer questions by students. This is the window of opportunity for students to accost a banker, introduce themselves and try to make a connection. The objective here is to position oneself for a follow-up phone conversation (which sadly means you need to get his business card now). When Banks visit they also have 'office hours' where you can schedule a 30 minute 1-to-1 with a bank representative (There is a proper dog fight for this spot). The purpose is to try and find out more about the bank. This presents a more dedicated networking opportunity. I had an 'office hour' with Lehmann Brothers within 2 weeks of joining B-School. This is daunting because one needs to have intelligent questions to ask. The 'office hour' is typically a screening process that involves both parties finding out how good and well prepared the other is. Given that in less than a month after joining school a student is expected to have a decent list of insightful questions to ask a banker - it is better to start preparing before you join school.

Thank you for talking to me - Can I call you?: In a typical week you could have 2 banks visit campus/week. If you walk around and talk to bankers during the meet & greet - around 6 representatives per bank could give you their business cards. You come back and send 'Thank you' mails to all these people. This could sound funny to people who haven't experienced this but standing out of the crowd in the category of sending 'thank you' mails is a difficult process and you have to pick out some aspect of your conversation with the banker that hopefully he/she would remember later. This makes having the actual conversation important (This is important for the annoying students just stand around and let others talk and stretch out their hand when the Business Card is distributed).

I Just Called to Say I love you: The next step after the 'Thank you' email involves sending an email to set up a phone conversation. The Phone conversation is like an 'office hour' - a dedicated networking opportunity. While you have no hope of being on the recruiter's radar with just a conversation in a 'meet & greet' a phone conversation puts you at the entry point of the radar. The above is pretty much common with other career streams. The following is rather unique to IB jobs. Now the more complicated IB networking game begins. The next step towards firmly being on the radar is requesting (or being called for) a personal face-to-face meeting. Students typically make 6-7 trips trips to NYC throughout the fall semester. Of course Wharton students get to travel by train but the less fortunate ones spend significant $ on flights to NYC (about $5,000 overall).

Dating: The general idea is to hit the appropriate 'recruiter target'. That is meeting and impressing those who have a say in recruiting. If you impress them in the phone conversation they would invite you for a face-to-face meeting. Once you get enough traction from such people, you schedule a trip to NYC that would cover representatives from 2-3 banks. If you did well in the face-to-face meets they would want you to meet other representatives (these would be people who have increased say in recruiting so that there is more buy-in) from the same bank and you would schedule another trip like that. And so on.

Show me Love: There will be occasions when the bank will show return-love. They would invite you for dinners and these dinners are again mini-interviews. If you don't get dinner invites it means you are not on the radar and you need to do some more networking

Time Management:

Time management is as critical as networking. Assume that you could get six business cards from people per bank and 2 banks could visit campus each week. This means you could be sending 'Thank you' emails to 12 people that week. Taking time to remember conversations and say something small could take up to 15 minutes per email. Scheduling phone conversations and talking to these 12 people for 30 minutes each during the subsequent week is time consuming again. The average prep time for a phone conversation could start as high as a day for a 30 minute conversation and could taper down to 2-3 hours for the later phone conversations. Course load in the first semester is high. Projects, home work, exams and club activities are really demanding. Companies keep visiting campus everyday and they pay particular attention to attendance (not-attending company presentations has a high correlation with not getting an interview spot) . So this is not an easy schedule to live with. As weeks go by more banks come and it gets worse. They key to all this extravaganza is your ability to manage time and do several things in parallel and do them well.


A typical first semester course work involves basic introductory courses in Accounting, Finance, Economics, Statistics, Marketing, HR, Corp Strategy and an optional course. Some schools let you take an exam on finance/accounting or economics to waive the course so that you can take advanced courses. I-Bank aspirants, although do need to as a rule, typically get a few courses waived and take Valuation, Options and Futures and other advanced Accounting courses. 'Valuation' is a key course that will help immensely during the recruiting and networking process.

Of course you need to get the best grade possible in every course you take. As you may be asked for your grade in your interview. Poor grades don't always mean a 'ding' ('ding' is a slang for 'reject')but instantly takes you pretty close to a ding.

The Interview: What do you need to know really well?

The Payload: Questions on the interview will focus on what you learned in core courses. It really not a lot. If you are engineer-types the concepts are pretty easy to grasp. For starters you need to know Statistics 101 well. Things like probability, sampling distributions, confidence intervals, hypothesis testing, correlation, and simple and multiple regression analysis. In Accounting you need to know; Basic Accrual Model, Analysis of Transactions, Balance Sheet, Income Statement and Cash Flow Statement Construction and Analysis. In Finance; Capital budgeting criteria (NPV, IRR), cash flow estimation,, the concept of risk, CAPM to derive cost of equity and then, the weighted average cost of capital (WACC).

Interview questions center around problems that test one or many of the above concepts. Questions that you would crack easily if it were given as a homework but you be interesting in a high-pressure interview environment

How to get an IB interview?

Payload yes! - But Are you Hot?: Your knowledge of the concepts mentioned above will be tested during your interactions with the bankers. Most people know all the concepts well. That is not the big thing. The key is to give an impression that you are fun or easy to work with. Geek engineer types who talk with eyes pointing to the feet have a challenge here. Being personable is a vague thing. Being likeable to a bunch or arbitrary people makes the process a little bit random. People Skills - This is most challenge part. As you network on the phone, in bank organized dinners and while in some Starbucks in Manhattan - you will be confronted, pushed, challenged (mildly insulted) and asked some hard questions. You need to come out as still likeable (You will know when they don't call you). You could potentially have interactions with C-level executives of a company. What the rexcruiters are trying to find is - maturity. On whether you wouldn't come across as a fool who talks out-of-turn in front of CEOs and embarass the bank.

What is Love? 95% of your job is done when they voluntarily invite you for the interview list. That means you have already been tested and they think you are good. You are on track to get a job if you don't screw-up. The odds of getting an IB job without being invited by the bank for an interview are astronomical. Bidding for an interview spot is almost useless

Interview Process:

Delivering Payload: While the general mechanics of B School interviewing a separate topic for another day, IB interview process is unique. The first week of recruiting is filled with IBs. Job offer decisions are made within a day. JP Morgan sometimes has first round interviews during the day and second round late in the evening (you get a phone call from your interviewer with the result in a few hours). On an average in 2 business days the whole interview and job offer process is complete.

Good, Bad and The Ugly: IB interviewing is internship intense. The biggest pipeline to an IB job is an internship in it. Goldman Sachs rarely recruits full-time. In that if you don't do an internship in IB chances are high you will never get a full-time job in IB. Full-time recruiting is minimal and only for candidates who jump from one bank to another. Not getting a full-time offer after IB predominantly means end of the road for your IB career. It is rare that another bank will speak to a person who does not have a full-time offer from his/her internship employer.

Is the Deal Worth it?

To me, the definition of a good salary a satisfactory answer to - is the $ amount paid to you proportionate to the amount of crap you have to put up with? Is the amount of pain, nuisance and work that you have to put in being compensated adequately? For the parts of the job that people love to do, they don't expect to be compensated astronomically for doing it. However, they'd expect a high price for the nonsense part of the job. IB career economics gives you tremendous of money. This job more than any other job is skewed on the 'I am doing it for money' than 'I am doing it for fun' part of the spectrum. All the cliches you have heard about this job is true.


The Base Salary is very low. Statistics released by college recruiting tells us that about $95,000 per annum would be the ball park of base salaries across all Wall Street firms. And it is not unusual to find all firms offering the exact same base salary. Where an IB excels and literally pays off is in the Bonus. Bonuses can be anywhere around 100% to 120% bringing your annual pay close to $200,000 (the range is between $160K - $200K) per annum. Not bad for a fresh graduate. If you manage to stay in your job for more than a year (IB is probably laying off folks now) then the pay is supposed to increase quickly. The 'Up or Out' culture in IB means that if you are doing well you get the 100% or so bonus and you get promoted. If you aren't doing well you wont get a high enough bonus and you are shown the door. So things happen rather quickly. While I never had visibility beyond 1st year associate salary levels, conversations and networking gave me the knowledge that people quickly go anywhere between 600K - 800K per annum in their 5-7th year period. While this has the possibility of being true, I have no clue if it indeed is.

Works Hours

So given that you are paid a lot, there is good chance that work is proportionally intense. The first thing a 2nd year told me when I asked him about IB as a new student was - "it is true". A person in my batch recorded hours of work put in per week during internship in an excel sheet and shared it with me. It was on an average 112.5 hours per week ( now, this is when you wonder how many hours are there per week - a week has 168 hours). The general consensus of people in my batch and 1-year senior to me was that - a typical day begins at 8AM potentially ends anywhere between 12:00 midnight or 2:00AM the next day. There could be lot of travel too.

Additionally, you could work in different industry verticals in IB. You could work in Telecommunications, Technology, Real Estate and so on. Where your work will be focused on banking deals within that vertical.


lekhni said...

Why this sudden series?

This brings back memories..I hated the whole thing. Plus, you'll have to add - it's not just I-banking. If you need any job in a Street firm (sell-side, wealth mgmt, asset mgmt) the dating game has the same rules...

Hawkeye said...

Hi lekhni,

i have been writing this series for quite some time. this one is coming after a couple of months which is why you missed it. if you click the bschool tag you will see the other posts in the series . The remaining posts in the series are found in the drop down menu on the right hand side panes under Education -> business school.

nilu said...

adhavadhu nee mba

Nilu said...

Dei venna,

If you want to use my name, use it imaginatively.

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Anonymous said...

I am reminded of the primary school children trying to impress their "miss" to get some advantage. Very well written post.

Arun said...

Thalaiva, wanted:a brief on General Mgmt.Devlopment/Leadership programs. Thanks for the series btw...immensely useful.

Arun Sundar said...

Very nice! Most people join schools, suffer thru, learn, strain, win jobs and go on with their career(successful or not). Not many people take such initiatives, that too after quite comfy'ly settled in a job. Commendable your efforts are!

Anonymous said...

size of paycheck, kind of job you would end up doing, work hours, bonus % of comp etc. ??
for the record, nothing beats house husband.

bombay dosti said...

ok, now this is quite tough!! I know, you prefer the admission process of foreign schools to that in indian schools.but for recruitment, i would prefer the indian schools.Get over it over a period of two weeks when they come over to campus, interview and decide. So much networking!!! I'd g crazy!
Nice post!

Anonymous said...

very informative. Thank you.

Karthik said...

very useful information...thank you so much

Hawkeye said...


it is like that wonly


varum varum! This topic is hard to write abbout motivation-wise

arun sundar,

danks ba! i have a few items in my check list i want to finish off


you ask. i write :-)

bombay dosti,

yes! I agree. recruiting is painful here. indian recruiting has its own pains with its knock-out format but i wish one got a job offer along with admit offer :-)

anon & Karthik,


tilo said...

romba bore -- why do people think this is something they want to do with hteir lives

Hawkeye said...



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