Nov 21, 2012

Know your post MBA career: Investment Banking (Part 1)

This is a three part series (courtsey: Part 1 covers Investment Banking in general, requirements and how to break into this field. Part 2 covers job options in this field, salaries and Part 3 covers Life as an associate (for MBA students) and life as an analyst (undergrads) in Investment Banking.
image courtsey:

Investment Banks help companies and governments issue securities, help investors purchase securities, manage financial assets, trade securities and provide financial advice. The top investment banks including Goldman Sachs, JP Morgan and Morgan Stanley are said to be in the bulge bracket.
Other investment banks are regionally oriented or situated in the middle market (e.g. Piper Jaffray). Others are small, specialized firms called boutiques which might be oriented toward an industry vertical, bond-trading, M&A advisory, technical analysis or program trading. Firms have lots of different areas and groups within them. In most firms, there is sales and trading which works with owners of securities, investment banking which works with issuers of securities (firms and governments) and capital markets which goes in between the other two.

Skill and Talent Requirements

Investment banks want employees with a combination of strong analytical and interpersonal skills. Some jobs lean more towards one skill set than another (e.g. brokers need to be mainly sales people). A typical job of an equities analyst requires both analytic and interpersonal skills. The skills involved include:
  • People skills: High
  • Sales skills: Medium
  • Communication skills: High
  • Analytical skills: High
  • Ability to synthesize: High
  • Creative ability: High
  • Initiative: Medium
  • Work hours: 50-120/week
If you are interested in making a career in this industry, keep following in mind:  

Hard Work Expected and Respected
Investment banking is a high work, high risk, high reward profession. When you start your hours will typically be long but the work can be exciting. Be prepared for moments of frustration where you are stretched too thin and moments of exhilaration where everything clicks.
Tough to Break In
It's relatively hard to break into investment banking. You need to be prepared to pursue firms on your own after you have thoroughly prepared yourself.
Believe it or Not, Bankers Have Social Value
Investment bankers have been the subject of social scorn in movies like Bonfire of the Vanities for decades--a sentiment that reached a fever pitch in the recession of 2008/2009. Are investment bankers really greedy narcissistic scum? Some probably are. But keep in mind that they play a crucial social role of helping to direct capital to companies with great ideas that make people better off.
Analyst Jobs Are the Best Entry Point
Many college graduates start in investment banking in an analyst position. To succeed in these positions you need to be extremely dedicated, have good spreadsheet skills and be analytically fluent. Your next step will be to become an associate. Same skills, just raise the volume.
Communication and Completion Abilities Key
In mid-career, your success usually will depend on your ability to communicate with clients and get deals done. At this level it is also important to have a good understanding of market trends, the political and macroeconomic environment and deal mechanics.
Math Skills Can Help
Some jobs in investment banking call for very strong mathematical ability. If you are good at math think about getting an advanced degree in a technical field (studying areas such as stochastic calculus and differential equations), then take some advanced finance courses in options pricing or bond valuation and apply to a research department on Wall Street (Carnegie-Mellon's MSCF program is a leader in training mathematicians and physicists for Wall Street jobs).
Accounting Skills Valuable
The ability to analyze accounting numbers critically is important in most analyst positions. Ultimately, you should aim for the CFA designation if you would like to be a securities analyst. The CFA helps you become much more mobile over time. If you have ambitions too "bail out" some day and become a corporate financial analyst you might also want to consider the CMA (Certified Management Accountant) designation.
Traders are Multi-Talented
It's hard to define what makes a good trader. A good understanding of the market, quick reactions, analytical skills and the ability to bluff help. Read Liars Poker by Michael Lewis to learn more about sales and trading.
Get Used to New York
Most large banking firms operate out of New York. Even if you are interested in working in another location, your general interviewing activities are likely to be centered there. Other places you should look at include Hong Kong, Tokyo, London, Moscow and Singapore. If you go looking for a job in investment banking using informational interviews in the U.S. it is crucial that you make several trips to New York.
Teamwork Crucial
A crucial success factor in investment banking is teamwork. Being able to pull together persons with large egos to get a presentation together for a client is a challenge and is likely to be rewarded highly.
Scientists and Lawyers Wanted
There's definitely an interest in people with backgrounds in science and law. Scientist types can work on everything from derivatives algorithms to biotech banking. Lawyers can help design new securities, sell leasing business and use their analytical prowess to talk to clients. This said, you have to sell yourself. It often doesn't hurt to go back and get an MBA from a top school, and then try to repurpose your career into investment banking.
Contacts are Everything
The key to breaking into investment banking is a good network of contacts. You may already be blessed with such a network, but if you don't have one, you can start to develop one by going on informational interviews, attending industry conferences, finding alumni from your school in the business etc. Our contact lists may be helpful in this process. Keep in mind that your network might not really "pay off" for some time. If you are young and haven't gone for an MBA degree, try to get into the best possible school and then go for quantitative and analytical coursework.
Getting Things Done is Important
Starting off in an investment bank, you are usually responsible for getting projects done well and on-time, whether it be writing reports, running spreadsheets, trading, doing research or coding programs. Later, once you get involved with clients and ideas for generating revenue, you will be rewarded greatly if you can bring in business. At higher levels (usually Director, Managing Director and up) you are exposed to much greater risk. At this level, people are often fired for non-performance, whereas at lower levels you may not be scrutinized as closely.
Breaking in to Investment Banking
Investment banking is a notoriously challenging field to break into. The business involves heady, high stakes deals, huge sums of money and, bailout years excepted, unusually high levels of compensation. It's no surprise that this is a tough area to get into.
The Job
Entry level positions for recent college graduates are referred to as analyst jobs. Your title will be Analyst or Financial Analyst. An entry level position with a masters (e.g., MBA) degree is as an Associate. Typically, an analyst will stay in position for two to three years before leaving for an MBA or for a promotion to Associate. An Associate will typically be in the position for three to four years prior to a promotion to Vice-President.
The Bad News
There are less than 20,000 entry level positions a year globally in investment banking. Doesn't sound too bad until you see the applicant pool. It's five to ten times larger. And, it's high quality. You will generally not have a high hit rate on finding an investment banking job in a university career center. Your odds of landing a plum bulge bracket job in most career centers is less than the odds of getting hit by lightning. Even inside the Ivy League schools and top b-schools where the big i-banks show up and recruit, it is very tough to get a vaunted analyst or associate position. 
Of course, you should apply and, increasingly, a number of investment banks allow you to apply for an entry level position online. Why not? Online job ads are not much better than the career center. If you search the 'net for banking jobs you will occasionally find listings for entry level positions. However, these are few and far between. Almost all entry level positions are not advertised. No need since demand outstrips supply. Moreover, advertisers for these positions often receive several thousand applications for each position. (Hint: the best places to look are our job listings from, the New York Times classifieds and the job board area on a Bloomberg machine).  Most of the approaches available, e.g., reading Vault manuals, subscribing to elite online job search services, etc. don't really help beyond a certain point. You do need to be prepared and well read but this is just the start.
The Good News
You can break in, if you put in the effort. People will meet you. If you show interest and call up to meet potential employers (via informational interviews), coffees, etc. you will get meetings. And you can convert those into a network that will help you find a job. You can get a good banking job. And you don't have to be a Baker Scholar from Harvard Business School to get one. Instead you have to prepare, qualify yourself and relentlessly pursue a position through in-person and telephonic contact.
You need to stack the odds in your favor. The investment banking labor market is not particularly efficient. Look at vertical job areas that are doing well now. You might get lucky enough to battle your way into an analyst position coming out of a place like University Wisconsin or Vanderbilt (or even a school from China, India or the Ukraine) through great interviewing on a Super Saturday. But it's tough. And, the odds are not in your favor. [Note: A Super Saturday is an event held at a bank where job candidates from many schools interview in the offices of an investment bank on a Saturday - traditionally, most large banks will hold a couple of Super Saturdays each recruiting season.]
Stacking the Odds in Your Favor
Understand finding a job is a numbers game. The more people you talk to, the greater your odds. Taking the various investment banking training and "bootcamp" courses is likely to be time and money well spent. Understand finding a job is a preparation game. You need to be prepared to have an intelligent conversation with your interviewer. If you are visiting with a telecom banker, be ready to talk about the telecommunications industry and its future. If you are visiting with a fixed income derivatives trader, be ready to talk about duration, convexity, swap spreads etc. Pick one or two focus areas and work hard on them. Read books. Follow the trade press. Surf the web for further information. You will want to know more about the vertical area you are pursuing than the average well prepared MBA student out of a top business school. This is not a trivial task. Obviously.
But, nothing impresses an interviewer more when they meet someone who is truly prepared to go forward in an area, has deep vertical knowledge and checks the boxes for job suitability which generally are:
  • Knows the field
  • Indicates ready to work hard
  • Connects personally
  • Presentable and well dressed
  • Articulate
  • Fields a technical question or two well
  • Raises some strong points while maintaining an intelligent conversation
  • Asks good questions
  • Smiles and maybe makes a joke or two
  • Shows humility and is quick to say "I don't know" when they don't.
  • Doesn't wear suspenders or have heavily gelled slick backed hair (a la Michael Douglas in Wall street)
  • Demonstrates integrity and authenticity
  • Meeting People: For Real
As we discuss in Making a Trip to New York, it is important to meet with potential employers face to face multiple times. You need to network, connect and focus on a vertical area that interests you whether it's nanotechnology, private placements, oil trading, risk management or autos. Some of our guides listed below can help. Also, look at web sites and at places like LinkedIn to get some introductions. Talk to recruiters, friends, family and alums to make some initial connections. Also, don't be shy about making cold calls. Lots of them. Be polite, persistent and direct in talking to people that you meet.
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