Investment Banking 101: What Is Investment Banking?

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Investment Banking 101What Is Investment
Banking?
September 25, 2003
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What Is Investment Banking?

• Contrary to popular belief, Investment Bankers
  are NOT stock brokers!
• Stock brokers deal with individuals and manage
  money
• Investment Bankers deal primarily with
  corporations
• Investment Bankers provide financial advice to
  corporations and assist them with services, some
  of which include
• Mergers Acquisitions (MA)
• Financing (Equity and Debt)
• Restructurings and Divestitures
• General Advisory Services
• Examples of Investment Banks
• Canada RBC Capital Markets, BMO Nesbitt Burns,
  CIBC World Markets, TD Securities, Scotia Capital
• U.S. Goldman Sachs, Merrill Lynch, Morgan
  Stanley, CSFB, JP Morgan Chase

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Services Provided by an Investment Bank

• Investment Bankers work with the different
  product groups within the broader Investment
  Bank to service our clients needs
• Other key resources Equity and Debt Research,
  Merchant Bank, Sales Trading (e.g. Derivative
  instruments)

Equity
Equity Capital Markets (ECM)
Debt - Bonds
Debt Capital Markets (DCM)
Investment Bankers
Client
Corporate Bankers
Debt - Loans
MA, Restructuring, Divestiture
MA Group
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The Day in the Life of an Analyst

• There is no such thing as a typical day
• Each assignment you work on is either a live
  deal or a pitch
• Things you could be doing on any given day
• Financial modeling and analysis
• Developing client presentations
• Prospectus / circular drafting
• Valuation analysis (DCFs, Comps, Precedents)
• Other analytical work
• Competitive strategic analysis for companies and
  industries
• Development of marketing materials
• Market analysis
• Maintaining databases

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The Typical Term of an Analyst

• Contract terms are typically two years in length
  but which can be extended for a third year based
  on performance
• After the three years, some potential outcomes
  include
• Promotion to Associate (based on performance)
• Transfer to another product group or even a new
  city
• Pursue an MBA or other advanced degree
• Leave the industry to pursue other interests
• You can start as a Generalist (work for any
  industry group) and eventually funnel into one
  specific industry group or immediately be
  dedicated to a specific industry group (e.g. Real
  Estate, Power Utilities, Mining, Technology,
  etc.)
• Royal Bank, Bank of Montréal and Scotiabank have
  Generalist programs
• CIBC and TD have Analysts start in specific
  industry groups

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Investment Banking Analyst Required Skills

• Exceptional analytical and quantitative skills
  and attention to detail
• Excel and PowerPoint will become your best friend
• Interpersonal and communication skills
• Demonstrated teamwork and leadership abilities
• Proven track record of initiative, achievement
  and success
• Good academic record and involvement in
  extracurricular activities
• Focus on Finance and/or Accounting are assets but
  not necessarily required
• Excellent work ethic and time management skills
• Solid business acumen
• Knowledge of a specific industry is helpful, but
  not expected

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What Is So Great About Investment Banking?

• Incredible learning experience
• Develop an exceptional skill set that you can
  leverage to other positions
• Learn many transferable skills in a short period
  of time
• Most banks offer a 1-3 week training course
  before you start working
• Excellent networking opportunities both within
  the firm and with top executives at major
  corporations
• Fast-paced challenging environment with as much
  responsibility as you can handle
• Work hard, play hard
• Money

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The Downside of Investment Banking

• Long, unpredictable hours
• In Canada, expect, on average, 80 hours per week
  which can easily top 100 hours when busy
• Hours in the U.S. are significantly higher,
  especially at the bulge bracket U.S. Investment
  Banks
• Exceptional sacrifices
• Must keep flexible as frequently required to work
  late nights and weekends (all-nighters are not
  unheard of)
• Usually non-existent social life
• Steep learning curve
• You are expected to learn concepts quicker than
  most other jobs

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Useful Job Application and Résumé Tips

• Keep it clean and simple!!!
• Cover letters should not be more than one page
• 3/4 of a page is ideal
• Highlight one (or more) relevant
  skills/achievements that makes you unique versus
  all the other applicants
• Résumés should be no more than 2 pages, ideally 1
  page
• Include only relevant info
• Double check your spelling and grammar
• Ensure you have the correct company name and
  contact person

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Job Interview Tips

• DONT LIE!!!!!
• If you dont know the answer to a question, say
  I dont know but add that you would take the
  necessary steps to find the answer
• Investment Bankers are very good at knowing when
  you are lying
• Research the firm you are interviewing with
• E.g. know transactions that they recently worked/
  advised on
• Keep answers short and concise
• Interviewers are looking for people they can work
  with so personality fit is a key criteria
• At the end of the interview, ask good and
  memorable questions demonstrating interest and a
  desire to work for that firm

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Potential Job Interview Technical Questions

• You will be asked the usual behavioural questions
• What does an investment banker (analyst) do?
• Why do you want to become an investment banker?
• Why do you want to work for us?
• How would you value a company?
• Discounted Cash Flow
• Comparable Company Analysis
• Precedent Transaction Analysis
• Discuss what has recently been going on in the
  capital markets
• Other finance theory-related questions

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So You Got A Job Offer...Now What?

• Some things you should consider before accepting
  an offer
• Corporate culture
• Meet with as many people as possible from every
  firm to see if you think you would fit in
• Ask yourself Can I see myself working with these
  people for 15 hours a day, everyday?
• Deal flow
• Typically, the greater the deal flow, the better
  the learning experience
• Location
• Branch vs. Head Office
• International offices

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Useful Commerce Courses / Other Suggestions

• Courses related to
• Financial statement analysis
• Company and asset valuation
• Strategic management
• Finance-theory
• Accounting (e.g. corporate tax, consolidation)
• Chartered Financial Analyst (CFA) Program
• Read the Business section of the Globe Mail
  and/or Financial Post (or other financial
  publications if available) EVERYDAY!

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Who Should Consider Investment Banking?

• People who are
• Willing to focus on career first
• Willing to work however long it takes to get the
  job done right
• Looking for a great learning experience
• Looking for a challenge
• You have to want to be an Investment Banker to be
  able to survive!