Table of Contents
Investment Banking at a Glance. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Bottom Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Basics of Investment Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
From the Inside . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Emerging Industry Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Industry Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Industry Rankings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
The Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
The Big Picture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Major Players . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Other Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
The Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Lifestyle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Workplace Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Vacation and Perks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Career Path. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Insider Scoop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Getting Hired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Recruiting Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
The Recruiting Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Interviewing Tips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Getting Grilled. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Grilling Your Interviewer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
For Your Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Investment Banking Lingo. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Recommended Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Online Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Investment Banking at a Glance
Opportunity Overview
Undergrads and MBAs from top schools are recruited for a number of openings
that is small even in the best of times. Competition is fierce, so if you’re not
from a top-tier school, you may need to be more resourceful and persistent than
those who are. Doing an internship in investment banking is essential to breaking
into the field in today’s business environment. Networking is key; make use of
your alumni network. Undergrads vie for 2-year positions as analysts. If you do
well, depending on the firm, you may get to stay for a third year, perhaps even
abroad. MBAs compete for fast-track associate slots, and international assignments
may be available for those who want them. Midcareer people are recruited by
headhunters or hired on an ad hoc basis for positions at various levels. Though
relatively few people come into the industry from other fields, it can be done,
especially by those who have a technical background in a specific industry and
an aptitude for and interest in finance. Otherwise, expect to start at the bottom.
Major Pluses about Careers in Investment Banking
• Big bucks. Despite the fact that investment banking compensation is down in
recent years from its apex during the tech and dot-com boom, this industry
still pays more than just about any other you can think of.
• Excellent opportunity to learn the financial aspects of business inside out.
• Work with talented, intelligent, hardworking people.
• Build a network of networked people.
• Your life is the market—riding a bull is exciting and lucrative.
Major Minuses about Careers in Investment Banking
• How many different ways can you say, “Work your tail off?”
• No job security—only the unemployment line has more people who have
been fired.
• The work can be tedious, especially at the lower levels.
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At a Glance
• The industry has more than its share of big egos, abrasive personalities, and
workaholics.
• Your life is the market—a bear could put you out of work.
Recruiting Overview
• Very formalized and extremely competitive process at the entry level; it’s
exceedingly difficult to get in the door these days if you haven’t done an
internship in the industry.
• Primary channel is on-campus recruiting, but there are opportunities for
midcareer hires, non-MBA advanced-degree holders, and candidates from
non-top-tier schools.
• Heavy emphasis on quantitative and analytical abilities.
• Hard work is rewarded regardless of race or gender; however, white males
dominate the industry.
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At a Glance
The Industry
• Overview
• The Bottom Line
• The Basics of Investment Banking
• From the Inside
• Emerging Industry Trends
• Industry Performance
• Industry Rankings
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The Industry
Overview
You’ve seen all the headlines, over the past few years, deriding Wall Street firms.
You’ve seen the news photos of disgraced research analysts who recommended
certain stocks to the public even while they trashed them in e-mails to colleagues;
you’ve heard about the nine-figure fines investment banks have had to pay for
transgressions like conflicts of interest. Still, there’s something intriguing about
the industry—the legendary long hours and mega-bonuses—and you like to
imagine yourself a pinstripe-wearing, jet-setting investment banker. But suddenly
it dawns on you. What the heck is investment banking? You panic. What do
investment bankers do? What’s the difference between sales and trading and
corporate finance? More to the point, why do you want to be a banker?
The intensely competitive, action-oriented, profit-hungry world of investment
banking can seem like a bigger-than-life place where deals are done and fortunes
are made. In fact, it’s a great place to learn the ins and outs of corporate finance
and pick up analytical skills that will prove useful throughout your business career.
But investment banking has a very steep learning curve, and chances are you’ll
start off in a job whose duties are more Working Girl than Wall Street.
Wall Street is filled with high-energy, hardworking young hotshots. Some are
investment bankers who spend hours hunched behind computers, poring over
financial statements and churning out spreadsheets by the pound. Others are
traders who keep one eye on their Bloomberg screen, a phone over each ear,
and a buyer or seller on hold every minute the market’s in session. Traders work
hand in hand with the institutional sales group, whose members hop from airport
to airport trying to sell big institutions a piece of the new stock offering they
have coming down the pipeline. Then there are the analytically minded research
analysts, who read, write, live, and breathe whichever industry they follow.
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The Industry
So where do you begin, and how do you focus your job search? Let’s begin with
an important reminder: Investment banking isn’t one specific service or function.
It is an umbrella term for a range of activities:
• Underwriting, selling, and trading securities (stocks and bonds)
• Providing financial advisory services, such as M&A advice
• Managing assets
Investment banks offer these services to companies, governments, nonprofit
institutions, and individuals.
Traditionally, commercial banks and investment banks performed completely
distinct functions. When Joe on Main Street needed a loan to buy a car, he visited
a commercial bank. When Sprint needed to raise cash to fund an acquisition or
build its fiber-optic network, it called on its investment bank. Paychecks and
lifestyles reflected this division, too, with investment bankers reveling in their
large bonuses and glamorous ways while commercial bankers worked 9 to 5
and then went home to their families. Today, as the laws requiring the separation
of investment and commercial banking are reformed, more and more firms
are making sure they have a foot in both camps, thus blurring the lines and
the cultures. The action and players are still centered in New York City and
a few other money centers around the world, but the list of players is getting
smaller as the industry consolidates. Today, leading banks include Merrill Lynch,
Goldman Sachs, Morgan Stanley, Citigroup (whose investment banking arm
was until recently known as Salomon Smith Barney), Credit Suisse First Boston,
and J.P. Morgan Chase. These and other firms are regular visitors to campus
career centers.
But before you get excited about the promise of riches (and bid all your on-
campus interview points), you’ll want to do a little research on the industry and
think about whether investment banking is a good career for you. One thing is
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The Industry
certain: You shouldn’t go into investment banking just for the money—the
lifestyle is too demanding. To survive in investment banking, much less to
do well, you’ll need to like the work itself. And, even if you love the work, an
investment banking career can still be a tough road. If the market or your
industry group is in a slump (or if your firm suddenly decides to get out of a
certain segment of the business), there’s always the chance that you may find
a pink slip on your desk Monday morning.
Things were tough on Wall Street for a few years after the stock market tumble
of the early 2000s. The demise of the dot coms and the drop in the stock market
ended one major source of revenues for I-banks: IPOs, which became all but
impossible to bring to market. In 1999, there were 480 initial public offerings,
which raised a total of $91.7 billion. In contrast, the first quarter of 2003 saw
only five IPOs, worth a total of $1 billion. At the same time, M&A activity all
but dried up. The extended market decline hurt the profits of investment banks’
brokerage operations, as investors (and the commissions they pay each time they
trade) dropped out of the market. And September 11, 2001, hit the industry
hard: Morgan Stanley and Merrill Lynch both had offices in the World Trade
Center, and bankers throughout the Street had a frightening new understanding
of how they make ideal symbolic targets for those who hate the West. One
result of all this turmoil on the Street has been layoffs: By 2003, according to
some, Wall Street employment levels were some 25 percent lower than they
were at their peak in 2000.
But things have been looking better of late. The economy has gotten stronger,
and industry is spending money again, meaning more mergers and more acqui-
sitions. Indeed, in the first half of 2004, M&A dollar volume clocked in at $891
billion, up from $625 billion in the first half of 2003. The stock market is up,
meaning more equity underwriting and rising brokerage volume. Indeed, global
equity and equity-related dollar volume was $256 billion in the first half of
2004, up from $149 billion in the first half of 2003.
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The Industry
Still, firms are always looking for new (read: cheaper) bodies; even though they
might not be hiring to the extent they did back in the late 1990s, banks are still
bringing on best-and-brightest hires for analyst and associate programs.
So if you like fast-paced, deal-oriented work; are at ease with numbers and
analysis; have a tolerance for risk; and don’t mind putting your personal life on
hold for the sake of your job, then investment banking may be a great career
choice. But if this doesn’t sound like you, a job in investment banking could
turn out to be a bad dream come true.
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The Industry
The Bottom Line
Investment banking is one of the best ways a young person can learn about
finance and make good money right out of school. Even if you ultimately
decide to reclaim your personal life by pursuing other options, the skills you
learn on Wall Street will be valuable in most business careers. But before you
can cash in on those potential returns, you’ll have to put up with some very
substantial hardships, including high pressure, long days and nights of hard
work, a few difficult personalities, and the expectation—no, the requirement—
that all personal plans are subject to the demands of work.
In addition, you’ll find that life on the Street is very much at the mercy of the
markets. Bull markets bring more work to do than is humanly possible, but
you’ll be rewarded with a paycheck that can sometimes double year-to-year.
Bear markets can leave you sitting at your desk with a pile of deals on hold,
hoping that the rumored layoffs and smaller-than-usual bonuses don’t come to
pass. Despite this inherent uncertainty, the field remains an extremely popular
destination for undergraduates and MBAs. Indeed, Citigroup, Goldman Sachs,
Bank of America, Morgan Stanley, Lehman Brothers, J.P. Morgan Chase, Merrill
Lynch, UBS, and Deutsche Bank are all on Fortune’s 2004 list of the “50 Most
Desirable MBA Employers.” And, because of the current difficult economic
environment and the resulting lower demand for employees among investment
banks, competition for open spots is especially stiff. As a result, getting your foot
in the door by doing an internship with a bank should be your top priority if
you want to start a career in investment banking.
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The Industry
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