"WHAT IS INVESTMENT BANKING YOU VE HEARD A LOT ABOUT"
WHAT IS INVESTMENT BANKING? YOU’VE HEARD A LOT ABOUT THE LONG HOURS, THE MULTI-MILLION DOLLAR DEALS AND THE 21 YEAR OLD WHO MAKES S$ 200,000 A YEAR FRESH OUT OF SCHOOL. YOU WANT TO BE PART OF THE JET-SETTING, PRADA SUIT WEARING INVESTMENT BANKER. BUT IS LIFE REALLY AS ROSY FROM THE INSIDE? WHAT IS INVESTMENT BANKING REALLY ABOUT? By CANDY LIM WHAT IS INVESTMENT BANKING? Commercial banks and investment banks perform primarily different functions. When Mr Tan in Yishun needed a loan to buy a car, he visited a commercial bank. When Nokia needed to raise cash to fund an acquisition or to build more factories, it made a phone call to its investment bank. Investment banking is not one specific function or service but rather an umbrella term for a range of activities. Investment banks, or I-banks, issue securities (underwriting), manage portfolios of financial assets, trade securities (stocks and bonds), help investors purchase securities and provide financial advice and support services. I-banks offer these services to governments, companies, non-profit institutions and individuals. They also engage in numerous proprietary activities in the financial markets – activities where they are their own clients. The investment banking universe still revolves primarily around New York City with Hong Kong and Singapore centering the hub of Asian activities. The leading banks of today include Merrill Lynch, Morgan Stanley Dean Witter, Goldman Sachs, Citigroup’s Corporate and Investment Bank (Salomon Smith Barney till recent), Credit Suisse First Boston and JPMorgan Chase. These firms, also known as Bulge Bracket firms, provide a full range of services to their clients and operate on a global basis. This article was first published in the September 2005 issue 7 of Career Central Magazine and is used here with permission. For more information about Singapore’s only monthly career magazine, please visit http://www.careercentral.com.sg 26 Regional i-banks, as the name implies, concentrate their operations on a particular region. Local banks like DBS LIFE AFTER INVESTMENT and UOB have historically had a more South-East Asian BANKING PROVIDES A focused clientele though plans have been made to reach markets as far as China and India. Then there are the WEALTH OF OPPORTUNITIES. Boutique i-banks that specialize in a particular product BANKERS HAVE BEEN KNOWN (Mergers & Acquisitions Advisory, Program Trading) TO MAKE THEIR MARK IN THE or industry (Medical, Media & Telecommunications). Examples of boutique firms include Toronto-Dominion PRIVATE SECTOR, BECOME Securities and Enron. Boutiques have much smaller SUCCESSFUL ENTREPRENEURS operations and possess a wealth of knowledge and network in their fields of expertise. OR EVEN ACCOMPLISHED ACADEMICS – THE WORLD IS BANKS WITH I-BANKING SERVICES IN SINGAPORE YOUR OYSTER! ABN AMRO Bank NV JPMorgan Chase Credit Suisse First Boston Merill Lynch Citibank NA OCBC Bank Development Bank of Singapore Standard Chartered Dresdner Kleinwort Wasserstein UBS Investment Bank HSBC Holdings United Overseas Bank Note : This is not a complete list, many other institutions engage in I-Banking activities in Singapore. Visit www.mas.gov.sg for more information. “THE ANALYST PROGRAM” Freshly hired analysts are put through the Analyst program - a two year employment contract with a few favored individuals selected to stay on for a third. Graduates of this program are expected to move on to other careers or return back to school for an MBA. Most firms help to ease this transition process by providing help in the form of reimbursement for GMAT/GRE preparatory courses and counselling sessions with human resources. The program kicks off with 4-8 weeks of classroom sessions that often takes place at company headquarters in New York. The best lecturers and trainers are hired to bring analysts up to speed on subjects varying from principles of accounting to the fundamentals of team work. Do pay attention and take notes as these classes are examined and recruits have been known to be “fired” for not making the pass mark! There will also be presentations made by the various departments in the bank and this is a great opportunity to learn more about the organization. This training period is an invaluable time for analysts to socialize and bond with peers from all over the world as well as get a feel of the organization as an entity. Apart from the classroom training, recruits will be expected to aggressively learn on-the-job as well. Analysts will be required to study for and obtain licenses to practice as determined by the local governing authorities – the MAS in Singapore. SUMMARY OF CORE INVESTMENT BANK GETTING HIRED DEPARTMENTS Generally, banks operate on a fall/spring recruitment season, with the fall semester concentrating on analyst DEPARTMENT BRIEF FUNCTION recruitment and spring on internships. This coincides Corporate Finance Assists corporate clients to raise with Semester 1 for the former and Semester 2 for the capital to finance their operations latter in Singapore. If you are an undergraduate, it is and expansionary plans. Teams highly advisable to try to get an internship as this is the evaluate the needs of the clients and assess the inclination of best way to secure an offer for a permanent position various capital markets for eventually. new securities and structure an appropriate financing package for clients. A critical i-banking Investment banks, especially bulge bracket firms, business to banks. generally favor a high grade point average, a superior academic reputation and an outstanding extra curricular Derivatives Work with large clients who activity record. It doesn’t hurt to graduate from the Ivy- are exposed to risk of price Leagues or top junior colleges either. A consistent track fluctuations in certain markets to structure products in order to record is advantageous, else be prepared to explain the ease these risks. Offers specialized B grade that you got in O Levels. A business related jobs to engineers, scientists, degree is helpful but more banks have recently taken to financial economists and academic mathematicians. graduates from fields like engineering and the arts to better appeal to an expanding clientele base. Mergers & Acquisitions One of the most revered (M&A) departments in I-banking. M&A Recruiters from prestigious investment banks are provides advisory to companies sent around during recruiting season to pick the best in varying industries who wish to acquire other companies or divest students. Do note however, that smaller, specialized current assets. boutiques often don’t, hence it is advisable to discern the type of bank that you are best suited and conduct Private Client Services Also known as Wealth your own independent research. (PCS) Management. PCS builds relationships and networks with high net-worth individuals If recruiters have not been beating down your door and helps clients manage their yet, you will need to spend extra effort to research financial portfolios. and network your way into an interview. Approach your school’s alumni and tap on your relatives and Public Finance Mainly deals with securities issued by governments. These securities acquaintances to get in touch with someone from an often have unique features and i-bank that you are interested in. If you are a good structured tax implications and student with a genuine interest, it is worth the shot. require substantial legal and public administration cooperation. Candidates can expect multiple rounds of gruelling Retail Purchases and sells stocks, bonds, interviews with the entire team from Analysts right up derivatives and other financial to the Managing Directors. One banker attests to having instruments on behalf of small, gone through 12 simultaneous rounds in one day! This individual clients. is a good opportunity for the team to get a feel of you Sales & Trading Make trades in securities for the and also for you to meet the people who you may be primary and secondary markets spending the next 2 years with. for currencies, stocks, bonds, derivatives, futures, commodities, asset-backed treasuries etc on There may also be wine-and-dine meals at fancy behalf of institutional clients restaurants. Don’t let your guard down here as (mutual and pension funds), interviewers are actually taking this opportunity to individual investors and for the banks themselves. observe a candidate’s ability to socialize and make conversation with clients as many deals are negotiated Sales & Trading Specializes in creating securities over meals. Structured Finance based on other assets to redistribute cash flows and Recruiters are looking for high-energy, hardworking diversify portfolio risks of clients. and bright candidates who are willing to commit the time and effort to the job. An outstanding personality and the ability to work independently and in teams are critical. 28 SAMPLE INTERVIEW QUESTIONS Life after investment banking provides a wealth of If you have any problems answering questions opportunities. Bankers have been known to make like these, it is highly advisable to do some serious their mark in the private sector, become successful research before heading for an interview. entrepreneurs or even accomplished academics – the world is your oyster! Why M&A/Corporate Finance/Sales& Trading? Talk me through a Balance Sheet/Income Statement/ QUOTES FROM BANKERS Cash Flow Statement. “A professor said that it is one of the toughest jobs to What is the difference between pooling and purchasing accounting? land right out of school. So I thought to give it a try. What is DCF (Discounted Cash Flow) Analysis? And it has turned out to be a great experience! As a What are the different multiples that can be used to 21 year old, I got to meet with CEO and CFOs of MNCs value a company? and private firms, no where else can my opinion as a fresh graduate be heard and taken so seriously…” – An Ex- Banker Interview questions can range from the generic ‘why banking?’ to the specific finance-related questions. Be “I did my math, no where else can I earn as much as I prepared to explain and reaffirm your commitment to can in Investment Banking,, and no where else except this industry. in Investment Banking I can make my first million before I’m 30…My eventual goal is to retire at 35 as a ON THE JOB wine trader and this is a means to the end” – A Senior The few privileged ones who make it through can look Associate in M&A forward to an experience of a lifetime and one that no other careers can provide. The learning curve is unusually steep and analysts are heaped with responsibilities from Day One. Be prepared to put a hold on your social life but off the bat you’ll be given more duties and recognized Previously published as “Demystifying Investment Banking” in Career Central Issue #2. more for your work than the average working person. Editor’s note: This article uses terms and context based primarily on the investment banking industry in the US with certain adaptations to Work is expected to be immaculate with zero tolerance local conditions. Terminology, definition and processes may differ from levels for errors and the hours are brutally long - think country to country and from company to company. 130 hour weeks. Analysts are expected to be punctual, Candy studied both locally and overseas and has paid her dues in the diligent and take initiative in all tasks. The upside to Big Apple before returning back to Asia. She is currently living in China it all is that you’ll get to wine and dine and be on first with her better half where she continues to pursue her love for good name basis with the makers and movers of the industry food and tries to make her mark in a population of 1.8 billion. She will love to hear from your comments/feedback at firstname.lastname@example.org. and be a part of multi million dollar deals. Compensations are generous with current first year analyst annual base salaries ranging from S$ 75,000- 100,000, signing bonuses of S$ 5,000-10,000 and annual INTERESTING READS bonuses of anywhere from 30-100% of base salary based on performance levels. Vacation days are a generous Monkey Business: Swinging through one month and meal and transportation allowances the Wall Street Jungle are provided as well. Analysts recruited into Singapore by John Rolfe and Peter Troob offices are often given choices to receive compensation - A brutually honest look at in either US$ or SG$ at a fixed rate. The SG$ package investment banking from the eyes of will include CPF on top of the standard benefits. Local an insider. banks tend to be more cautious paymasters but provide invaluable banking experiences as well. Working the Street: What You Need to LIFE AFTER … Know About Life on Wall Street by Erik Banks In general, the investment banking career is a chance of a lifetime. Investment bankers are highly respected and www.thevault.com well-looked upon as having gone through a rigorous and challenging career and emerging with valuable analytical and formidable business knowledge. 29 FROM THE DESK OF A SECOND YEAR INVESTMENT BANKING ANALYST (MERGERS & ACQUISITIONS) Wednesday X Day, X Month 2005 TIME ACTIVITY 8:30 AM Get in, flash security badge. Greet MD who’s already here. Juice up computer and head to pantry to grab Milo. Check voicemail, message from Canada asking for updated Cable Comps to be emailed over. 8:45 AM Glance to see which emails need immediate attention. Read the Straits Times and Wall Street Journal online. Browse through the Financial sections to see if any Media & Telecom news turned up overnight. These are the industries that my team covers. 9:00 AM Official start time. Greet blurry-eyed colleagues who straggle in from a late night. Get roped into conference call in MD’s office with the CEO and CFO of a Telco firm for the sale of a few properties we are helping to negotiate. VP and Associate join in with orange juice and bagels in one hand and notepad and pens in the other. 10:00 AM Complete call. Back to computer, secretary leaves message chasing for expense reports. Head to David’s cubicle, an associate whom I’m working with on a cable deal, to discuss a financial model that I’ve been working the night before. 10:30 AM Get changes and sit down to rework model. Check in with interning analyst to see if he has problems with the company research report he has been assigned to do. Check that dial-in number for afternoon call has been set up and emailed to participating parties. 11:30 AM Conference call with deal team and CFSB team we are co-leading the deal with for discussions. Discuss presentation and work is split up with a CSFB analyst and I assigned as the key persons to follow up on some loose ends. 12:15 PM Dial-in management team to give quick update on processes and prep them for afternoon call with a potential buyer. They ask for latest industry information or a Public Information Book (PIB) to be sent to them. MD gives me a look which I return with a curt nod. There goes my dream of strolling down to the deli across the street to get a salad and to defrost in the sun. 12:45 PM Instant message lunch mate to cancel our “appointment” and start to work on the PIB. Look through online databases to find the latest industry reports and news articles and print them double sided. Very important. Create a cover sheet and reference index. Compile the book and buzz for a junior analyst to send PIB down to the printers for 10 copies to be made by 5pm. 1:30 PM Make another cup of Milo while printing off the latest presentation in preparation for the 2 pm. Drop off copies of the presentations to members of the deal team. 1:55 PM Grab dial in number and gather in MD’s office again. MD dials in with a sandwich (his usual beef and mustard) in one hand. The call starts with the usual ‘quack’ talk about the weather and proceeds on to serious discussions. 4:00 PM Call ends, MD debriefs and makes his changes on the model assumptions (Not Again!!) as well as makes his comments and moves pages of the presentation around. He asks for the work to be done and faxed to his home tonight. Looks like another long night for me. I roll my eyes while jotting down notes. 4:30 PM Tell secretary I’m heading down for a quick breather. Stop to chat with some peers and lament about the late nights and catch up on quick office gossip. Stop by the ma-ma shop downstairs for some chips. Really need to indulge. 5:00 PM Arrive back at desk to see a pile of PIBs on my chair. Bring a copy round to the junior analyst and asked if they’ve been flipped. Ask for all copies and every page to be flipped to check all the pages are in order and in good condition. Sit down and finally try to get some work done on the changes to the model and presentation. 7:00 PM Fellow analysts start nightly discussion on dinner orders. Italian wins. Nightly specials are faxed and read diligently. Someone puts in the orders. MD leaves for the day and stops to chat for a while. Atmosphere relaxes a little. Drop off PIBs to members of the deal team and send off 3 copies to clients via Fedex. Remind secretary as she leaves to drop of the package. 7:45 PM Food arrives in conference room. Our nightly social gossip and gab session. 8:15 PM Remembers to email comps to Canada. Continue to work on the changes that MD asked for. 9:45 PM Runs through changes with associate on the deal. Fax over the updated presentation and model to MD. 10:15 PM VP, Associate and I call MD at home for a discussion on the updated work. 11:30 PM Finally wrap up call with more changes to follow. MD will be reviewing the work on his train ride into work. Head back to desk, stop to chat a little with another analyst who’s working to meet a deadline by the early morning flight. Chit-chat with cleaning lady. Focus on making the discussed changes. 1:00 AM Tired. Pack Up, Wave to a fellow sleepy analyst, Grab a PIB for morning train read. Call for a car and head home. 1:45 AM Reach home, shower, turn on the television, too awake to sleep. 2:15 AM Set alarm for 7 am and turn off lights. 30