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Corporate Finance

In a corporate finance position you would work to help companies raise capital needed for new projects and ongoing operations. You would work to determine the amount and structure of fund needs of a client through equity, debt, convertibles, preferred, asset-backs, or derivative securities. As a starting analyst in corporate finance you would usually work on a client team and would have responsibilities to prepare registration statements, attend road shows where investors are sold on securities etc. Merrill Lynch, PaineWebber and Salomon/SmithBarney are acknowledged powers in corporate finance. Sometimes jobs in corporate finance are referred to as investment banking positions. When you hear phrases such as IBD or IBK people are referring to corporate finance.

Mergers and Acquisitions

Setting up deals where one company buys another is an important source of fee income for many investment banks. This has been a hot area on Wall Street in the 1990s and is likely to continue hopping through the next century. If you go to work in this area you would help out with a team which acts as an advisor to a client, values transactions, creatively structures deals and negotiates favorable terms. Worldwide, Goldman Sachs and Morgan Stanley/Dean Witter are the recognized leaders in M&A advisory. Investment banks have increasingly participated directly in LBOs, spinoffs and bridge loans, often by taking their own investment stake (known as merchant banking). Your duties could involve analyzing the appropriate form of participation. Expect to start running lots of valuation models on spreadsheets and gradually get more client focus as you progress.

Project Finance

The field of project finance is booming. Typically project finance involves funding infrastructure and oil capital projects off of a company or government's main balance sheet. Banks like CSFB and Deutsche Bank are active in this area. Project financed deals have been some of the first significant conduits of foreign capital into countries such as China, Yemen and Indonesia. When other sources of borrowing dry up, project finance is generally still there.

Trading

Some of the most desirable jobs in investment banking are in sales and trading. Your responsibilities would involve undertaking transactions in equities, bonds, currencies (referred to as Forex or FX), options or futures with traders at commercial banks, investment banks and large institutional investors. Trading can be tumultuous and requires a thorough knowledge of markets, financial instruments and an intuition for human psychology. Equities trading positions often involve "telling a story" to other traders about why they should purchase your stock. Fixed income trading positions call for strong analytical know-how and the wherewithal to manage large amounts of inventory in an often-thin market. Derivatives traders need very strong analytical know-how (perhaps even an engineering degree). Foreign exchange trading is based more on your instincts about markets, politics and macroeconomics. There are a variety of other types of trading jobs in agency securities, commercial paper, repos etc.

Structured Finance

Positions in structured finance involve the creation of financing vehicles to redirect cash flows to investors (known as asset-backed securities). Typical asset-backs securitize credit card receivables, auto loan receivables or mortgages. This market is red hot in 1998-9 and is likely to grow considerably into the future. Other growth areas include asset-backed commercial paper, collateralized bond obligations (CBOs), and repackaged asset vehicles. It would be beneficial to have a solid combination of spreadsheet, accounting and legal skills. Most students coming out of school know very little about this area; so you can get an edge by educating yourself by reading articles in the area from publications like Standard and Poors CreditWeek and picking up lingo like "early-am risk" from talking to market participants on informational interviews.

Derivatives

Derivatives derive their value from another primitive security. Options, swaps and futures are examples of derivatives. The market for derivatives is gigantic and subject to increasing scrutiny. The derivatives business is highly profitable and the demand on Wall Street for skilled derivatives practitioners has been very high. This market is likely to see further innovation in the forms which swaps take and in the area of exotic options. This will create further specialized job areas. If this area interests you, start studying math (especially stochastic differential equations and derivation of common models like Black-Scholes). Questions about models are likely to come up in interviews. Sales skills are also important in this area. Another related word you will hear is "structured notes." A structured note might be a foreign exchange loan, forward or futures contract with built in options structured to a client's need. So, for example, a client that will no longer be worried about their position once the Yen falls below 85 to the dollar could buy a "knock-out" option on a forward that will not be active once the yen/dollar rate falls below a floor. A related and popular area is credit derivatives which might involve selling an option which pays off when a defaults on one of its debt obligations.

Advisory

Advisory services are often provided by investment banks to public and private clients involved in M&A and financings. The area of risk management advisory has been popular at many investment banks. Often work will be done to determine a client's value, options for creating value or on a client's industry conditions.

Equity and Fixed Income Research

Security analysts are usually assigned to an industry or region. You could be responsible for making buy or sell recommendations to investors about a stock or bond. Your duties would involve visiting companies and heavy telephone contact with institutional investors. Investment banks often like to hire people with industry experience into analyst positions (as opposed to fresh MBAs or undergrads). For example, if you were a restaurant executive you could probably get hired as a restaurant industry analyst with a healthy pay raise. Knowing the business, being able to talk to clients well and having good forecasts are key in this position. You want to help your firm avoid the dreaded Worst Analysts list. Analysts are often referred to as either quants or fundamentalists. Fundamentalists make recommendations based on what's going on at a company--how's the CEO, what are the earnings etc? In contrast, quants look at computer programs that identify undervaluated securities, markets or even whole countries. There are fewer quant jobs, but they often pay more because the required skills are greater.

International Sales/Emerging Markets

A rapidly growing area is in international sales. Despite the Asia crisis, investor demand for securities issued in emerging markets is strong. Firms are meeting this demand by providing sales personnel and analysts specialized in these markets. Another area of high demand is in emerging markets such as Thailand or Mexico. Firms are looking for people with specific language skills, a willingness to travel and knowledge of these emerging markets. You can often rise very quickly in this area, even if you are quite young. With volatility in emerging market bonds in 1998, be sure to do your research carefully--the Russia crisis has triggered layoffs at a number of firms. A great place to track goings on is through Bloomberg's web site.

Public Finance

The market for municipal bonds is very large and calls for analysts, municipal advisors and traders. Positions in public finance are usually difficult to obtain but offer high rewards. Persons with previous experience in public administration would be attractive to investment banks in this capacity. A major growth area in municipals is in the project finance area. For example, Senior VP of public finance at Tucker Anthony, stated in August 1995 that his area has moved from 15% project finance before to 60% today (Bond Buyer, 8/15/95).

Retail Brokerage (Stockbroker)

Stockbrokers are in the business of selling stocks, bonds, insurance and other investments to individuals. Some brokers specialize in high net worth individuals while others span a variety of clients. This is a tough business to get started in (especially if you are much younger than your clients), but the rewards to a good people person with great sales skills are high. The Securities Industry Association reports that the average retail broker earned $128,553 in 1993. And many brokers earn upwards of $500,000. Try to start with a firm like Merrill Lynch that has a good training program. A good web page to look at if you are interested in being a broker is the Syndicate.

Institutional Sales

In institutional sales you would be responsible for conveying information about particular securities to institutional investors. You would be likely to have heavy contact with portfolio managers and your own firm's analysts and traders. Sales skills and product knowledge are crucial in this area as is the ability to get through to busy institutional investors. Working in sales for an investment bank (on the sell side) is often good preparation to move over to the buy side (insurance companies and mutual funds). Both types of jobs can be brutal and subject you to abuse. A common Wall Street Joke: What's the difference between a sell side and a buy side player? Answer: On the sell side they curse you only after they hang up the telephone. Taking abuse can be lucrative. The average salaries in institutional sales in 1995 exceeded $300,000 according to the Securities Industry Association.

Computer Guru

Some of the best jobs in computers and information systems are on Wall Street. A firm with good trading software, pricing software, or back office software can get a strong competitive advantage. In 1999 the big headhunters and firms on the Street have been scouring the country for people who can develop UNIX-based workstation software and financial mainframe applications. Six figure salaries are not uncommon for really good systems people.

Ratings Analyst:

One way to break into investment banking is to start as a ratings agency analyst. The pay is relatively low and advancement opportunities aren't great, and the investment banks know it and use the agencies as hunting grounds for new analysts. Moody's rates $5 trillion worth of securities and has 560 analysts. Standard and Poors rates $2 trillion worth of securities and has 800 analysts. These agencies are highly profitable and grade the credit quality of companies and sovereign entities accessing the markets. Most revenue comes from issuer fees. There is high demand for persons who can rate structured finance and corporate bonds intelligently. "We are not auditors and we don't use lie detectors, so it's up to our analysts to be smart enough to ask the right questions," says Edward Emmer, executive managing director and head of S&P's corporate ratings department.