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By far the most common route into investment banking for someone just finishing an undergraduate degree is to be hired into a bank's
analyst program (for more on life as an analyst, see here). MBAs are generally hired as
associates. Analysts and associates work within specialized groups but they may not
always have control over the group to which they get assigned (analysts especially). Some of the most common groups found within investment
banks are described below, along with the work they do. If you're a new graduate interested in one of these areas
specifically, learn as much as you can about the area that intrigues you so that you're best positioned to be assigned to
that group, but understand that you'll most likely be looking for a job as an analyst or associate.
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- Industry Coverage
- Most large investment banks have an area called investment banking, IBD, IBK, CIBD, "banking" or something that denotes
industry-focused investment banking. These organizations are organized into product groups (e.g., private placements)
and industry coverage groups (e.g., aerospace).
See Credit Suisse's banking page for an example. The group will have a set of senior bankers (Managing Directors - usually called "MD's") who maintain relationships with client companies in the industry (e.g., Boeing, Aerospatiale). These bankers will be backed up by a group of Directors, VPs, Associates, Analysts and Administrative Assistants who help by attending client meetings, coming up with ideas for clients, preparing pitch books, executing transactions, writing commitment committee memo's etc. The two main types of business are M&A (see below) and financings which could be carried out separately by a corporate finance group (see below) or executed within the coverage group. Generally, there will be a client team that comes together for a specific client deal (e.g., issuance of a Boeing Bond). This will include the MD, a VP and an Associate, Analyst or two. This team would interface with the product specialist which might include someone from corporate finance if specialized know-how is needed and also someone from Debt Capital Markets (which manages issuance of bonds into the capital markets). The analyst on the project will usually be responsible for putting together a Working Group List which lists the persons at the bank involved, at the client, at the law firm handling the deal and at other banks, if there are any in a syndicate.World Financial Center, NY
Home to Several Investment Banks
Usually when you start in "banking" that means that you will likely end up in a coverage group. Obviously, it pays to get into a group that is in area that interests you and that is doing good deals.
- 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. Barclays, Citigroup and JP Morgan are acknowledged powers in corporate finance. Sometimes jobs in corporate finance are referred to as investment banking positions.
- Capital Markets
- This position can be either in Debt Capital Markets or Equity Capital Markets (ECM). Debt Capital Markets (DCM) is often broken down into high yield bonds and investment grade bonds. Sometimes, there are
separate desks for origination of sovereign, supranational or
municipal bonds. Capital markets officers help companies originate new issues of debt or equity. They get calls from bankers who have clients who are interested in issuing. They then look at market conditions,
perhaps tracking swap spreads across the interest rate curve using
a Bloomberg terminal and advise as to the right time and form of
issuance. An ECM or DCM officer will interact with the syndicate desk which is the hub of a new issue. Syndicate manages which investors
get what portion of a new issue and builds up a "book" of orders. Syndicate interacts heavily with individual equity and bond sales
professionals who interact with institutional and retail accounts around the globe. A DCM or ECM officer will often interact with other professionals including financial strategy, derivatives, currency trading, convertibles and equity derivatives. An entry level position in ECM or DCM will be with
the title of "Analyst" for a college graduate or "Associate" for a
recent masters candidate.
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- Mergers and Acquisitions
- Setting up deals where one company buys another is an important source of fee income for many investment banks. This was a hot area on Wall Street in the 1990s and is likely to continue hopping through this 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, Lazard and Morgan Stanley 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
- Project finance involves funding infrastructure and oil capital projects off of a company or government's main balance sheet. Banks like Credit Suisse 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. (Find jobs like this)
- 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 and picking up lingo like "early-am risk" from talking to market participants on informational interviews. (Find jobs like this)
- 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 areas of capital structure advisory, valuation advisory and risk management advisory have 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. (Find jobs like this)
- 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. (Find jobs like this)
- 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. (Find jobs like this)
- Retail Brokerage / Private Client Coverage / Stockbroker
- Private Client Bankers / brokers 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. Many brokers earn upwards of $500,000. Try to start with a firm like Merrill Lynch that has a good training program. (Find jobs like this)
- 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 can exceed $750,000 per annum. (Find jobs like this)
- IT and Systems
- 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. Mid six figure salaries are not uncommon for good systems people. (Find jobs like this)
- 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. (Find jobs like this)
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