August - 2000 - issue > Cover

Investment banks specialize in a number of different activities in and around raising money for corporations – they help companies and governments issue securities; help investors purchase and sell securities; manage financial assets; render investment research to the investment community and provide strategic financial advice. Investment banks are experts at calculating what a business is worth, and at helping companies price a securities offering or set the value of a merger or acquisition (M&A). These functions involve a variety of professionals and activities.


As in all businesses, there are big fish and small fish in this pond. The bigger, full-service investment banks like Merrill Lynch, Morgan Stanley Dean Witter, Goldman Sachs, Salomon Smith Barney, Lehman Brothers, Credit Suisse First Boston and J.P. Morgan hold top spots in what is called the bulge bracket. Second-tier investment banks like Donaldson, Lufkin & Jenrette and Bear Stearns are regionally oriented or situated in the middle market. Others are small, specialized firms called boutiques and are oriented toward bond-trading, M&A advisory, technical analysis or program trading. As the market consolidates, however, the list of small firms is getting smaller. The four strongest boutique firms — Hambrecht & Quist, Robertson Stephens, Montgomery Securities and Alex Brown — have all been acquired by commercial banks. Still, there are big business opportunities for niche firms focusing on technology, biotechnology and other high-growth industries.


It is difficult for most people to truly understand the job of an investment banker, because many of the activities are outside the realm of everyday experience, unless you happen to be a banker or the CEO or CFO of a company. “Even my parents don’t understand what it is I do, even though I have tried to explain it to them many times,” says Kaushal Majmudar, a vice president in the investment banking division at Merrill Lynch in New York. Suffice it to say that an investment banker is a professional that specializes in working with corporations to provide financial and strategic advice. The job description includes all the steps required to execute a transaction for the client based on this advice. It includes completing initial and subsequent public offerings, private placements of equity and merging with or buying other companies to advance strategic objectives.


People sometimes confuse investment bankers (who work for corporations) with “investment brokers,” who generally are financial consultants that work with and for individual investors and advise them on how to invest their money. “Nevertheless,” says Majmudar, “most people are very familiar with the end results of our activities because people read about IPO and M&A transactions on a daily basis.”
This is one job in which you can make a lot of money right out of school. I-banking jobs pay a lot, with year-end bonuses that can be one or two times your salary. And, bonus or no bonus, you are going to work very, very hard. This is a rite of passage, from which no one is exempt. “Investment banking is one of the most demanding careers/lifestyles that I know of,” says Majmudar. Expect to work 70 to 80 hour weeks, including weekends. “And the hours can increase to around 100 hours per week or more during particularly intense periods such as when advising a client on a potential merger,” he advises. This is a client-focused business, and the client’s needs always come first. “To do great work with a lean team of professionals requires a lot of sacrifice and dedication from everyone involved, but the rewards are also there for those willing to pay the price,” he adds. As you become more senior, the hours may decrease to some extent. However, the travel will increase significantly, and even senior bankers put in long hours in the middle of important deals in order to provide the best advice to the client.


If you are starting out, consider putting your personal life on hold for a good 3 to 5 years, for you will have your nose to the grind 24/7 (and that’s a promise). At some point in your career, you may choose to go back to school for an MBA before aiming to reach the dizzying heights of financial and professional success.

Job Options
Just as a doctor may specialize in some specialty like internal medicine, pediatrics or oncology, as an I-banker, you have several job options. I-bankers in corporate finance help companies raise capital needed for new projects and ongoing operations. Corporate finance bankers determine the amount and structure of funds needed by a client through analysis of equity, debt, convertibles, preferred, asset-backs or derivative securities. I-bankers in mergers and acquisitions help out with a team that acts as an advisor to a client, values transactions, creatively structures deals and negotiates favorable terms. When starting out in the M&A area, you should expect to start running lots of valuation models on spreadsheets and gradually get more client focus as you progress. Advisory services are often provided by investment banks to public and private clients involved in M&A and financings, and offer one more area of specialization in I-banking. The area of risk management advisory has been popular at many investment banks. Another option in an I-banking career is project financing. Typically, project finance involves funding infrastructure and oil capital projects off of a company or government’s main balance sheet. This is a booming market especially in the international arena where, when all other sources of borrowing are exhausted, project finance serves as a conduit of foreign capital for developing countries. Some of the most desirable jobs in investment banking are in sales and trading. Here, I-bankers undertake 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, analytical know-how, and an intuition for human psychology. I-bankers in structured finance are be responsible for 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. If you are a skilled mathematician and have good salesmanship, you may be a perfect fit for a position in derivatives. A very specialized job, the derivatives business is highly profitable and the demand on Wall Street for skilled derivatives-practitioners has been very high.


Another rapidly growing area is international sales. Despite the Asia crisis, investor demand for securities issued in emerging markets is strong. Firms require sales personnel and analysts specialized in these markets. If you can specialize 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. Public finance is another lucrative option for investment bankers. 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. Those with previous experience in public administration would be attractive to investment banks in this capacity. In institutional sales, I-bankers are responsible for conveying information about particular securities to institutional investors. You would 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). Another low-end way to get in as an analyst is to start off as a ratings agency analyst. Investment banks use these agencies as hunting grounds for new analysts. There is high demand for people who can rate structured finance and corporate bonds intelligently.

Getting Started as a Banker
The most typical ways to get started are to get hired as an investment banking analyst right out of undergraduate college or as an investment banking associate after business school. Analysts commit to a two-year program from undergraduate college and play a key role on investment banking teams; they experience a steep learning curve and great exposure to financial analysis and a career in investment banking. Analysts may go to business school after two years, “although it is also becoming common for top performing analysts to get promoted directly to associate,” says Majmudar.
Most associates, however, join investment banking after completing an MBA or another graduate degree. Someone starting out may work as an associate for three or four years and then have the chance to be promoted to vice president. After approximately three years, one could reasonably expect to be promoted to director, and, eventually, to Managing Director.


Here are a few tips on getting the job
Send your resume to an investment bank around November and December. Hires are usually made around January and February.
Don’t forget to check back in around June or July. Most traditional recruiting is done by April. Many bankers also change jobs in the March to July period. This means that many banks are scrambling for personnel in July, long after the resumes have been thrown away.
Do lots of informational interviews – get to know people in different firms and the type of work they do.
This is a global business. Although there’s no harm in trying for a job in New York (the mecca of the I-banking world), check out jobs in London, Hong Kong, Singapore, Moscow — or even Australia. Firms are keen on hiring people with international experience.
Keep in mind that even if you are unable to find an I-banking job due to a tough market environment, investment banks often hire from corporate sectors when times improve. So pursue a corporate finance job until things come your way.
Pick the first firm you work for carefully. Don’t job-hop just because you didn’t pick the right firm or get the right money. Doing so will call your loyalties into question.
Build your contacts and network within the industry. In this generally transaction-driven business, an individual with good client contact can make an enormous difference for a firm.


Prospects
Due to the broadening definition of financial services, job seekers’ options are expanding quickly. Commercial banks buying up I-banks to expand their services are hungry for talent and hiring like crazy. Hiring in 1999 was at an all-time high and recruitment in year 2000 is also expected to be spectacular. In the US, the job market is hot in the areas of technology investment, structured finance, equity research, operations and risk management, electronic trading, government bond trading and private client services. In Europe, credit research, bond underwriting and M&A expertise is in demand. The Asian market is still in the recovery mode but the recruiting market in Australia and New Zealand is very good at this time.
In general, the job market for I-bankers has been quite good given the nearly uninterrupted bull market in financial assets for the last ten years. However, the business is wed to the health of the markets, and a prolonged bear market would certainly have a negative impact on career prospects.
In light of the globalization of finance and the need for capital to finance growth in the US and development throughout the world, I do believe that investment banking is a long-term growth industry,” says Majmudar. Barring short-term downturns and market volatility, the extraordinary growth of firms like Merrill Lynch, Goldman Sachs and the likes just in the last two decades is testament that this will continue to be the case.

Salary
Starting salaries in investment banking positions for those with a bachelors degree (assistant or junior analyst position) range from $35,000 to $50,000. Starting salaries with an MBA degree range after bonus (associate position) range from $60,000 to $135,000. With the right skill set, this may even go up to $200,000. These salaries vary with firms and with the region of the country. Bonuses typically would be 10 to 50 percent of salary to start and can move to one to three times salary later.
According to Pinnacle Group International’s informal survey of compensation in I-banking, salaries range between $40,000 per annum plus bonus to $120,000 plus bonus. (see table)

Links and Resources
Check out these sites:
l FinCareer.com: Offers job leads in investment banking and a valuable set of finance resources.
l InvestmentBanking.net: Will prepare you for an upcoming Wall Street interview.
l careers-in-finance.com: Provides in-depth analysis of different career options in finance.

And, if you’re ready to start your job search, check out these places first:
l Also, check the Web sites for all the investment banks regularly for an up-to-date listing of their job opportunities.