07.20.09
IS INVESTMENT BANKING FOR YOU? Do you have what it takes?
IS INVESTMENT BANKING FOR YOU?
INTRODUCTION
Investment Banking is one of the most reckoning forces in the finance industry today, covering a myriad of services from financial advisory, underwriting, IPOs, mergers & acquisitions… the list is endless. However, for those aspiring for a career in this sought-after field, you must not only be aware of an investment banker’s role in these services, but you must familiarize yourself with the core skills that are required (and expected) of you.
WHAT IS INVESTMENT BANKING?
First, let’s cover precisely what Investment Banking is and what it entails. To understand what Investment Banking is, we must first become familiar with the terms Buy-Side and Sell-Side. Buy-Side is the ‘side’ of Wall Street comprising the investing institutions such as private equity groups, mutual funds, pension funds and insurance firms that tend to buy large portions of securities for money-management purposes. Sell-Side, on the opposite end of the spectrum as you can imagine, is comprised of entities which provide recommendations for upgrades, downgrades, target prices and opinions to the public market. Together, these Buy-Side and Sell-Side entities and services make up both sides of Wall Street.
Now that you have a good understanding of what services make up the “sides” of Wall Street, let’s expand more on Investment Banking itself, which would fall under the Sell-Side category. An Investment Bank differs in its functions from that of a commercial (or traditional) bank, which builds capital by accepting deposits for checking and savings accounts from consumers, and loaning to consumers and companies in need of capital. Commercial banks also provide “safekeeping” for your capital (via FDIC Federal Insurance), whereas Investment Banks do not.
An Investment Bank is a more specialized organization that, in essence, acts as an intermediary and matches sellers of stock and assets with buyers.. The services provided by Investment Banks takes many forms: securities underwriting, stock and bond trading, facilitating mergers and acquisitions, arranging and funding syndicated loans and providing financial advice to companies on aspects like pricing of securities.
It is of note, however, that companies use investment banks toward the same end as they use commercial banks. If a company needs capital, it may get a loan from a bank, or it may ask an investment bank to sell equity or debt (stocks or bonds). Nevertheless, as a commercial bank has funds readily available from its depositors, an Investment Bank must spend considerable time finding investors in order to obtain capital for its client.
DO YOU HAVE WHAT IT TAKES?
Despite the attractive career option that the world of Investment Banking offers recent graduates and working professionals, the work can be rather stressful and hours are very long – we’re talking a minimum of 7o hours per week at a bulge bracket institution for entry-level analysts!
It takes more than quantitative skills to excel in Investment Banking. Other core skills you will need include:
- Personal Skills – You will be dealing not only with your colleagues and superiors, but also clients, consultants, lawyers, accountants–all of which will likely represent some very important industry names and be extremely well-respected and extremely scrutinizing. A solid personality goes a long way in establishing and maintaining professional relationships alongside your work, particularly in an environment where being a team player is valued.
- Communication Skills – An especially important aspect, particularly when dealing with aforementioned clientele accordingly. Such a skill also adds tremendous value to your repertoire if you can effectively avoid wasted efforts and the occasional disconnect.
- Technical Skills – Be prepared to spend many hours in front of a computer punching out calculation after calculation, evaluation after evaluation, model after model. It is important to familiarize yourself with the tools you will be using on a consistent basis, such as spreadsheet tools like MS Excel (among others), from shortcuts to macros. Be sure to master these analytical skills, you will need it.
- Critical Thinking Skills – As your tenure and experience progresses, you will become more involved in structured deals & evaluations which will require a great deal of critical thinking, whereby you’ll be expected to make tough decisions and logically back them up. Confidence in your work is key. Show consistent returns, and your ethic will pay you back many times over the course of your career.
- A Thick Skin – The aforementioned skill sets aside, you’ll be subjected to long work hours (even the occasional all-nighter), a very dense & intense workload, as well as office politics. All will require considerable stamina, a sharp mind, and a thick skin to be able to ensure a smooth progression through the “ranks”, so to speak. Be aware ahead of time that the key to succeeding in office politics is to cover your behind!
Though these skills are not all-inclusive of all the qualities you will require, it serves as an appropriate guideline for the expectations demanded by today’s Investment Banking industry. A staggering percentage of analysts & associates end up opting out of Investment Banking to pursue other promising financial avenues… which isn’t to say that they were unsuccessful in developing their IB careers, but it is certainly isn’t for everybody!
HOW TO PREPARE FOR A CAREER IN INVESTMENT BANKING?
There are no set standards for preparing for a career in Investment Banking. Aside from exceptional academic achievement (as you can probably guess) which helps during campus recruitment for current students… stellar skills like we’ve discussed above, a solid sense of direction in terms of one’s goals and objectives, along with work/internship experience at well-regarded companies (references/recommendations don’t hurt either) will help to pave the way.
The following except best sums up the preparation necessary for a career in Investment Banking:
“Students and young professionals who possess a broader or non-business academic curriculum, or who worked at nonprofits, traveled overseas, volunteered, and who display a burning curiosity and desire to explore this field, should resolve to apply and reapply for an investment banking role. There is a minimum requirement for a basic understanding of finance for your chances to be enhanced. But as long as the applicant conveys authenticity in his or her endeavors and possesses the passion and determination to explore investment banking as a career, an opportunity will often open up. Do not underestimate people’s respect and admiration for someone who follows his or her conscience and dreams. Remind yourself that many of the world’s most successful business leaders did not study finance or accounting – if they even received a college diploma at all.”
WHAT IS THE FUTURE OF INVESTMENT BANKING?
Investment Banking has transformed by leaps and bounds over the years, and is in a constant state of perpetual change, particularly with regards to the state of the economy and dissolution of the remaining bulge bracket Investment Banks into “Bank Holding Companies”. Fact is that Investment Banking has been around for ages, and will not disappear lightly.
Companies will always need to raise money, companies are always looking to buy, and companies are always looking to sell. As long as that demand exists, the industry will continue to exist. It may, however, look different in the future than it does today or than it did a year ago – specifically, there will be fewer big banks and more boutiques – but it will go on.
Bonuses may not reach the levels they hit in 2006-2007, but they certainly won’t be nonexistent… this isn’t to be blamed on the fact that the remaining Investment Banks like Goldman Sachs and Morgan Stanley are now “Holding Banks”, but simply because the economy is far worse than it was in 2006-2007. Once the market recovers over the next few years, so shall salaries and bonuses recover accordingly. It should be noted, however, that chances of being recruited in such a tough economy are much lower than they would be in a “Bull” market, so maintain your competitive edge!
CONCLUSION
Investment Banking is a promising career path for anybody interested in the realm of high-paced business & finance. Be sure to develop as clear an understanding as possible of the Investment Banking industry by accessing all the available resources to you both online and at the bookstore, along with industry professionals. Networking is KEY, and do not pass over the chance to connect with Alumni who are in the financial realm, and recruiters & headhunters (such as Glocap, Michael Page International, etc) who can find the best match for your experience level, along with the chance to attend informational sessions and Career Day events either at your school or city of residence.
Next step would be to APPLY APPLY APPLY! Assess your qualifications, and find out what hiring managers seek in strong applicants. Touch up your resume, make it shine, and prepare yourself for interviews with mock sessions. The more you practice, the more comfortable you’ll feel when the time comes to sit in front of an actual corporate recruiter.
Most importantly, keep your options open. Bulge bracket firms are not the only firms on the market. Go small (boutique) if you have to, or relocate if opportunities are abound elsewhere. Go outside pure banking positions! Be fearless! Do whatever it takes to get your foot in the door.
Sure things are pretty bleak all around, but there are also plenty of opportunities if you keep your eyes open. If you get in now, you could very easily ride the wave when the market recovers and be earning a much higher income a couple years from now compared to anyone who’s just getting started a few years from now. So long as you can adapt to the current state of things, hone in on the skills we discussed, and maintain a flexible comfort level… a career in Investment Banking will be well within your reach!
