|Investment banks are in the business of providing governments and corporations with investment services, including buying, selling, and trading securities, managing assets, and giving financial advice. The five leading investment-banking firms fill the Bulge Bracket of investment banking: Morgan Stanley-Dean Witter, Merrill Lynch, Salomon-Smith-Barney, and Goldman Sachs.
Regional investment banks like Piper Jaffray fill the middle of the market, while small investing ‘boutiques’ are organized on the local level and specialize in M&A advisory, bond-trading, program trading, and technical analysis. Investment banks are made up of departments that hand specific areas of investment. Sales and trading departments serve securities holders, investment banking departments serve governments and organizations that issue securities, and capital markets departments help mediate the securities exchange process. A review of the services offered ad Goldman Sachs can help you understand how investment banks are structured.
Investment Banking Career Insights
- Work Ethic, You Got it? They Love it?
Those who work in investment banking will tell you there’s a lot of risk, and a lot of work, but also a lot of satisfaction. Entry-level employees should expect long but stimulating work days in which the mood can regularly shift from energetic elation to frantic frustration, depending on the situation.
- Not an Easy Boat to Catch!
It is difficult to get started in investment banking, and those who make it do so by getting all the education and experience they need, and then relentlessly engaging the investment banking industry.
- Bankers: Less Scrooge Than you’d Think!
The ‘bah humbug,’ view of bankers is for the most part blown way out of proportion. In fact bankers do a great deal for society by providing companies with the funding necessary to create products that make our lives better.
- Get Your Foot in the Door with Analysis
A great place to begin in the investment banking industry is working as an analyst. Successful analysts work hard, understand spreadsheets, and have fine analytical skills. Analysts can be promoted to associates who do similar work, but more of it.
- Wanted: A People Person Who Finishes What They Start
Further advancement in investment banking is based on how well you can negotiate with clients and close deals. In addition, professionals wishing to move beyond mid level positions should understand the political changes, macroeconomic variables, and market trends that all affect deal outcomes.
- Math Ability is a Plus
There are well-paid, well-respected research positions available in investment banking for mathematicians. If you plan on a graduate degree in stochastic calculus, differential equations, or other advanced mathematical fields, taking classes in advanced financial theory like bond valuation and options pricing can increase your job competitiveness. Some of the most elite financial training available is offered through the Carnegie-Mellon FAST program.
- Learn Accounting
Analysts will undoubtedly need to understand and be able to interpret accounting data. Those interested in a career as a securities analyst will need the Certified Financial Analyst credential. In addition, those interested in working as a corporate financial analyst will benefit from the Certified Management Accountant credential.
- Traders are Versatile
There is no concise list of the attributes of a successful trader. You’ll need fast reflexes, market savvy, impeccable analytical abilities, and poker-faced bargaining skills.
- Hope You Like New York
Almost all big investment banks are based in New York. Whether you plan on working in other areas of the country, or right on Wall Street, the hiring process will probably take you through the Big Apple. Multiple trips to New York are par for the course for anyone interviewing for positions in investment banking. In addition, Toyo, Moscow, Singapore, London, and Hong Kong all have international financial districts.
- Teamwork! Teamwork! Teamwork!
An investment banker who can get high-powered professionals to work together to serve clients is a powerful asset, and they will be recognized for their efforts.
- Lawyers and Scientists needed
Lawyers and Scientists help in a variety of areas within investment banking. Lawyers assist in the development of securities, in business lease sales, and in client negotiations. Scientists assist in everything from financial derivatives to algorithms, to bio-tech banking. Still Scientists and lawyers must work to get into the industry. Those who are successful usually add a prestigious MBA degree to their repertoire before applying for a position.
- It’s About Who You Know
If you want to get into investment banking, you need to begin now creating contacts. Attend conferences, hold informational interviews with companies, and talk with your school’s alumni. Do what it takes to get a foot in the door, and remember that it takes time for networks to become established and start producing results. A good way to start if you are still young is to get accepted into a highly rated MBA program and focus on quantitative and analytical studies.
- Learn to Finish What You Start
As an Entry-level employee in investment banking you will often write reports, do research, and handle trades, run spreadsheets, and code programs. You need to be fast, accurate and complete. As you gain experience, you will have the chance to work with clients. Your efforts to increase customers will be recognized handsomely. Directors, managing directors, and other upper level employees are evaluated more closely on performance than lower ranking employees.
- Corporate Finance
As a Corporate Finance professional you assist organizations in acquiring funds necessary for day-to-day business. You evaluate how much capital an organization will need and make recommendations about appropriate investment strategies. The first stage of your career will likely be spent as a member of a client team staffing conferences for securities investors and arranging registration statements. The leaders in corporate finance are Salomon/SmithBarney, PaineWebber and Merrill Lynch. Because corporate finance positions are sometimes categorized as Investment banking jobs, recognize that the titles IBD and IBK are in reality corporate finance positions.
- Mergers and Acquisitions
Investment banks make a lot of their money mediating mergers and acquisitions. This has become a popular financial move in the past decade and should persist into the unforeseeable future. Professionals in this field support corporations in the merger and acquisition process by helping them settle on equitable, profitable deal. The Mergers and acquisitions industry powerhouses are Morgan Stanley/DeanWitter and Goldman Sachs. More and more investment banks are getting into ‘Merchant banking, where investment banks handle spin offs, bridge loans, and LBO’s on their own. As an M&A professional you could be responsible for determining how much involvement your client should have. Opportunities to work with clients will come, but be prepared to work heavily on spreadsheets and valuation models.
- Project Finance
Project finance professionals develop funding methods for oil capital and infrastructure projects using a corporation or government’s primary balance sheet. Deutsche Bank and CSFB are prominent names in this profitable industry. Much of the initial foreign investment monies to reach Yemen, China and Indonesia were Project Financed Capital. Even when most loan options are gone, corporations can usually depend on project finance to provide necessary capital.
Trading and Sales are highly sought after investment banking positions. As a trader your duties include carrying out bond, currency, equity, futures, and options sales with traders at investment banks, institutions, and commercial banks. In addition to market understanding and knowledge of financial tools, a trader must be able to read people and handle a chaotic work environment. Equity traders spend a lot of time convincing other traders why their product is a good investment purchase, while fixed income traders must be able to use their analysis skills to handle expansive inventories in sometimes-weak economies. Derivative trading is extremely technically demanding and requires an engineer’s analytical abilities. In contrast Foreign exchange traders rely less on analytical skill and more on economic intuition.
Other trading positions include commercial paper, repossessions, and agency securities.
- Structured Finance
Working in structured finance, your duties will include developing financing methods that shift capital to clients (also called asset-backed securities). Asset-back securities generally involve auto loan and credit card receivables, or mortgages. In the late 1990’s structured finance was an extremely profitable sector and will likely continue to be so. Other areas performing well are collateralized bond obligations (CBO’s), asset-backed commercial paper, and repackaged asset vehicles. Accounting know-how, legal understanding, and spreadsheet skills are important for work in structured finance. However, because most college graduates have little experience in those areas, studying up can give you an advantage over other applicants. Valuable information and business vocabulary can be found in magazines like Standard and Poors CreditWeek, as well as through informational interviews with market professionals.
Derivatives are an old, but reliable form of security, and include Swaps, futures, and options. The Derivatives market is huge, and so are the opportunities for profit. With increased advances in exotic options and swap structures, the industry will likely grow under tight watch. Growth will demand an increases number of specialists to handle all the technical aspects of derivatives, so if you want to work in this field, begin now learning common model derivation like black-scholes, as well as stochastic differential equations. You’ll probably have to demonstrate your technical understanding during the interview process. Salesmanship also plays a role in Derivatives.
You might see the phrase ‘structured note’ as you read about derivatives. A ‘structured note’ is a futures contract, foreign exchange loan, or forward that is designed for a client’s specific needs. For instance, a client could purchase a foreign exchange loan with a built in “knock-out” option set to go into effect once the currency ratio drops beneath a predetermined price level. Another favorite is credit derivatives that have selling options set to activate if a company is unable to honor a debt.
Investment banks offer advisory services in mergers and acquisitions as well as general financing to public and private sector customers. Risk management is another common advisement area. The work focuses on evaluating the value and industry status of a client, and recommending ways for clients to improve.
- Equity and Fixed Income Research
As a Securities Analyst you often work in specific industries areas offering stock and bond advice to investors. You serve as the contact for investors and companies and work closely with clients in the investment process. Investment banks usually prefer professionals with industry specific experience over those coming straight from graduate school. For instance, an MBA who has worked in retail management is more likely to get hired as a retail industry analyst than someone who’s only got the schooling. In order to keep your firm off the list of worst analysts, you have to understand the industry, understand how to communicate with customers, and you have to be able to read the market. There are two types of analysts: fundamentalists and quants. Fundamentalists are those who look at company leadership, revenues, and other details to give investment advice. Quantitative analysts (quants) are less common, but often make more money because of the technical difficulty of the work. Quants use complicated computer systems to determine undervalued investment products, industries, and countries.
- International Sales/ Emerging Markets
International sales is quickly becoming a leading investment field. In spite of recent problems in Asia, investors are still anxious for investment opportunities in Thailand, Mexico and other burgeoning economies around the world. Thus, the demand is increasing for analysts who specialize in international investing. Because Investment banks are in a hurry to find employees who can speak foreign languages, who understand the developing markets, and who don’t mind traveling, young employees can get a head fast in this field. However, there is a measure of instability in new markets, so you are advised to research a firm’s performance carefully. Bloomberg has helpful web page that follows international investing.
- Public Finance
Analysts, municipal advisors and traders are all needed in the gigantic municipal bonds market. Though hard to get, public finance positions are well worth the effort.
Those who have worked in public administration will be well suited for this work. Of particular interest in public finance is project finance. In 1995 60% investment work at Tucker Anthony was related to project finance, where a few years before that, it had only been 15 % (Bond Buyer August 15, 1995)
- Retail Brokerage (Stockbroker)
Stockbrokers assist customers in purchasing and selling stocks, bonds, mutual funds, and other investment products. While many brokers work exclusively with wealthy clients, there are plenty who handle the investment needs of the general public. Retail brokerage is a difficult career to start, particularly if you are young. However the broker with sales and communications skills can do very well. According to the Securities Industry Association, in 1993 the average yearly income for a retail broker was more than $125,000, with several making more than 500,000. Gaining experience and training from Merrill Lynch or another well-known company is a good way to start. Check out The Syndicate website for more information on a career as a broker.
- Institutional Sales
Working in Institutional Sales you provide detailed descriptions of investment opportunities to institutional investors. You often work closely with portfolio managers, analysts, and traders. Product understanding, salesmanship, and tough negotiating skills are all essential. Experience on the selling side with Investment banks will help you get ready to work on the buying side with mutual fund and insurance companies. Either side of the business is tough, but profitable. The Securities industry Association reported that institutional sales representatives averaged more than $300,000 a year in earnings.
- Computer Guru
Because effective trading, pricing and office software and networking can give companies the upper hand, Wall Street offers some of the most profitable computer and information system positions available in the market. Recruiters for some of largest Wall Street companies have been offering hundreds of thousands of dollars to programmers who can design effective UNIX software and financial programs.
- Ratings Analyst
A good way to get your foot in the investment-banking door is by working as a ratings analyst. Upward movement is rare and good pay is even rarer, but Investment banks always keep an eye on ratings agencies looking for hot analysts. Successful ratings agencies like Moody’s and Standard and Poors rate trillions of dollars every year and employee hundreds of analysts to help them evaluate the credit of both organizations and government bodies. They make their money by charging issuer fees. There is a great need for qualified analysts who can rate corporate and structured finance bonds. S&P’s corporate ratings department manager Edward Emmer states that because it is difficult to determine an organization’s credibility, “it’s up to our analysts to be smart enough to ask the right questions.
- Resumes do best when sent at the end of the year.
January and February are typically when companies take on new employees. However, even if you don’t get hired right away, stay at it. A Salomon Smith Barney Analyst described the effort it takes to break into the business: It’s basically a numbers game. Contact lots of people.” In addition, he suggests you adjust your approach to fit each company you approach, which means: “It’s going to be pretty much a full-time job.”
- Follow Up!
The new hiring process usually slows down in April, but many professionals make career changes during the summer months, so often corporations are looking for employees at the end of the summer, and getting a job is easier. This is a good time to re-contact the firms you have interviewed with and let them know you’re available.
- Investment banking: The Global industry
Investment bank professionals can routinely find themselves working with companies in New York, Los Angeles, and Dallas just as easily as they can find themselves coordinating investments for companies in Brazil, Japan, or Beijing.
- Investment Banking: WIRED!
Online companies like E-trade DLJ and Deutsche Bank provide internet trading services to clients all over the world. W.R. Hambrecht and Wit Capital are the worlds leading online securities origination firms. Online investment firms are sure to continue their booming success.
- Consolidations rampant in Investment Bank Industry
Mergers have occurred in Investment banking at a dizzying rate over the past decade. Smith Barney and Salomon, Citibank, Dean Witter and Morgan Stanley, Bankers Trust, SBC and Montgomery Securities and Bank of America, Warburg and Dillon Read, and UBS have all been through mergers recently, and many of the more companies are continuing the consolidation process.