Investment Banking Overview

“At a certain point, money is meaningless. It ceases to be the goal. The game is what counts.” – Aristotle

Onassis

What Is Investment Banking?

A segment within the financial services industry

A network of intermediaries that assists clients who need capital and those looking to invest capital

Commonly referred to in terms of “buy side” and “sell side” lines of business

The Largest Firms By Advisory Fees

J P Morgan

B of A Merrill Lynch

Goldman Sachs

Morgan Stanley

Citigroup

Deutsche Bank

Credit Suisse

Barclays

Wells Fargo

RBC Capital Markets

Sample of Largest Firms By Assets

Managed Blackrock

UBS

Allianz

Vanguard

State Street

PIMCO

Fidelity

AXA Group

J P Morgan

Credit Suisse

What Is The “Sell Side?”

Involves trading or the promotion of securities – research develops investment ideas, sales teams pitch the ideas, buy side clients execute the ideas through traders

Primary roles include: Facilitation of transactions – serve as resource for

particular, unique transactions Market making – buy and sell stock on a regular basis at a

publicly quoted price Underwriting of securities – raise capital for clients from

investors through public offerings Equity and debt research (equity research analysis) –

develop opinion on value, risk, and volatility of a covered security for communication to clients

What Is The “Buy Side?”

Involves clients looking to purchase (“buy”) investment securities or services. You can also have buy-side equity analysts…but they would work exclusively for the buy side entity

Buy side entities/clients include: Private equity funds Mutual funds Life insurance companies Hedge funds

The Largest Investment Banks

Provide A Wide Range Of Services

Mergers and acquisitions advice Hostile takeover advice Sale of company or certain division/assets Represent potential acquirers Restructuring advice

Access to debt and capital markets Create demand for client’s to be issued

securities Create specialized securities / derivatives

Synergies with their commercial bank

Access To Capital Markets Is Primary

To Their MissionDebt Capital

Markets Fixed income

derivatives

Debt instruments sales & trading

Syndicated loans

Fixed income research

Equity Capital Markets

Equity derivatives

Equity instruments sales & trading

Equity research

Many Investment Banks Also Offer

Access To Commercial Banking Services

Treasury / cash management services

Operating lines of credit

Lease financing

Letters of credit

Functional Areas May Be Thought Of In Broad

Terms Investment banking Corporate Finance Coverage / Industry Groups -

advise clients Corporate Finance Product Groups – help

execute transactions

Financing solutions Capital Markets Product Groups – raise capital

for clients

Secondary markets Sales & Trading (equities, commodities, FX, etc) Research Proprietary trading & risk management

Industry Groups Are Different Than Product

Groups Industry Groups Manage specific transactions for clients Cover all clients within a specific industry Generate acquisition ideas, evaluate share

buyback programs, assist with optimal capital structure

Product Groups Specialize in a particular service or instrument

Secondary markets Sales & Trading (equities, commodities, FX, etc) Research Proprietary trading & risk management

In Summary…

Investment banks are in business to connect clients that need capital with those entities looking to provide capital

The industry thinks of itself in terms of buy side and sell side responsibilities

Opportunities exist in product areas, industry groups, and support functions

Investment Banking

Interview Preparation

“Tell me why you would make a great investment banker…”

Your Interview Preparation Should

Include… A great resume’

A thorough understanding of what is investment banking

Confidence in what the particular job responsibilities will be

Why investment banking is the right career choice for you

Why this firm is the right fit

A solid grip on technical areas

Practicing your passion

A great resume’ communicates…

Transparent decision making

Your value

Your desire

Relevant experience

Technical abilities

Investment Banking Covers Many Areas

Buy side vs sell side

Industry vs product vs support groups

Equities vs debt vs commodities vs FX

Regional vs global banks

What Functional Area Is Of Most

Interest? Investment banking

Product / industry groups

Financing solutions

Secondary markets Sales & trading Research Proprietary trading

Support areas Treasury Risk management

Investment Banking Is The Right Career Choice Because…

Be able to explain the origin of your interest

You’ve taken steps to prepare for a banking job

You understand the industry and role you’d play

There are areas of work in the past that were exciting to you and you’ll see them again in banking

There are aspects of work in the past in which you have excelled and you’ll see them again in banking

It excites you!

A Particular Bank Is The Right Choice

Because… You understand their culture and you’re a fit

They have a particular area of strength that is of interest to you

Their associate program holds some unique quality of value to you

You Must Have A Solid Grip On

Technical Items Thorough understanding of financial statements and how they work together Balance sheet, income statement, statement of cash flows

Equity vs enterprise value Equity value + net debt + pfd stock + minority int = Enterprise

value

Time value of money Present value Future value

Valuation methodologies Discounted cash flows Public company comparables Acquisition comparables LBO analysis

You Must Also Demonstrate Your

Passion Are you “living” finance outside of the classroom? Be knowledgeable of current deals in process Know key rates (10 year Treasury, Libor) Understand domestic and international political

environments Be familiar with stock market and key commodity

trends (S&P 500, Nasdaq 100, gold, oil) Know approximate exchange rates for key trade

currencies (US dollar, British pound, Euro, Yen, etc.) Study financing spreads and levels (new bond issues

pricing, debt spreads over Libor, etc.)

Anticipating Questions Is Key To

Success What is investment banking?

Why investment banking?

Why would you be valuable to the firm?

What product or industry group is of interest to you?

What would your responsibilities be in your role?

What do you like to do in your spare time?

Where do you need to improve the most?

Anticipating Questions Is Key To

Success Do you invest money now?

When have you failed?

When have you led a team?

Talk about an ethical dilemma you have faced.

Discuss a recent merger or acquisition.

Where is the NASDAQ trading today?

Define EBITDA and what it represents?

Discuss the shape of a WACC curve and what the curve represents.

Be Yourself, But Demonstrate Your

Desire Show positive, constructive energy

Show the steps you have taken to prepare for this career

Demonstrate your grasp of key financial concepts

Highlight your passion…are you “living” finance now?