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Investment Banking Overview
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Select Financial Services Segments
Investment Banking Hedge Funds Private Equity Venture Capital Industry Coverage Product Group Capital Markets Sales & Trading Equity Research Value, Growth, Blend Long-only, Long/Short, Short-only Fundamental, Distressed, Macro, Event-Driven, Trading, Quant Growth Equity Large-Cap Fund Middle Market Control Equity Secondaries Co-Investing Control Equity Co-Investing Front Office Client Pitching Valuation / Modeling Deal Execution M&A Leveraged Finance Equity & Debt Solutions Investment Analysis Portfolio Management Trading Deal Origination Valuation Investment Analysis Modeling Portfolio Management Deal Origination Valuation Investment Analysis Modeling Portfolio Management Middle Office Portfolio Credit Analysis Pricing Counterparty Risk Ratings P&L Reporting Mark to Market Cash Operations Settlements CFO/COO Cash Management Marketing Legal Cash Management Legal Entities Tax Structuring Investor Reporting Fund Valuation Cash Management Legal Entities Tax Structuring Fund Valuation
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Investment Banking Overview
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Securities underwriting
Investment Banks serve as intermediaries between providers and users of capital Chinese Wall Strategic advisory Securities underwriting Sales & Trading Users of capital Investment Banking Providers of Capital Research Corporations Governments Municipalities Individuals Pension Funds Insurance Companies Asset Managers Corporate Treasuries Sovereign Wealth Funds Investments banks function as intermediaries between providers and users of capital For example, in an IPO process, the bank connects the suppliers of capital (new investors) to the company going public Banks also serve a wide range of clients Private side Public side
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Overview of Investment Banking
Capital Markets Advisory Equity capital-raising Initial public offerings (IPOs) Follow-on offerings Equity-linked (convertible) Debt capital-raising High-grade or investment grade High-yield Syndicated loans Tax-exempt Mergers & Acquisitions Buyside Sellside Spin-offs / Splitoffs / Carve-outs Hostile defense Hostile takeovers / proxy fights Joint Ventures Restructuring Ratings Within investment banking, we serve many clients and play many roles Most investment banking groups are typically structured into product and coverage groups
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What Does An Investment Banker Do?
Origination Execution Client Relationship Management Ongoing dialogue on financial markets, industry developments, new products Long-term relationship as advisor to Senior Management and Boards Idea Generation and Problem Solving Strategic Alternatives Capital Raising Optimizing Capital Structure Risk Management, Dividend Policy Assessment Of Opportunities Financial Analysis Communication Management, Board of Directors Internal Committees Identify Potential Investors Negotiation / Structuring Transactions Due Diligence Documentation Within investment banking, we serve many clients and play many roles Most investment banking groups are typically structured into product and coverage groups
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Investment Banking Groups
Capital Markets Industry Coverage Product Equity Capital Markets Debt Capital Markets Tax-exempt Leveraged Finance Securitized Products Consumer & Retail Healthcare Technology Media & Telecom Industrials Natural Resources Real Estate M&A Corporate Finance Typically 2 years, but starting to change Ability to stay for a 3rd year / get promoted to Associate / MBA sponsorship Many different opportunities available – what interests you? “Markets” “Technical”
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Investment Banking Competitive Landscape
Bulge bracket Middle Market Boutique Low Capabilities High
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Life of an Investment Banking Analyst
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Overview of Investment Banking analyst programs
Two-year program with opportunity for a 3rd year 6-8 week training Mentorship programs Networking opportunities Summer internship program serves as primary feeder to full-time analyst positions An analyst wears many hats Essentially, the Analyst (and the Associate for that matter) do anything requested of them by the senior banker You work on many different projects at the same time and are always busy and learning new things
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Role of an Investment Banking Analyst
Be a member of a deal team, executing day-to-day activities surrounding live transactions Perform financial analysis and modeling Develop and prepare client presentation materials (pitches, roadshows, board materials, etc.) Coordinate roadshows, and M&A processes Research and due diligence An analyst wears many hats Essentially, the Analyst (and the Associate for that matter) do anything requested of them by the senior banker You work on many different projects at the same time and are always busy and learning new things
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Why Investment Banking?
Benefits Challenges “Everyday is different” Exposure to senior management Steep learning curve Work with talented and motivated people Gain a strong background in financial analysis Help execute exciting, landmark transactions Networking Exit opportunities Long and unpredictable hours Traveling Demanding senior bankers High stress/pressure environment Within investment banking, we serve many clients and play many roles Most investment banking groups are typically structured into product and coverage groups
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Typical Analyst Wish List
Strong communication skills (written and oral) Quantitative / technical skills Teamwork and leadership skills Motivation and strong work ethic Self-confidence and positive attitude Time management skills Personality (sense of humor, enthusiasm and ability to adapt to different situations) Knowledge of firm and industry Ability to work well under pressure Creativity Banks are looking for the best of best to become analysts Personally, I look for analysts who will walk through fire to get the job done and have the raw mental horsepower to solve problems Banks hire both business and non-business majors [For example, my experience is that Engineering students make great analysts]
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General Preparation Network with peers and alumni Internships
Research - Do I want to do Investment Banking? What type of firms? Make sure your resume is clear, concise and error free Take advantage of resources available to you (alumni, Feld Career Center, etc.) Everything is fair game Practice, practice, practice Preparation is critical Learn about the job, yourself, and get your resume in order
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The Interview Be prepared: know as much about the bank and position as possible Know yourself: what motivates you, your strengths and weaknesses and be able to articulate those points Know EVERYTHING on your resume Be honest and demonstrate enthusiasm and motivation Read the Wall Street Journal EVERYDAY and use the Vault Guides Practice interviewing (mock interviews, preparing answers, etc.) Ask questions The interview is your chance to impress the bank and move to the next round Preparation is critical – you shouldn’t be surprised by any of the questions Show enthusiasm for job!
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Resources Vault Career Guides Breaking Into Wall Street
Wall Street Prep Wall Street Training DealMaven The interview is your chance to impress the bank and move to the next round Preparation is critical – you shouldn’t be surprised by any of the questions Show enthusiasm for job!
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Corporate Banking
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Various Group Structures Types of Analysis Performed
Select Bank Divisions Corporate Banking Wealth Management Sales & Trading Research Varies significantly from bank to bank: One end of spectrum: Corporate Bankers are the Industry Coverage Team Other end of spectrum: Corporate Bankers are Credit Analysts Managing money for: High net worth Retail Corporate sponsored retirement plans including pensions, 401k plans, non-qualified plans, etc. Various Group Structures Sales: Calling investors to suggest trade ideas Trading: Buying and selling financial products with the goal of achieving a gain Stocks = Equity Research Bonds = Fixed Income Research Assigned to Various Sectors Energy, technology, media, telecom, consumer… Types of Analysis Performed Counterparty Credit Loan Pricing / Terms & Covenants Negotiation Industry Studies Investment research and screening Analyze the research Investment recommendations Tactical allocation decisions and rebalancing Interact with individuals, executives, investment committees, fund managers Buy and sell financial products on behalf of clients Financial Modeling Investment recommendations Earnings reviews Participate on investor calls Company visits Travel to industry conferences Sales Cross Selling Know the Client Know Your Bank Relationships Across Both Qualifications Series 79 (depends on firm) Interview Selling Points: Financial Statement Analysis Credit Analysis Law Series 7 & 66 & Insurance License Chartered Financial Analyst (“CFA”) Chartered Retirement Plan Specialist (CRPS) Certified Investment Management Analyst (CIMA) Certified Financial Planner (CFP) Series 7 & 63 Chartered Financial Analyst (“CFA”) Chartered Financial Analyst (“CFA”)
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Corporate & Investment Bank (CIB)
Corporate Banking: Deal Dynamics High Level Client (Corporation) e.g. Insurance Co. Corporate & Investment Bank (CIB) Client Need Corporate Banking Solutions Bank Line / Working Capital Liquidity Facility / Commercial Paper Backstop Letters of Credit (LCs or LOCs) Project Financing Structured Vehicle Funding Capital Markets Hedging Programs Revolving Credit Facility (RCF): “Revolver” Letter of Credit Facility Term Loans RCFs & LCs etc., Trading Lines “Revolvers” from bank’s perspective: Large, Long-Term (1-15 yrs) Commitments: Puts Balance Sheet of bank at Risk Typically serve as liquidity / back-up facilities and are priced to incentivize the client NOT to draw Clients desire these facilities as well as their investors + rating agencies + other stakeholders Banks do not make a lot of money on undrawn revolver commitments: The bank gets paid to provide a - expensive, like a credit card promise
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Covenants Banks do not lend unconditionally
Long-term commitments are made under the condition that the borrower maintains a largely consistent risk profile So, legal protections are built in: Covenants Examples: Minimum Credit Rating of ‘ BBB ‘ Maximum Debt-to-Capital Ratio of 35% If client fails to meet these criteria, they are “in breach” A client in breach of a covenant will have no legal right to draw funds from the bank
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Corporate & Investment Bank (CIB)
Corporate Banking: Deal Dynamics High Level Client (Corporation) e.g. Insurance Co. Corporate & Investment Bank (CIB) Client Need Corporate Banking Solutions Bank Line / Working Capital Liquidity Facility / Commercial Paper Backstop Letters of Credit Project Financing Structured Vehicle Funding Capital Markets Hedging Programs Revolving Credit Facility (RCF): “Revolver” Letter of Credit Facility Term Loans RCFs & LCs etc., Trading Lines “Revolvers” from bank’s perspective: Large, Long-Term (1-15 yrs) Commitments: Puts Balance Sheet of bank at Risk Typically serve as liquidity / back-up facilities and are priced to incentivize the client NOT to draw Client’s desire these facilities as well as their investors + rating agencies + other stakeholders Banks do not make a lot of money on undrawn revolver commitment: The bank gets paid to simply provide a In periods of stress, these facilities go from having relatively relaxed surveillance profiles → to receiving intense attention They are LARGE commitments and represent “money out the door” when the client draws American International Group (AIG) So, banks usually commit the largest amounts with the most favorable terms (pricing + covenants), to their best clients Clients in turn recognize this strategic partnership and open their doors to more business: Sales & Trading, Debt Capital Markets, Equity Capital Markets, Foreign Exchange & Cash Management, M&A Advisory etc., - expensive, like a credit card promise
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Example - Syndicated RCF: Due Diligence (DD) Meeting / Call
Corporate Banking: Revolving Credit Facility Example - Syndicated RCF: Lead Bank (“Agent Bank” or “Lead Arranger”) Discuss Client Needs (Size and purpose of RCF) Discuss Market Appetite for lending: Bank Group + Allocations Determine Target Terms: Pricing, Covenants, Tenor (length) XYZ Client (Corporation) Corporate Banker Treasurer (sometimes CFO) “Launch Deal” 2010 XYZ Company US$3.0bn Revolving Credit Facility Lead Arranger Banks Group Due Diligence (DD) Meeting / Call Post DD Negotiations: Agent/Lead Bank largely responsible for negotiating on behalf of banks group Allocations HSBC JP Morgan Citigroup BAML UBS + others… $350m 1st Tier $350m $250m 2nd Tier $250m $150m $650m
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What to Expect The Job Long Hours (less hours than Investment Banking)
Life will revolve around deals Good salary + bonus package (less than Investment Banking) A lot of phone time / meetings with clients, other banks, lawyers, & internal colleagues Credit analysis Financial Statement Analysis / Modeling Industry Studies Must know your clients better than the competition Investor Calls / Presentations Company press releases as well as reports in the media 10-Ks, transcripts, sell-side research etc., Broad product experience / limited understanding of each product Competitive / High Pressure Environment Can be said about any position at a bank. Especially front office but also middle and back.
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Middle Market Financing Positioning
Investment Banking Middle Market Financing Corporate Banking Provide similar but expanded services to corporate and institutional clients: Capital raising in the form of syndicated loans, public and private issues of debt and equity Specialized services such as M&A and ratings advisory, industry and competitive analyses and market-making in complex instruments Sales, trading and research of publicly traded issues and currencies Product groups specialize in a certain service or instrument, such as M&A, bonds, equity Industry groups cover all client firms which operate in a certain field (i.e. healthcare, gaming, energy, media) Responsibilities include: Issuing loans (vs. bonds, high yield) Taxes strategy Treasury management FX management Cash management Project financing Traditional “Corporate Banking” offered by large banks with diverse product offerings Focus on relationship with company as cross-selling of products There is often an overlap between corporate banking and IB capital markets when capital markets expertise is utilized to issue equity or debt Focus on supporting middle market clients by providing corp. loans for acquisitions, recaps, refinances & other corp. needs Business largely driven by private equity activity Firms focused underwriting fees and greater interest rate spreads Many MM firms also have advisory & capital market services, but not broader corporate banking services
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Middle Market Financing Overview
Landscape Overview More fragmented market led by pure commercial banks and finance companies, specialty funds, hedge funds and mezzanine funds Focus on smaller and medium sized leveraged loans ($250MM or less) and mezzanine debt (typically $100MM or smaller) for companies with less than $500MM in revenues and EBITDA between $10MM and $75MM Private investors driven with focus on club deals (deals with only 2 – 6 lenders & no broader syndication) and investment returns, given the companies smaller sizes and increased risk profile Underwriters emphasize senior loan club transactions, smaller scale loan syndications and portfolio lending/investment Pure commercial banks and financial companies dominate senior loan market Specialty funds, hedge funds and mezzanine funds dominate junior capital market Middle Market New Issue Volume (<$50MM EBITDA) Deal Financing Timeline Example
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Career Considerations
Analyst Role / Responsibilities Career / Role Benefits Financial analysis and financial modeling Company valuation Comparable analysis Preparation internal credit / approval memos Industry and company research Developing client presentations Marketing material (i.e. Teaser, Confidential Information Memorandum) Updating all internal databases and systems Administrative tasks (set up calls, fax, FedEx, etc.) Banking-like training programs Greater access to superiors & senior management Truly understand corporate growth, financial analysis & capitalization Develop strong knowledge of many industries Analysts tend to wear more hats than in larger banks Quality of life: Hours, flexibility, goals & expectations Defined career paths & competitive compensation Opportunity to change career path both internal / externally Introduction to numerous business owners Career Options – Firm Types Environment – Work / Life Balance Commercial banks Finance companies / specialty funds Hedge funds and mezzanine funds 10-12 hour days, weekend work depending on firm Medium/High stress levels: Pressure to perform, competitive environment & demanding superiors with little room for error Multiple deals / companies / projects at one time Work frequently with others in deal teams of 2 – 4 people within your group Frequent “fire-drill” deadlines for client driven approvals Frequent meetings & conference calls throughout the day
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Representative Companies
Large Commercial Banks Super-Regional Banks Citibank Bank of America Wells Fargo / Wachovia Comerica Union Bank of California Bank of New York Mellon Key Bank SunTrust Fifth Third PNC Foreign Banks Finance Companies / Funds CIBC Toronto Dominion Royal Bank of Canada Bank of Montreal / Harris Societe Generale HSBC National Australia Bank ANZ Banking Group Royal Bank of Scotland Macquarie Group Sumitomo GE Capital CIT Group Churchill Financial Madison Capital Capital Source Freeport Financial Denali Capital Newstar Financial Orchard/First Source Jefferies Finance American Capital Golub Cerberus Orix Ares Capital
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Next Steps… Take advantage of ALL Feld Career Center services, job postings and info sessions NETWORK: Utilize the BU Alumni network and all family & friend contacts Practice your interviewing skills and have all “book” knowledge down cold Get the JOB! Have a story about who you are, where you have been and where you are going Utilize all resources including the Vault Guide, publications (WSJ, etc.), websites (LinkedIn, eFinancialCareers, etc.) Search yourself: Make sure this is the field for you BEFORE going through the process Commit: Once you decide to go for any finance job, give it your all – or it will show otherwise
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Questions
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Appendix
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Thoughts… How to Make it Happen
Get any available on campus interviews – practice makes perfect Talk to the career center about firms that will be recruiting as well as firms that used to recruit Begin ing junior BU alums at the firm as soon as possible and well ahead of interview After exchanging s, ask for a few minutes on the phone PROOF READ your s. If there is a typo or a grammar error, it can kill your momentum Be sensitive to the interviewers time constraints. Do not insists on times / topics / sending your resume Remember: Alums are BUSY and they are doing you a big FAVOR by talking Make sure you have a story about who you are and why you want the position / company / industry you are applying for Specialize your resume Today’s job market is extremely tough: Employers are looking for the perfect candidate It is a numbers game but make sure you target positions for which you are a good fit Make sure your resume is FLAWLESS; bad formatting, a strange layout or something that is hard to read can easily give someone a bad impression and/or cause them to overlook your talents If you don’t have a 4.0 GPA or all of the relevant course work, guess what? - It is OK! Will cost you initially but can be recovered from Get the best job you can Work hard and be the best STAY in TOUCH with people Always be aware of and open to new opportunities
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Typical Entry Point (for Large CIBs)
Corporate Banking: Some more detail Career Options Typical Entry Point (for Large CIBs) Large Corporate & Investment Banks: Citigroup, JP Morgan, Bank of America Merrill Lynch, Barclays, Goldman Sachs, Morgan Stanley, UBS, Credit Suisse… Middle Market Financing: Commercial Banks, Hedge Funds, Specialty / Finance Companies Out of undergrad (Analyst Program) From Business School (Associate Level) After 2+ years at a Rating Agency Or other relevant field
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