1. Everything You Always Wanted to Know About Investment Banking (But Were Afraid to Ask)
Gene Moldavsky Managing Director, Head of Corporate Finance, Alfa-Bank
December 4th, 2009

2. Why am I here on a Friday night?
Lecture objective: to share a slice of the real world
Investment Banking Experience
Managing Director, Head of Corporate Finance, Alfa Bank (2007-present)
Executive Director, UBS Investment Bank ( )
Vice President, Renaissance Capital ( )
Education
Boston University, School of Management
London School of Economics
Deals/Transactions
Over 50 Investment Banking transactions
Aggregate deals value exceeds US$25 billion
Examples
US$1.9 billion Svyazinvest privatization (1997)
US$2.0 billion merger between Rostelecom and Moscow MMT (2000)
US$3.4 billion public markets sale of MTS shares by Deutsche Telecom (2004/2005)
US$4.8 billion acquisition by Mittal Steel of KryvorizhStal (2005)
US$1.2 billion sale of Maxi Group to NLMK (2007)
US$400 million sale of Corbina Telecom to Golden Telecom / VimpelCom (2008)
US$1.2 billion rights offering of X5 shares (2008)

3. How is an Investment Bank different from all other banks?
Commercial banks
Retail banks
Investment banks
Universal banks
Customer Base
Corporate customers
Small & medium enterprises
Individuals
Financial markets and its players
Main products
Corporate loans
Trade credits
Factoring
Cash management
Salary management
Consumer credit
Mortgages
ATMs
Deposits
Equity/debt issuance and trading
M&A / advisory
F/X
Syndicated loans
Derivatives
A supermarket of all products
Examples in Russia
Loko Bank
Zenit Bank
Absolut
GE Money
Standard
Goldman Sachs
JP Morgan
Morgan Stanley
pre crises Lehman Brothers, Bear Sterns
Alfa Bank
Citi
MDM
Sberbank
VTB

4. What do Investment Bankers do all day?1
Front Office: Where the money is made!
Department
Primary activities of professionals
Products
Investment Banking (Corporate Finance)
Originate and execute IB transactions
IPOs, private placements, debt offerings, mergers & acquisitions, general advisory, hostile takeovers, restructurings/bankruptcies
Sales and Trading
Calling institutional or individual clients, executing client trades, buying/selling for own book
Making markets for clients
Research
Analyze sectors and companies,
Write reports / recommendations, meeting companies and banks’ clients
Research reports
Investment Management
(Private Banking)
Develop client base, manage securities portfolios or other assets for institutional / individuals tailored for specific investment goals
Mutual funds, structured products
Merchant Banking (Private Equity)
Use banks’ and external capital to invest in private companies with the goal of an “exit” through the capital markets or sale to a strategic investor
Private equity funds 2
Middle Office: Where the money is not lost
Risk management – market and credit analysis minimizing risk of loans and trades made by the bank
Treasury – responsible for funding, capital structure, liquidity and maximizing return on cash on hand
Financial control – capital flows analysis, budgeting of the bank, reporting, global risk management, etc.
Back office: Where the money is not made
Operations – clearing/checking trades by Sales and Trading (settlement)
IT – front office support (PCs, Bloomberg), hedging algorithms, electronic trading, settlement systems, financial reporting
Compliance – compliance with government and internal regulations 3

5. How do Investment Bankers earn money for their firms?
Department
Revenue
Examples
Investment Banking (Corporate Finance)
Success fees on deals
Retainers
IPO NLMK ($600MM) – 3%
Mittal Steel / Krivorozhstal - $3MM flat fee
MMK Ruble bond – 0.20%
Sales and Trading
Spread on buying/selling
Fixed fee on each share trading
Proprietary trading (the “Book”)
Europe: % per trade
US: 0.03 cents per share
Research
None but supports Sales and Trading / Investment Banking
N/A
Investment Management
(Private Banking)
Management fee on funds under management
Fees / spread on structured products
1% fee on funds under management
Merchant Banking
(Private Equity)
Management fee on capital raised
Carry on performance (with possible hurdle)
1-2% management fee
20% carry (8-12% hurdle)

6. How do Investment Bankers earn money for THEMSELVES?
Typical Compensation structure: salary and bonus
Stock payment / vesting an important consideration
Disproportionate bonus at senior levels (Director / Managing Director)
Statistics
Bank
Number of employees
Compensation, US$ mln.
Compensation per employee, US$
2007
2008
2009
Goldman Sachs
30 552
30 067
20 190
10 934
22 283
Credit Suisse
48 100
47 800
47 400
13 308
12 213
15 428
Morgan Stanley
48 256
46 964
62 004
16 552
12 306
14 496
Deutsche Bank
78 291
80 456
78 530
17 847
14 734
16 704
JP Morgan
22 689
22 746
29 088
Note: 2009 compensation expenses annualized. Number of employees for GS kept constant in 2009 vs 2008
Russian market compensation ranges
Investment Banking
Sales / Trading
Research
Investment Management
Private Equity

7. What is the landscape of Investment Banking in Russia?
Global Investment Banks
Russian Universal Banks
Russian Investments Banks
Active market participants
Goldman Sachs, JP Morgan, Morgan Stanley, Deutsche Bank, UBS, Credit Suisse, Citi
Alfa Bank, VTB Capital, Sberbank Capital, MDM, UralSib
Renaissance Capital, Troika, Aton, KIT
Strengths
Brand
Global distribution
Industry/product knowledge
Independence
Deep lending relationships
Weaker compliance
Government support
Affiliation with oligarch group / government
Ability to do “Russian” deals
Focused strategy
Flexible compliance
Risk taking philosophy
Weaknesses
Lack of long term commitment
Churn of professionals
Onerous compliance
Limited lending risk appetite
Relatively new to investment banking
Limited global reach
Limited lending capital
Post crisis financial stability

8. What are the building blocks of making a career in Investment Banking?
Proper education
University name recognition
Proper coursework (finance, accounting, valuation, capital markets)
Supplemental boring reading (valuation methodology, “The Art of M&A”)
Supplemental fun reading (“Liar’s Poker,” “Bonfire of the Vanities,” “Barbarians at the Gate,” “Den of Thieves,” “The Last Tycoons,” “House of Cards”)
Getting the first job
Proactive behavior
Existing connections / relationships
Perfecting the interview process – making the right first impression
Doing the homework on the employer
Moving up the organization and making more money
Demonstrate the basics
outstanding mathematical skills
no mistakes on tasks performed
quick learner
positive attitude even in 15 hour days
team work behavior
improvement of internal processes; creativity
Develop management skills to oversee teams/departments
Develop deal origination skills (“smelling a deal”)

9. What other secrets do you want to know?