«Ross Career Services Investment Banking, Sales and Trading Career Path: and Private Banking – MBA Version Introduction Ross Career Services (RCS) ...»
Ross Career Services
Investment Banking, Sales and Trading
and Private Banking – MBA Version
Ross Career Services (RCS) created the Career Path series to assist students with the career search
process. Each Career Path handout examines a common business functional area in which Stephen M.
Ross School of Business graduates pursue jobs each year. The first four steps of RCS’s recommended
career search process are detailed for each specific business field.
Investment Banking Overview The primary focus of this guide is to familiarize you with the investment banking career search. Much of the information also applies to those interested in research and sales & trading careers, although there are many aspects of sales and trading that are not covered here. Some of the information presented has been pulled from A Comprehensive Guide to the Investment Banking Job Search written by Joseph Hyde, BBA 1996. The complete text written by Hyde can be found at the end of this handout, and gives additional information on the function of investment banks.
The business of most large investment banks can generally be divided into two categories: Investment Banking (sometimes referred to as Corporate Finance) and Sales & Trading. Investment Banking divisions are involved in debt and equity capital raising, financial advisory services (including mergers and acquisitions) and occasionally merchant banking activities, while Sales & Trading divisions engage in the research, brokerage and distribution of securities. In many transactions, both are required, for example, while Investment Banking may convince a corporation to use the investment bank to underwrite their bonds, it is Sales & Trading who actually finds investors for these bonds. Investment banks generally work with four client groups: corporations, municipalities (governments, hospitals, universities, etc.), financial institutions (insurance companies, money managers, venture capital and LBO firms, banks, etc.), and wealthy individuals.
The subprime mortgage crisis of 2008, coupled with extremely high and risky leverage ratios employed at some investment banks (such as Lehman Brothers), put an end to the independent investment banking model, at least as far as bulge bracket investment banks went. These investment banks either merged with or were purchased by large commercial banks (such as Merrill Lynch and Bank of America) or became bank holding companies such as Goldman Sachs and Morgan Stanley. However, investment bankers still consider themselves and their industry to be very different from commercial bankers and the commercial banking industry.
Knowing the distinction between the various functions of an investment bank is crucial during the career search process. A good interview definition of an investment bank would generally require mentioning both investment banking and sales & trading; however, a good interview definition of investment banking would require mentioning capital raising and financial advisory, but would exclude sales & trading. Merchant Banking is typically outside of the Corporate and Investment Bank. Merchant Banking is similar to Private Equity and is considered “buy-side.” Credit Suisse is a perfect example. Its merchant banking arm (now known as Alternative Investments) includes: private equity, LBO, venture capital, mezzanine debt, secondary funds, hedge funds, fund of funds and real estate, providing investment opportunities for both the firm’s own capital as well as client’s capital.
The Finance Club (http://www.rossfinclub.com/) provides you with career information and various resources to enhance your job search within investment banking, corporate finance, and sales and trading.
Financial Derivatives and Risk Management Monumental achievements in economic sciences combined with advances in computer and information technology have transformed global financial markets and the theory and practice of finance over the last two decades. The combination of financial theory, mathematics and computer technology has led to the emergence of a new profession in financial derivatives and risk management. The spectacular growth and development of the global derivatives market is one remarkable example. The total value of all unregulated derivatives is estimated to be $127 trillion – up from $3 trillion in 1990.
In an increasingly complex and interdependent world of financial markets and products, only those organizations which are able to effectively manage and control their risks will have the ability to succeed. Corporations, funds, municipalities, and other institutions rely on risk management professionals such as treasurers, risk analysts, and portfolio managers to make decisions which can determine the fate of the organization and its investors in periods of distress in the financial markets.
As the use of derivatives has grown exponentially in recent years, demand for competent derivatives professionals is especially strong among Wall Street firms. According to Carolyn Jackson, Executive Director of the International Swaps and Derivatives Association (ISDA), financial engineers are needed now more than ever on Wall Street. A demand for derivatives professionals and risk managers is also increasing rapidly within the treasury departments of non-financial corporations and public institutions.
Therefore, a wide range of career opportunities is available to students with expertise in financial
derivatives and risk management:
commercial and investment banks brokerage and investment firms insurance companies consulting and accounting firms treasury departments of non-financial corporations public institutions, such as federal government agencies, state and local governments, municipalities and international organizations software and technology vendors providing products and services to financial industry Our graduates (MBA and Financial Engineering) are offered positions as risk managers, investment bankers, derivative traders, designers of specialized securities, and financial engineers. Employers include investment banks, commercial banks, financial consultants, financial and database software suppliers, financial regulators, exchanges, and large non-financial corporations.
Furthermore, whether your career aspiration is to become an institutional salesperson/trader, a portfolio manager, an investment banker, a corporate finance analyst, or a private banker, you will find that financial derivatives is becoming a more and more important part of your skill set. Knowledge in this fast-growing area will provide you with the finance acumen necessary to excel.
The Financial Derivatives and Risk Management Club (www.umderivatives.com) provides you with career information and opportunities to meet industry professionals through club events with our corporate sponsors. You can obtain more career related info on the club website under “Career.” 2 July 2013 Investment Banking Individuals working in investment banking often refer to themselves as bankers. They often refer to their job as banking or I-banking. Within the investment banking division, groups are divided into two broad classifications: industry (also known as “coverage”) or product groups. Examples of industry groups are: consumer products, TMT (telecom, media, and technology), banks and financial services, health care, industrials and energy. Industry groups typically act the front line relationship managers between the bank and large clients. Examples of product groups are leveraged finance, DCM (debt capital markets), ECM (equity capital markets) and M&A (mergers and acquisitions). However, slight variations exist from bank to bank, for example at Goldman Sachs, there is no separate M&A group and M&A activities are covered by each of the industry groups. Therefore, it is important to research each bank to find out how they divide their groups and what groups they have (and don’t have). What’s more, understanding each bank’s groups and their training program becomes critical during the interview process and decision-making time – as this is a key way to distinguish the banks from each other. Much of this information is available on company-specific websites and general career search websites such as Hoovers.com and Vault.com. Also, these are great questions to ask bankers during networking events.
The role of a banker can vary depending on their experience level. Junior bankers, such as analysts or associates spend a lot of time working on financial modeling, company research, preparing presentations, and deal execution. Senior bankers, such as directors, or managing directors, spend more time cultivating client relations, providing strategic advice, and winning new business.
Sales & Trading Individuals working in a sales & trading department of an investment bank are not investment bankers, nor do they work in investment banking. Instead, they are either sales brokers or traders who work in sales & trading.
Private Banking This function is often referred to as Private Wealth Management (PWM). This role varies widely by firm so it is important to look into the responsibilities and roles within each firm. Individuals working in a private banking role need to demonstrate a passion for the capital markets and for teaching others about sophisticated debt and equity products. The primary difference between private banking and sales and trading is the intimate relationships that one must establish with clients. Also, typically PWM will deal more with high net worth individuals, and S&T will deal more with institutional investors. This is due to the nature of dealing with that individual’s personal balance sheet. Broadly speaking, you will need to be more of a generalist covering debt and equity products. This role can also be very entrepreneurial but this depends on the firm’s business model. Sales skills and relationship management are key for PWM.
Research Researchers refer to themselves as analysts. This is not to be confused with the analyst position available in investment banking for student’s right out of college. A research position usually implies following one field/industry and developing expert knowledge on it and the companies within it. It is important to know that there is a division or “Chinese Wall” between banking and sales & trading/research, where information flow is minimized to promote and protect.
Before You Begin The individuals in each of the above areas generally have different skill sets, career goals, and personalities. For instance, people in investment banking are typically very thorough and detailoriented and are willing to work strenuous hours. Those interested in sales & trading are typically fast thinkers and strong in mental math. Recently, the industry has come under fire for mixing research and 3 July 2013 investment banking. Knowing which area appeals to you and what skills you excel in will help you focus on your job search more effectively.
The Investment Banking/Sales & Trading/Private Banking Career Search Career Search Step #1: Conduct Self-Assessment The nature of an investment banking career makes careful self-assessment very important. The job search itself can be difficult and frustrating, and competition for summer and full-time Associate positions is fierce. Before you make the decision to pursue the industry, you should understand the Associate role, the skills and interests required, and the lifestyle and work environment.
Based on the CareerLeader profile, professionals in investment banking are oriented strongly toward analysis and enterprise control rather than managing people. They enjoy
financial analysis and
the ownership of the ‘deal’ process. Almost all recruiters look for the following specific qualities:
Skills and abilities:
knowledge of financial services and corporate finance strong quantitative and analytical skills ability to apply advanced oral and written communication skills to create a positive impression and professional rapport solid sales and marketing skills ability to work independently while functioning as part of a team
a high degree of initiative and motivation keen attention to detail client focused composure and confidence to juggle conflicting priorities strong analytical and quantitative skills assertive and entrepreneurial nature ability to learn, think, and react quickly ability to work well in a team environment strong interpersonal skills ability to multi-task ability to communicate clearly and amiably knowledge of industry trends, history, and the major participants strong interest and academic excellence in finance, accounting, and corporate strategy ability to read, understand, and use financial statements strong familiarity with business computer applications, particularly Excel Recruiters also want people who have high stamina levels and a hunger for learning, and who are confident, poised, energetic, and willing to make personal sacrifices due to the demanding schedule.
The investment banking work environment is often described as fast-paced, stressful, competitive, and generally unbearable over the long term. It has also been described as collegial, cooperative, friendly, and enjoyable. Why the contradictions? The reason is that the work environment, lifestyle, and expectations can differ substantially from bank to bank, and even from group to group within a bank.
Too many uncontrollable factors are involved to make a consistently accurate generalization. However, it is well known that 80 to 100 hour work-weeks are common, with more time required during crucial periods. Based on this estimate, obvious lifestyle sacrifices are part of this career choice.
4 July 2013 On the plus side, a career at an investment bank will provide you with incredible knowledge, information and insight about corporate finance and the financial markets, the challenge to take on significant responsibility, and an arsenal of skills that are valuable in a variety of different business settings.