ROLE OF AN INVESTMENT BANKER
Investment bankers are responsible for a wide range of duties including raising capital, providing advisory services for mergers and acquisitions (M&A) and other corporate transactions, completing valuation work, and marketing the value of the banks’ expertise to client companies.
INVESTMENT BANKING ANALYSTS
Investment banking analysts are the workhorses of an investment banking team; they are typically straight out of top undergraduate programs, and join the bank for a two-year analyst program starting in the late summer after graduation, with the possibility of a third year option in certain instances.
The Bulge Bracket banks will send their analysts through approximately two months of intensive technical job training to prepare for the workload ahead. This involves going through classroom-style teaching, learning the ins and outs of accounting, financial statement analysis, corporate finance and valuation, and financial modeling, with specific training in needed computer applications such as Microsoft Excel and PowerPoint.
- Presentations, or Pitch Books, are simply marketing material for the bankers to present to their corporate clients. These PowerPoint presentations get printed and are bound for meetings with clients/companies. Pitch Books will generally be 30-40 pages in length, though in some cases can be substantially longer; they will show the bank’s qualifications, recent industry data, sample transaction and analysis information, and advisory recommendations.
- The analytical work consists of building and perfecting financial models for any given corporate situation. We will get into this in further detail later, but this work will typically include Discounted Cash Flow (DCF) analysis, Comparable Companies and Comparable Transactions (Comps), M&A models, and/or LBO models.
- Analysts will spent substantial time repeatedly building and evaluating different financial alternatives for the client. One example might be running M&A models and showing the accretion/dilution effects to earnings based on different allocation scenarios for debt and equity in the proposed transaction.
If your biggest fear is being on call 24 hours a day and potentially working through the night, then investment banking is almost certainly not for you. Investment banking analysts generally work 80-110 hour workweeks – expect to have very little free time outside of the office, especially during the first year on the job. (Yes, that includes most weekends!) While the hours are strenuous, the cost is worthwhile for those who treat investment banking as a stepping stone for their career: junior bankers who excel in their position generally have a wide array of lucrative opportunities in front of them at the end of the analyst program. It is very common for investment banking analysts to work a few years in the industry and then transition into roles in such areas as Private Equity or Hedge Funds, which we will discuss in more depth later in the series.
INVESTMENT BANKING LIFESTYLE QUESTIONS
- Are the hours really that bad? The bottom line is: yes. At the bulge bracket banks and top boutiques, analysts are expected to work approximately 90-110 hours per week (or even more under some circumstances). A typical day will be somewhere in the range of 10am to 2am; this often includes weekends (or at least part of them). During busy times analysts will even pull an “all-nighter” – working straight through the night and then sticking around to do it again the next day. The higher you go up the ladder, the less time at the office – associates usually put in less time than analysts, VPs put in less time than associates, etc.
- Why don’t the banks just hire more analysts then? This primarily because of the culture of investment banking. You will be spending a lot of time in small teams working on M&A/LBO’s, etc. There will often be many changes per day to these transactions, and the work load can compound very quickly. Also, it can be difficult to break apart the work and farm it out to multiple people. Bankers are expected to work a lot; thus they get paid a lot of money for working those long hours.
- What’s the upside? There are two primary upsides in investment banking: the compensation and the career development potential. Investment banking is probably the most highly compensated out-of-college career track for the vast majority of graduates in the nation – this is assuming, of course, that you cannot be drafted in the first round of a major professional sport! In short, you will be highly paid. Also, the set of exit opportunities that will typically be available to you upon completion of the analyst program is robust: many people treat investment banking as a stepping stone to other prestigious careers (just as I did). Some common post-analyst directions include Private Equity, Venture Capital, and Hedge Funds. Others may use the corporate finance knowledge they gain as bankers to go back to top business schools or to start their own companies. Finally, what is learned is invaluable. Banking teaches analysts the ins-and-outs of corporate finance and how to work and survive in a stressful, intense work environment. This experience and all of the related technical skills will prove valuable regardless of what the bankers do in the future.
- Is the lifestyle worse/better in some groups than others? Bulge Bracket vs. Boutiques?
The bottom line is: yes and yes. Generally, the hours are quite a bit longer per week at the bulge bracket firms than at smaller boutiques (note that this is not always true) simply because of volume of deal flow. Larger banks will tend to do much more volume (i.e., many more completed transactions as well as proposed ones) relative to smaller banks. Thus, much more work for you as the junior employee. In terms of groups, this varies bank by bank. However, traditionally, the product groups have a reputation for working the most hours (especially M&A and Leveraged Finance).
- Is the lifestyle different in areas other then New York? Generally the life is much tougher for a New York investment banker. The other big finance hubs come in next: London, Tokyo and Hong Kong. The West Coast (L.A. area) has a somewhat large concentration of investment bankers, but the stereotype there is that a more laid-back atmosphere.
- Do investment bankers get free dinner? Yes. Typically, if you work past either 7pm or 8pm (which you usually will), you are eligible for dinner on the firm. When I worked in investment banking, there was typically a budget of $25 for dinner every night, and on the weekends, $15 for lunch and again $25 for dinner. The bank will also pay for your travel home every night and also travel to and from the office on the weekends. These free meals and travel, combined with the fact that you won’t have much free time out of the office, combine to ensure that you will save a large chunk of your earnings during your tenure as a junior banker.
- Wall Street Journal (especially the Money & Investing section)
- Financial Times
- Barron’s (weekly)
- Dealbreaker (online M&A tabloid)
- Street of Walls (this website)