We have tutored a lot of students for investment banking interview prep and some common mistakes have emerged. Fortunately, there are easy fixes for all of these mishaps.
- Why do you want to do investment banking?
- What do investment bankers do?
- How does the investment bank make money?
- Where do you see yourself in 5 years?
- Why do you want to work 90 hour weeks?
- What do you think an average week in investment banking looks like?
- How can we know that you can do the hours?
Why do you want to do investment banking?
A lot of students or career changers think it is a good answer to say “while I am young, I want to work as hard as I can and learn as much as I can in a high performance environment. Some of the smartest people work in investment banking and I want to be put with the best and the brightest to push myself.”
Sounds good. Do investment bankers like it? No.
This answer is not tailored specifically to investment banking and can easily be substituted in an interview at Google or the Boston Consulting Group. It is a fluffy answer – everyone knows that investment banking offers a competitive environment (and a lot of money) – we want to know that you want to do investment banking specifically.
And investment banking is about deals, deals, deals, deals (and corporate finance).
Your answer should be anchored around how you enjoy the transactional nature of investment banking, find corporate finance fascinating and want to be part of supporting the structuring and advising of transformative corporate actions that you can see in the newspaper.
This is where the passion comes out – nobody likes to work crazy hours in investment banking, but having worked in investment banking for 6 years I know that the analysts that do not find the regular 2AM grind as bad are the ones who spoke to their investment theses with conviction during the interview and read up on deals, deals, deals, deals in the interview. We want to hire someone who genuinely wants to do investment banking for the investment banking.
The English literature major who attends Berkshire Hathaway meetings and can speak to current events and their market implications for hours on end will always beat out the 3.8 finance student who has no interest in finance.
What do investment bankers do?
The funny thing is, despite memorizing the Breaking into Wall Street technical questions, being super polished and otherwise prepared, this question ends up tripping up even Columbia MBA students.
Investment bankers provide corporate finance solutions and advisory for clients across a range of problems that involve capital. They are in charge of execution for corporate finance transactions such as mergers and acquisitions, capital markets fundraising and will also be tasked with underwriting securities.
How does the investment bank make money?
Similar to the last one, investment bankers will have work fees for advisory mandates and also take a commission on underwriting securities. They will also take a percentage fee of a mergers and acquisitions mandate similar to how a realtor would take a commission on selling a house.
To get really deep into it, usually the work fee can be deducted from the final commission if there is a transaction. Also, the riskier the company and the smaller the company, the wider the commissions. Finance is very much about risk and reward.
This is an example: not real numbers but somewhat close
JP Morgan can be mandated/put on retainer to evaluate strategic options for Big Firm A at $1 million per month – possibly looking at a sale, spin-off or recapitalization
Mergers & Acquisitions
Small/bolt-on/tuck-in mergers and acquisitions could be 1% of the transaction value (this is ENTERPRISE VALUE NOT EQUITY VALUE)
Large, transformative M&A worth $20 billion could be 15 basis points (bps) on the transaction value
Equity Capital Markets
Best Efforts Agency Deal – investment bank does not take on underwriting risk – 2% agency fee
Fully Underwritten/Bought Deal – investment bank buys shares at a discount and clears it in the market – 4% underwriting fee
Preferred shares – 3% fee
Debt Capital Markets
5 year investment grade bond – 35 bps
30 year investment grade bond – 75 bps
5 year vanilla/cash coupon high yield bond – 200 bps
More structured transaction or bespoke private offering – 300 bps
Where do you see yourself in 5 years?
In a lot of other guides I have seen, analysts are supposed to not know while associates are supposed to accept life as an investment banker.
Ignore them, and never be too honest about what you really want (leaving to do an MBA or backpacking around Europe with $200,000). Just say that you are interested in investment banking right now and see yourself developing into a relationship management role after you master the basics – this is the most risk free answer. Say that you are broadly interested in finance and that you could possibly explore other groups within capital markets to fully understand the bank’s integrated product offering.
A lot of Chinese students especially have told me that they want to do an MBA at a brand name school after – I get it, Prada bag + Wharton MBA + Investment Banking on resume but tell that to your mom don’t tell that to the interviewer.
While before banks were sweatshops that fed private equity firms, the new model has reinvented itself so that banks are “cool places to work and have a long career”. This is of course not really true and most bankers are miserable but besides the point.
Why do you want to work 90 hour weeks?
“I love to work a lot.” – wrong answer. This is going to make us feel that you are weird or insincere – you may love finance but turning a book for the 60th time at 2 in the morning is enough to make anyone want to vomit.
You understand the sacrifices involved but feel that the reward versus the sacrifice is compelling to you and because you love finance it will not be as onerous as for someone who is not passionate about the industry.
What do you think an average week in investment banking looks like?
This is where we catch a lot of people who have no idea about what to expect and haven’t mapped out what 100 hours a week looks like in their head.
“Oh, you work for 120 hours a week.”
If you do the math, that’s basically 8 to 2AM every day including Friday, Saturday, Sunday. Does that sound sustainable to you? That is what causes people to actually die on the job and the industry is distancing itself from Karoshi culture.
Lay it out as 9-12 on most nights, a lighter Friday getting off at 8PM, coming in on some Saturdays and 8 hours on a Sunday to finish off tasks and to get prepared for the coming workweek. If you are on a live transaction, expect a heavier workload, but you understand that it is the nature of a client focused industry.
How can we know that you can do the hours?
The easiest is to say that you studied CFA after a 60 hour a week accounting job and spend a lot of your spare time looking into a stock portfolio. Say that you haven’t done it on as regular of a basis as investment bankers but given your desire to work in the industry you are confident that you can step up and make the sacrifices needed.
The honest answer is that investment bankers will never believe that you work as hard as them (for good reason) but you need to be somewhat close.
We interviewed a lot of guys in risk management who said “I work a lot, sometimes I have to work until 9.”
They do not get called back in for 2nd rounds.
|Investment Banking Fit Questions|