For people wanting to enter the field of investment banking the more common direction to take is to undertake an undergraduate degree that is relevant and then enter into a bank as an analyst. If you have an MBA you could be hired as an associate. This means that while you work with groups who specialize in certain areas you may not get much if any say over what group that might be, particularly undergraduate analysts. If you have just completed your education and are looking at what areas you might be interested in the main areas and what they involve are covered below.
Career Options In Investment
Product groups and Industry Coverage groups
It is common for large investment banks to have an area that focuses on industry focused investment banking. Called by various acronyms such as CIBD, IBD, IBK this area has two subdivisions, product groups meaning private placements as well as industry coverage groups like aerospace. For a clear example of this in a large bank take a look at Credit Suisse’s banking page online. Each group has a collection of people who are responsible for different aspects. There will be Managing directors or senior bankers who focus on client relationships. They have a team to support them starting from lowest position to the highest, Admin, Analysts, Associates, VPs and Directors. These work on brainstorming ideas for clients, pitching ideas, attending meetings, carrying out transactions, writing up memos and so on.
There are two main types of business, Mergers and Acquisitions (covered later on in the article) and financing (this can be done either in house or by a separate corporate finance group, also covered below). As a rule a client team gets together to work on specific deals. The team will be made up of a VP, an Associate, an analyst or two and an MD. The team works with whoever is needed i.e., someone from corporate finance, a product specialist or two, someone who manages the issuance of bonds into the market from Debt Capital Markets. The analyst in particular would take on the job of putting together a list of people within the bank, within the clients company and elsewhere, who are involved with the deal. Called a Working Group List it might also include any law firms or additional banks if there is a syndicate involved.
Equity Capital Markets (ECM) or Debt Capital Markets (DCM)
Investment grade bonds and high yield bonds are the two areas DCM can be broken down to as well as sometimes having further separation for sovereign, municipal and supranational origination bonds. If you become a capital market officer you help businesses originate issues of equity or debt. Bankers may call about clients who want to issue and you would then look at what condition the market is in, use a Bloomberg terminal maybe to track swap spreads and then give your advice. You would also work with the hub of a new issue the syndicate desk, where it is decided who gets what piece of a new issue and has a book of orders. Both ECM and DCM officers work with several other financial and business professionals in areas including equity, derivatives, financial strategy and currency trading. When entering the profession at entry level you start out as an Associate if you have a masters or an Analyst if you just graduated from college.
A career in Corporate Finance
Also sometimes referred to just as investment banking positions, in this role your job would be to help businesses build up capital for their current operations and for new projects. Part of that means you work out what your client needs in amount and structure through convertibles, equity, asset-backs, preferred derivative or debt securities. Starting out as an analyst you would work as part of a team with a client with duties such as attending road shows where you would sell investors on securities, and preparing registration statements. Top banks who are seen to be strong in corporate finance are JP Morgan, Barclays and Citigroup.
If you are looking to work for a bank particularly active in project financing look to ones like Deutsche Bank and Credit Suisse who fund oil and infrastructure capital projects off of the main balance sheet of either a government or company. The key thing about this area is when other ways of getting funds has dried up often project financing is still possible. Countries like Indonesia, China and Yemen have had significant capital come in from project financed deals.
It is a fact that most people just leaving school are not as familiar with this area so one way to get yourself ahead in the job market may be to familiarize yourself with it. Also talk to market participants if you can to pick up and understand some of the jargon like ‘early-am risk’. Amongst your skills you need to demonstrate an ability in legal, spreadsheet and accounting skills. Your job in structured finance will involve creating something called asset-backed securities. This is where you redirect cash flow to investors with the making of financing vehicles. It is true that a few years ago this area of credit card receivables, mortgages and auto loan receivables became poorly regarded, basically due to CMOs (collateralized mortgage obligations) when the real estate bubble burst. However there is growth still to be found in collateralized bond obligations (CBOs), asset-backed commercial paper and repackaged asset vehicles.
The elusive jobs in Public Finance
Well as the sub title indicates jobs of municipal advisors, analysts and traders in the Public Finance are hard to get but they do come with high rewards. In municipals this area is one of major growth and investment banks would particularly like applicants to have experience in public administration along with their other skills.
M&A or Mergers and Acquisitions
For a lot of investment banks a vital source of fee income is in mergers and acquisitions, where deals are created to allow one company to buy out another. When the market is good this can be a very good way to make money but even in harder times when companies are unable are finding it harder to come up with the money for acquisitions there can still be strategic mergers. Your role in an M&A team would be to help advise your client, negotiate acceptable terms, structure deals and value transactions. Be prepared at the start of your career to be running many spreadsheets with valuation models and then with experience comes more focus on the client. Leaders around the world in this area include Lazard, Goldman Sachs and Morgan Stanley.
Popular areas at a lot of investment banks are risk management advisory, capital structure advisory and valuation advisory. They are offered to private and public clients by those banks involved in M&A (see above) and financings. Work will involve looking at a client’s value, their industry conditions and what options there are for creating value.
Sales and Trading
Many people when heading to this filed for their career want to get into trading because of the high income it can bring in when you are successful. Responsibilities include carrying out transactions in bonds, equities, currencies (FX or Forex) futures or options with other traders at investment banks, commercial banks and investors within large institutions. It is a job that can be extremely demanding and to be successful you will need to have a lot of understanding about financial instruments and the markets, as well as having a good intuition about people and their motives. For example people working in an equities trading position need to be able to almost tell a tale of why the other trader needs to buy your stock. Other skills needed include being able to manage a large volume of inventory even when the market is thin, and having a strong analytical thought process. An engineering degree is a plus for derivative traders. For a career in foreign exchange trading you need to develop good instincts about macroeconomics and politics as well as the markets. While those are the main areas of trading there are others including commercial paper, agency securities and repos.
Stockbroker/Retail Brokerage/Private Client Coverage
This area is also very hard to get into especially for younger applicants but if you do and you have great sale skills you could look to be earning half a million dollars a year or more. A good place to start is the firm Merrill Lynch which has an effective training program. You essentially sell investments, bonds, stocks and insurance to individuals. You may chose to focus on one or two clients that have a high net worth, or have a number of clients.
Examples of derivatives are futures, options and swaps and they derive their worth from another primitive security. This area is being closely watched especially by Wall Street who look carefully got practitioners who are skilled as the profits to be made are very high and the market is huge. There is a lot of room for innovation too which will then create more jobs in those specialized areas. In terms of study area make sure you have math that includes derivation of Black-Scholes and other common models as well as stochastic differential equations. Interviewers are likely to ask about models and you need to be able to demonstrate sale skills.
With average incomes in institutional sales going over $750,000 a year this is certainly a lucrative area to enter, but be prepared it can be brutally tough and you need to have a thick skin and be able to take some abuse. Your role is to take information about certain securities to institutional investors. You will work with analysts, traders and portfolio managers. You need excellent sales skills, people skills and have great product knowledge. On the sales side you would work for an investment bank, on the buy side you would work for mutual funds and insurance companies. There is a joke amongst those who work on Wall Street about the difference between a buy side and sell side player. The sell side gets cursed only after they hang up.
Equity and Fixed Income Research
As a security analyst you could be working on either industry or region investors offering recommendations on buying or selling bonds and stocks. You might need to visit investors at their companies or be in phone contact with them often so you need to be good with people, know the business and be able to make good forecasts. Investment banks looking to fill these positions normally prefer to get people who have industry experience rather than those fresh out of school. Part of your job would be to also make sure your firm is not on the Worst Analysts list. Sometimes referred to as either fundamental analysts or quants, where the former bases recommendations on what is happening with the company (CEO, earnings and so on) and the latter looks more computer programs for their research. Quant positions are fewer but pay better because they require more ability in math and the technical skills involved are less common.
Emerging markets and International Sales
International sales are an area that is continuing to grow even when there have been disasters such as the Asian crisis. Emerging markets like Mexico and Thailand are also an area where demand is increasing. Firms are looking to hire sales personnel and analysts who can specialize in these areas. Skills like additional languages as well as an understanding of these areas and a willingness to travel are key. This is an area where being young may work for you rather than against, but there is high risk involved when events can cause volatile emerging market bonds and the loss of jobs. Bloomberg’s web site is a good place to keep an eye on how things are going.
Computers and Information systems
Knowledge in this area is needed in every aspect of business and some of the best jobs you can get on Wall Street are here. Firms will pay will for people who can give them an edge with good trading software, back office software or pricing software. For people who are good at their job, this role can earn you an income mid six figured. For those in top demand like the individuals who build the high frequency trading programs for big banks can look to earn something in the low seven figures a year.