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Careers on Wall Street

Careers on Wall Street. Student Investment Association October 5 th , 2011. Buy Side. Sell Side. vs. Agenda. Sell side coverage: Investment Banking Capital Markets Equity Research Sales & Trading. Investment Banking . Main Street America’s Perception of Banking.

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Careers on Wall Street

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  1. Careers on Wall Street

    Student Investment Association October 5th, 2011
  2. Buy Side Sell Side vs
  3. Agenda Sell side coverage: Investment Banking Capital Markets Equity Research Sales & Trading

  4. Investment Banking

  5. Main Street America’s Perception of Banking Offer depository services such as checking, savings and CDs Financing in the form of credit cards, auto loans, student loans, and home mortgages
  6. Overview of Investment Banking
  7. Structure of Investment Banking
  8. Investment Banks
  9. Hierarchy
  10. Analyst Responsibilities Financial analysis Industry and company research Developing client presentations Valuation (Financial Modeling) Marketing materials, management presentations and road show involvement
  11. What You Should Expect 12-15 hour days Very high stress Multi-tasking Lots of menial grunt work and micromanagement Meetings and conference calls throughout the day Sacrifice your personal life and health for this career 3 meals/day at work Very common to be forced to cancel vacations and miss holidays/birthdays when needs arise
  12. Typical Day 9:00 am: Arrive in office, Check e-mail, start work on valuation model 11:00 am: Finish up pitchbook for upcoming presentation 1:00 pm: Conference call with deal team, which may include people from other product and industry groups who work in conjunction on a project with you (cross border/international deal teams are common) 3:00 pm: Put together a set of trading/transaction comparables
  13. Typical Day (Continued) 5:00 pm: Gather industry reports and put together a working group list for a deal team on transaction 7:00 pm: Put together a few public information books and balance out discounted cash flow model 9:00 pm: Make changes to pitchbook before sending it to Managing Director 10:00 pm: Make edits to the MD’s comments 11:00 pm: Go Home
  14. Typical Late Night 9:00 pm: Send final presentation and financial models to associate or VP for a final turn before sending to MD 9:30 pm: Associate sends back comments 9:40 pm: 11:00 pm: Finalize changes 11:10 pm: Send final copy to MD hoping he is satisfied 12:00 am: MD returns with the stamp of approval 12:10 am: Send final copy to printers and beg them to hurry 12:20 am: Work on other staffed deals 2:00 am: Get the final books from the printers 2:10 am: Check the books, order a car for yourself and the books and leave as quickly as possible
  15. Benefits of Investment Banking Analyst Program Significant Learning Opportunities Learn all elements of corporate finance Wide variety of industries and transaction types Significant impact early in your career Integral part of the transaction team Dynamic and exciting environment Entrepreneurial environment rewards excellence Culture of Teamwork and Partnership Opportunity to work on high profile deals
  16. Getting In Most banks recruit analysts exclusively from ivy league colleges; top east coast liberal art colleges and select masters programs Unless you’re exceptional or have a connection in the business, getting in from MSU will be extremely difficult – but not impossible
  17. Recruiting Recruiting Timeline Full-Time Positions August - October Summer Analyst (Intern) Positions December – March
  18. Interviews Interviews usually consist of: Two first-round interviews Either phone or in-person Superday interview Consists of 8-10; 30 minute interviews Usually on a Saturday
  19. Sample Questions General Walk me through your resume Why did you choose Michigan State/ your major? What do Investment Bankers do? What is the most striking thing you’ve read today in the WSJ? You don’t seem like a very driven person. How will you handle a job in banking? Say you are supposed to meet your girlfriend for dinner, but the MD asks you to stay late. What do you do?
  20. Sample Questions Technical What happens to the three financial statements when you change capital expenditures? In what ways can you value a company? Walk me through a DCF All else equal, should a public or private company garner a higher valuation? Other What stocks do you like? How many Northwest planes will take off in the next hour in the United States? If I shrunk you down to the size of a nickel and placed you in a blender, what would you do?
  21. Useful Courses/ Resources Classes FI 311- building block of Corporate Finance FI 414- case studies and modeling skills FI 455- Excel skills and financial modeling ACC 201, 300, 301, 305 Resources Vault Guide for Finance Interviews Wetfeet Guide (free through MSU Career Services) Wall Street Journal/ Financial Times New York Times DealBook
  22. Fact vs. Fiction NOT like Wall Street & Boiler Room Not spending evenings on the yacht & weekends in the Hamptons Rarely traveling to meet clients Yes, the hours are just as bad as you’ve heard…but the compensation is just as high as you’ve heard, too You don’t have to be a genius to be a good i-banker… Connections matter
  23. Things To Do Now Solid precedent internships with known firms Accreditations/standardized test scores help open doors Reach out to MSU alumni and current students Financial Markets Institute (FMI) Leverage all personal connections you may have Be willing to jump on a plane to interview/ network East Coast undergrads have Wall Street in their backyard Stay on top of the markets and current deal landscape
  24. Summary Investment banking is an intense, life-absorbing career path that’s not for everyone Potential rewards attract the brightest and most competitive individuals from the strongest backgrounds, so getting in is difficult It’s definitely worth doing if you get the chance Decide if it’s for you: Work/life balance Family vs. career Geography Life will go on even if you don’t land a Wall Street job!
  25. Resources: Educational: NYT Dealbook: http://dealbook.blogs.nytimes.com/ Wall Street Journal: http://online.wsj.com/home-page Seeking Alpha: http://seekingalpha.com/ MarketWatch: http://www.marketwatch.com/ Bloomberg: http://www.bloomberg.com/?b=0&Intro=intro3 Investopedia: http://investopedia.com/?viewed=1 Recreational: Wall Street Oasis: http://www.wallstreetoasis.com/ Dealbreaker : http://dealbreaker.com/ BankersBall: http://www.bankersball.com/ Mergers & Inquisitions: http://www.mergersandinquisitions.com/ IBankingFaq: http://www.ibankingfaq.com/
  26. Capital Markets
  27. Capital Markets Banking Raises money for clients Two main methods Equity (IPO and follow-on offerings) Debt (Bond offerings) Broker between two groups Has money, wants an asset (buyer) Wants money, has an asset (seller)
  28. Capital Raise Example - Bonds Bonds $500 million Client IB Investors

  29. Equity Research

    Thomas Robb & Clayton Meyers
  30. What is Research? Investigating an asset to reach conclusions on future fundamentals and price Many Different Assets Equities Commodities Fixed Income Sell Side – Investment Banks Buy Side – Money Managers
  31. Sell-Side Become an expert in ~10-20 companies in a specific industry Create actionable ideas based on historical performance and expected fundamentals Produce & publish research reports Provide ideas to S&T & buy-side
  32. = Think Tank Equity Research Department Hedge Funds/MM Sales & Trading Desk
  33. Equity Research Products Industry research reports Market trend/conditions Past and future outlooks Current industry leaders and lagers Company-specific reports Three categories: Initiation, Update, Rating Change Short-term notes on importance events Earnings Release News item ST trade recommendation
  34. Ratings Downgrade (Underperform) Lower expected earnings power, diminished growth, turnaround plan suspect Hold (Neutral) Do not expect much growth, potential problems, analyst and market is wary, perform in line with group Upgrade (Outperform) Better expected earnings, smart acquisition, beneficial long term trends starting to develop
  35. Hierarchy Basic Structure Teams of 4 to 8 Covering 10 to 20 companies Associate is junior to Analyst Analyst runs the group Decides investment recommendations Within the Equity Research Department Teams are typically very independent Sectors will try to coordinate information flow Most regarded talent sits on SSC
  36. Responsibilities Goal is to sell ideas – not be right Associate (90% Research, 10% Sales) Help senior analysts better serve clients Create/update models Typically write reports Analyst (90% Sales, 10% Research) Connect with clients and drive trading revenues Talk with industry contacts Develop thesis Develop relations with company management
  37. Lifestyle Market hours Work longer during earnings season & initiation Travel for research analysts Meet w/ clients Company management teams Assist with road shows Associate Salary (est.): $70K (more if MBA perhaps) + 10K signing bonus + 35-55K year end bonus Bonus based on helping senior analysts please clients
  38. Earning Season
  39. Buy-Side Follow entire sector and know holdings very well Create investment ideas that beat benchmarks Typically no physical products Pitch ideas directly to portfolio manager
  40. Earnings Season
  41. Hierarchy & Lifestyle Flatter organization w/ fewer people Typically shorter hours Based on idea generation not client demands Fast vs. Slow Money Bonus based on performance Can be very stressful
  42. What a Career in Equity Research Will Do for You Strong training programs provide Terrific Excel, Powerpoint skills What the important information is Writing to grab investors’ attention Modeling Building initiation reports from scratch IPO Model from scratch Updating models Most importantly, you’ll learn how very smart people think about stocks and the market
  43. Formula for success Work hard & learn quickly Comp skills (Word, Excel, PP) Good writing skills are mandatory Good communication skills Good listeners and ask good questions MBA is not mandatory to advance Enjoy analyzing companies and trying to outsmart other people

  44. Sales & Trading

    Sales & Trading Yuchen Su
  45. What does the position entail? S&T Team originates and transacts Sales: distribution arm for the Investment Bank’s products Sales force's prime responsibility is to build and maintain effective relationships with institutional investors. Trading: handles the risk management of the firm’s positions in various financial instruments Make markets for buying and selling securities
  46. Sales Trading Buffer between PMs & IB / Research Sell IB Deals / Research & Trading Ideas to PMs Trade securities on behalf of firm (Proprietary) Trade securities on behalf of buy side (Flow)
  47. S&T Desk - Communication Equity Research & Investment Banking
  48. Sales Client coverage and relationship management Knowledge of client asset or liability needs, as well as industry trends Knowledge of current economic environment and market conditions Knowledge of market opportunities and firm’s product capabilities Promotion of the firm’s products and capabilities
  49. Trading Pricing and execution Providing liquidity to firm’s clients Portfolio management (hedging) Knowledge of current economic environment and market conditions Knowledge of flows being executed in the market Maintaining views on potential movement of underlying instruments
  50. How is money made? Client driven (Flow Trading) — bid/ask spread, or market making Proprietary trading New security issuances
  51. Schedule of a Junior Trader 6:30 am: get into the office, confirm all previous day’s trades and cross-check with the details generated by back office 7 am: confirm starting positions, be informed of any news regarding held positions; plot strategy 7 am – 8:30 am: relay noteworthy trades on ECN’s made throughout the night to sales-force; morning meeting 8:30 am – 9:30: economic statistics are released, breakfast, post indications 9:30 am: markets open; must be uncrossed and unlocked 9:30 am – 4 pm: open market hours; take orders, work the orders, build relationship with sales-force, make good prices 4:30 pm: head home
  52. Why Sales & Trading? Market driven & focused BIG firm, SMALL teams Steep learning curve Fast-paced, intense atmosphere Instant gratification Performance-Based Pay Work/life balance Meritocracy

  53. Questions?

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