Investment Banking

Investment Banking Overview

• Industry Coverage• Product Group• Capital Markets• Sales & Trading• Equity Research

• Growth Equity• Large-Cap Fund• Middle Market • Control Equity• Secondaries• Co-Investing

• Client Pitching• Valuation / Modeling• Deal Execution

o M&Ao Leveraged

Financeo Equity & Debt

Solutions

• Deal Origination• Valuation• Investment Analysis

Modeling• Portfolio Management

Private EquityInvestment Banking

Front Office

Middle Office

• Portfolio Credit Analysis

• Pricing• Counterparty Risk• Ratings• P&L Reporting• Mark to Market• Cash Operations• Settlements

• Cash Management• Legal Entities• Tax Structuring• Investor Reporting• Fund Valuation

• Value, Growth, Blend• Long-only,

Long/Short, Short-only

• Fundamental, Distressed, Macro, Event-Driven, Trading, Quant

• Investment Analysis• Portfolio Management• Trading

Hedge Funds

• CFO/COO• Cash Management• Marketing• Legal

• Control Equity• Co-Investing

• Deal Origination• Valuation• Investment Analysis

Modeling• Portfolio Management

Venture Capital

• Cash Management• Legal Entities• Tax Structuring• Fund Valuation

Select Financial Services Segments

Investment Banking Overview

• Individuals• Pension Funds• Insurance

Companies• Asset Managers• Corporate

Treasuries• Sovereign Wealth

Funds

• Corporations• Governments• Municipalities

Providers of Capital

Investment Banking

Investment Banks serve as intermediaries between providers and users of capital

Chinese Wall

Sales & Trading

Research

Users of capital

Public sidePrivate side

Strategic advisorySecurities

underwriting

AdvisoryCapital Markets

• Equity capital-raisingo Initial public offerings (IPOs)o Follow-on offeringso Equity-linked (convertible)

• Debt capital-raisingo High-grade or investment

gradeo High-yieldo Syndicated loanso Tax-exempt

Overview of Investment Banking

• Mergers & Acquisitionso Buysideo Sellsideo Spin-offs / Splitoffs / Carve-

outso Hostile defenseo Hostile takeovers / proxy

fightso Joint Ventures

• Restructuring• Ratings

Execution

• Financial Analysis• Communication

o Management, Board of Directorso Internal Committees

• Identify Potential Investors• Negotiation / Structuring Transactions• Due Diligence• Documentation

Origination

• Client Relationship Management o Ongoing dialogue on financial

markets, industry developments, new products

o Long-term relationship as advisor to Senior Management and Boards

• Idea Generation and Problem Solvingo Strategic Alternativeso Capital Raisingo Optimizing Capital Structureo Risk Management, Dividend

Policy• Assessment Of Opportunities

What Does An Investment Banker Do?

Investment Banking Groups

Product

• M&A• Corporate

Finance

Industry Coverage

• Consumer & Retail

• Healthcare• Technology• Media & Telecom• Industrials• Natural

Resources• Real Estate

Capital Markets

• Equity Capital Markets

• Debt Capital Markets

• Tax-exempt• Leveraged

Finance• Securitized

Products

“Markets” “Technical”

Investment Banking Competitive Landscape

Bulge bracket

Boutique

Middle Market

Low HighCapabilities

Life of an Investment Banking Analyst

• Two-year program with opportunity for a 3rd year• 6-8 week training• Mentorship programs• Networking opportunities• Summer internship program serves as primary feeder to full-time

analyst positions

Overview of Investment Banking analyst programs

• Be a member of a deal team, executing day-to-day activities surrounding live transactions

• Perform financial analysis and modeling• Develop and prepare client presentation materials (pitches,

roadshows, board materials, etc.)• Coordinate roadshows, and M&A processes• Research and due diligence

Role of an Investment Banking Analyst

ChallengesBenefits

• “Everyday is different”• Exposure to senior management• Steep learning curve• Work with talented and motivated

people• Gain a strong background in

financial analysis• Help execute exciting, landmark

transactions• Networking• Exit opportunities

Why Investment Banking?

• Long and unpredictable hours• Traveling• Demanding senior bankers• High stress/pressure environment

• Strong communication skills (written and oral) • Quantitative / technical skills• Teamwork and leadership skills• Motivation and strong work ethic• Self-confidence and positive attitude• Time management skills• Personality (sense of humor, enthusiasm and ability to adapt to

different situations)• Knowledge of firm and industry• Ability to work well under pressure• Creativity

Typical Analyst Wish List

• Network with peers and alumni• Internships• Research - Do I want to do Investment Banking? What type of

firms?• Make sure your resume is clear, concise and error free

o Take advantage of resources available to you (alumni, Feld Career Center, etc.)

o Everything is fair game• Practice, practice, practice

General Preparation

• Be prepared: know as much about the bank and position as possible• Know yourself: what motivates you, your strengths and weaknesses

and be able to articulate those points• Know EVERYTHING on your resume• Be honest and demonstrate enthusiasm and motivation• Read the Wall Street Journal EVERYDAY and use the Vault Guides• Practice interviewing (mock interviews, preparing answers, etc.)• Ask questions

The Interview

• Vault Career Guides• Breaking Into Wall Street• Wall Street Prep• Wall Street Training• DealMaven• Wall Street Training

Resources

Corporate Banking

Select Bank Divisions

Wealth Management Sales & Trading

• Sales: Calling investors to suggest trade ideas

• Trading: Buying and selling financial products with the goal of achieving a gain

• Managing money for:• High net worth• Retail• Corporate sponsored

retirement plans including pensions, 401k plans, non-qualified plans, etc.

Various Group Structures

Types of Analysis

Performed

Qualifications

Research

• Stocks = Equity Research

• Bonds = Fixed Income Research

• Assigned to Various Sectors

• Energy, technology, media, telecom, consumer…

• Financial Modeling• Investment

recommendations• Earnings reviews• Participate on investor

calls• Company visits• Travel to industry

conferences

• Chartered Financial Analyst (“CFA”)

• Investment research and screening

• Analyze the research• Investment

recommendations• Tactical allocation

decisions and rebalancing

• Interact with individuals, executives, investment committees, fund managers

• Series 7 & 66 & Insurance License

• Chartered Financial Analyst (“CFA”)

• Chartered Retirement Plan Specialist (CRPS)

• Certified Investment Management Analyst (CIMA)

• Certified Financial Planner (CFP)

• Series 7 & 63• Chartered Financial

Analyst (“CFA”)

• Buy and sell financial products on behalf of clients

Corporate Banking• Varies significantly

from bank to bank:• One end of spectrum:

Corporate Bankers are the Industry Coverage Team

• Other end of spectrum: Corporate Bankers are Credit Analysts

• Series 79 (depends on firm)

• Interview Selling Points:o Financial

Statement Analysis

o Credit Analysiso Law

• Counterparty Credit • Loan Pricing / Terms

& Covenants Negotiation

• Industry Studies

• Cross Selling• Know the Client• Know Your Bank• Relationships Across

Both

Sales

Corporate & Investment Bank (CIB)

Client (Corporation)e.g. Insurance Co.

Client Need

• Bank Line / Working Capital • Liquidity Facility / Commercial Paper Backstop• Letters of Credit (LCs or LOCs)• Project Financing • Structured Vehicle Funding• Capital Markets Hedging Programs

• Revolving Credit Facility (RCF): “Revolver”• Revolving Credit Facility (RCF): “Revolver”• Letter of Credit Facility• Term Loans• RCFs & LCs etc.,• Trading Lines

Corporate Banking Solutions

• “Revolvers” from bank’s perspective:o Large, Long-Term (1-15 yrs) Commitments: Puts Balance Sheet of bank at Risk

Typically serve as liquidity / back-up facilities and are priced to incentivize the client NOT to draw Clients desire these facilities as well as their investors + rating agencies + other stakeholders Banks do not make a lot of money on undrawn revolver commitments: The bank gets paid to provide a

Corporate Banking: Deal Dynamics High Level

- expensive, like a credit card

promise

Covenants

• Banks do not lend unconditionally• Long-term commitments are made under the condition that the borrower maintains a largely consistent risk profile

o So, legal protections are built in: Covenants Examples:

Minimum Credit Rating of ‘ BBB ‘ Maximum Debt-to-Capital Ratio of 35%

o If client fails to meet these criteria, they are “in breach”o A client in breach of a covenant will have no legal right to draw funds from the bank

Corporate & Investment Bank (CIB)

Client (Corporation)e.g. Insurance Co.

Client Need

• Bank Line / Working Capital • Liquidity Facility / Commercial Paper Backstop• Letters of Credit• Project Financing • Structured Vehicle Funding• Capital Markets Hedging Programs

• Revolving Credit Facility (RCF): “Revolver”• Revolving Credit Facility (RCF): “Revolver”• Letter of Credit Facility• Term Loans• RCFs & LCs etc.,• Trading Lines

Corporate Banking Solutions

• “Revolvers” from bank’s perspective:o Large, Long-Term (1-15 yrs) Commitments: Puts Balance Sheet of bank at Risk

Typically serve as liquidity / back-up facilities and are priced to incentivize the client NOT to draw Client’s desire these facilities as well as their investors + rating agencies + other stakeholders Banks do not make a lot of money on undrawn revolver commitment: The bank gets paid to simply provide a

o In periods of stress, these facilities go from having relatively relaxed surveillance profiles → to receiving intense attention

They are LARGE commitments and represent “money out the door” when the client draws American International Group (AIG)

• So, banks usually commit the largest amounts with the most favorable terms (pricing + covenants), to their best clientso Clients in turn recognize this strategic partnership and open their doors to more business:

Sales & Trading, Debt Capital Markets, Equity Capital Markets, Foreign Exchange & Cash Management, M&A Advisory etc.,

Corporate Banking: Deal Dynamics High Level

- expensive, like a credit card

promise

Lead Bank (“Agent Bank” or“Lead Arranger”)

Corporate Banker

XYZ Client (Corporation)

Treasurer (sometimes CFO)

• Discuss Client Needs (Size and purpose of RCF)• Discuss Market Appetite for lending: Bank Group +

Allocations• Determine Target Terms: Pricing, Covenants, Tenor

(length)

“Launch Deal”

Banks Group

• HSBC• JP Morgan • Citigroup• BAML• UBS• + others…

Allocations$350

m$350m$250m$250m$150m$650m

1st Tier

2nd Tier

Due Diligence (DD) Meeting / Call

Post DDNegotiations:

Agent/Lead Bank largely responsible for negotiating on behalf

of banks group

Corporate Banking: Revolving Credit FacilityExample - Syndicated RCF:

2010

XYZ Company

US$3.0bnRevolving Credit

Facility

Lead Arranger

What to ExpectThe Job

• Long Hours (less hours than Investment Banking)• Life will revolve around deals• Good salary + bonus package (less than Investment Banking)• A lot of phone time / meetings with clients, other banks, lawyers, & internal colleagues• Credit analysis

o Financial Statement Analysis / Modelingo Industry Studies

• Must know your clients better than the competition o Investor Calls / Presentationso Company press releases as well as reports in the mediao 10-Ks, transcripts, sell-side research etc.,

• Broad product experience / limited understanding of each product• Competitive / High Pressure Environment

o Can be said about any position at a bank. Especially front office but also middle and back.

Investment Banking Middle Market Financing Corporate Banking

• Focus on supporting middle market clients by providing corp. loans for acquisitions, recaps, refinances & other corp. needs

• Business largely driven by private equity activity

• Firms focused underwriting fees and greater interest rate spreads

• Many MM firms also have advisory & capital market services, but not broader corporate banking services

• Provide similar but expanded services to corporate and institutional clients:o Capital raising in the form

of syndicated loans, public and private issues of debt and equity

o Specialized services such as M&A and ratings advisory, industry and competitive analyses and market-making in complex instruments

o Sales, trading and research of publicly traded issues and currencies

• Product groups specialize in a certain service or instrument, such as M&A, bonds, equity

• Industry groups cover all client firms which operate in a certain field (i.e. healthcare, gaming, energy, media)

• Responsibilities include: o Issuing loans (vs. bonds,

high yield)o Taxes strategyo Treasury managemento FX management o Cash managemento Project financing

• Traditional “Corporate Banking” offered by large banks with diverse product offerings

• Focus on relationship with company as cross-selling of products

• There is often an overlap between corporate banking and IB capital markets when capital markets expertise is utilized to issue equity or debt

Middle Market Financing Positioning

Middle Market Financing OverviewLandscape Overview

• More fragmented market led by pure commercial banks and finance companies, specialty funds, hedge funds and mezzanine funds

• Focus on smaller and medium sized leveraged loans ($250MM or less) and mezzanine debt (typically $100MM or smaller) for companies with less than $500MM in revenues and EBITDA between $10MM and $75MM

• Private investors driven with focus on club deals (deals with only 2 – 6 lenders & no broader syndication) and investment returns, given the companies smaller sizes and increased risk profile

• Underwriters emphasize senior loan club transactions, smaller scale loan syndications and portfolio lending/investment• Pure commercial banks and financial companies dominate senior loan market• Specialty funds, hedge funds and mezzanine funds dominate junior capital market

Middle Market New Issue Volume (<$50MM EBITDA) Deal Financing Timeline Example

Analyst Role / Responsibilities Career / Role Benefits

• Financial analysis and financial modeling• Company valuation• Comparable analysis• Preparation internal credit / approval memos• Industry and company research• Developing client presentations• Marketing material (i.e. Teaser, Confidential Information

Memorandum)• Updating all internal databases and systems• Administrative tasks (set up calls, fax, FedEx, etc.)

• Banking-like training programs • Greater access to superiors & senior management• Truly understand corporate growth, financial analysis &

capitalization• Develop strong knowledge of many industries• Analysts tend to wear more hats than in larger banks• Quality of life: Hours, flexibility, goals & expectations• Defined career paths & competitive compensation• Opportunity to change career path both internal / externally• Introduction to numerous business owners

Career Considerations

Career Options – Firm Types Environment – Work / Life Balance

• Commercial banks• Finance companies / specialty funds• Hedge funds and mezzanine funds

• 10-12 hour days, weekend work depending on firm• Medium/High stress levels: Pressure to perform,

competitive environment & demanding superiors with little room for error

• Multiple deals / companies / projects at one time• Work frequently with others in deal teams of 2 – 4 people

within your group• Frequent “fire-drill” deadlines for client driven approvals• Frequent meetings & conference calls throughout the day

Representative CompaniesLarge Commercial Banks Super-Regional Banks

• Citibank• Bank of America• Wells Fargo / Wachovia

• Comerica• Union Bank of California• Bank of New York Mellon• Key Bank

Foreign Banks Finance Companies / Funds

• CIBC• Toronto Dominion• Royal Bank of Canada• Bank of Montreal / Harris• Societe Generale• HSBC• National Australia Bank• ANZ Banking Group

• GE Capital• CIT Group• Churchill Financial• Madison Capital• Capital Source• Freeport Financial• Denali Capital• Newstar Financial

• Royal Bank of Scotland• Macquarie Group• Sumitomo

• Orchard/First Source• Jefferies Finance• American Capital• Golub• Cerberus• Orix• Ares Capital

• SunTrust• Fifth Third• PNC

Next Steps…

Practice your interviewing skills and have all “book” knowledge down cold

Utilize all resources including the Vault Guide, publications (WSJ, etc.), websites

(LinkedIn, eFinancialCareers, etc.)

Take advantage of ALL Feld Career Center services, job postings and info sessions

NETWORK: Utilize the BU Alumni network and all family & friend contacts

Have a story about who you are, where you have been and where you are going

Search yourself: Make sure this is the field for you BEFORE going through the process

Get the JOB!

Commit: Once you decide to go for any finance job, give it your all – or it will show

otherwise

Questions

Appendix

• Get any available on campus interviews – practice makes perfecto Talk to the career center about firms that will be recruiting as well as firms that used to recruito Begin emailing junior BU alums at the firm as soon as possible and well ahead of interviewo After exchanging emails, ask for a few minutes on the phone

PROOF READ your emails. If there is a typo or a grammar error, it can kill your momentum Be sensitive to the interviewers time constraints. Do not insists on times / topics / sending your resume

Remember: Alums are BUSY and they are doing you a big FAVOR by talkingo Make sure you have a story about who you are and why you want the position / company / industry you are applying

for• Specialize your resume

o Today’s job market is extremely tough: Employers are looking for the perfect candidateo It is a numbers game but make sure you target positions for which you are a good fito Make sure your resume is FLAWLESS; bad formatting, a strange layout or something that is hard to read can easily

give someone a bad impression and/or cause them to overlook your talents• If you don’t have a 4.0 GPA or all of the relevant course work, guess what? - It is OK!

o Will cost you initially but can be recovered from Get the best job you can Work hard and be the best STAY in TOUCH with people Always be aware of and open to new opportunities

Thoughts… How to Make it Happen

Career Options

• Large Corporate & Investment Banks:o Citigroup, JP Morgan, Bank of

America Merrill Lynch, Barclays, Goldman Sachs, Morgan Stanley, UBS, Credit Suisse…

• Middle Market Financing:o Commercial Banks, Hedge

Funds, Specialty / Finance Companies

Typical Entry Point (for Large CIBs)

• Out of undergrad (Analyst Program) • From Business School (Associate

Level)• After 2+ years at a Rating Agency

o Or other relevant field

Corporate Banking: Some more detail