investment banking_smg 211
DESCRIPTION
corporate bankingTRANSCRIPT
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