Investment Banking

Company A wants to buy another company to help grow its sales. However, it does not know where to begin, or how much it should pay. What does it do? It approaches an Investment Banker and asks for help in shortlisting a suitable asset and arriving at an apt price. The Investment bankers run their numbers and tell A that they should buy B, and pay X amount for it. This is an example of ‘Mergers & Acquisition’ advisory, one of the key areas of work of an Investment Banker (I Banker).
In layman terms, Investment Banking is a sort of financial consultancy, although of a very specialized type.
Investment Bankers mainly do two types of things:

1. Advise companies on mergers and acquisitions. I Bankers help their clients to:

  • identify potential targets
  • provide valuations for the assets and help buy them at the best possible price;
  • or in the case of selling, help find a suitable buyer at a great price

2. Advise companies on raising large amounts of capital. This could again be via two ways:

  • raise money by issuing and selling the company’s shares. You may have heard of IPOs (Initial Public Offerings) and FOs (Follow On offerings. These are forms of raising money via the equity route
  • raise money by issuing debt in the form of bonds or other similar interest bearing products
These are the most popular functions of I Bankers. Apartfrom this, they also provide corporate broking services, help their clients hedge risk with the help of complex derivative products and serve as country, industry or product (as in equity, debt or derivatives) experts to their clients.

At the entry level, Investment Bankers deal day in and day out with numbers and work extremely long hours. So the key skills for an entry-level role would be:

  1. Strong analytical and reasoning skills: Most bankers have proven academic track records. Interviews often focus on puzzles and high school math problems
  2. Knowledge of financial statements and their analysis: Big bulge bracket banks conduct their own training programs and teach their incoming batches everything from scratch. However, during lateral hiring or in case of boutique IBs that don’t have training resources, a candidate that knows the basics of financial analysis would definitely have an edge over others
  3. Attention to detail : A quote used often in the industry is: “if the banker can’t even use correct punctuation, how do I trust him/her with my money?” Senior bankers are serious nitpickers and any entry-level banker has to be accurate to the point of being obsessive!
  4. Diligence and work ethic: The workflow is highly unpredictable, demands accuracy each time and is always urgent. Long hours are the norm rather than the exception. Only the really hard working and efficient bankers can survive these stressful conditions
  5. Multitasking: This skill is key because one would most likely work on several projects at a time. This is especially true for smaller banks
  6. Excellent communication skills: An I Banker must communicate well, in both written and oral forms. As he/she climbs up the ladder, communication skills and leadership abilities take centre-stage
This industry is not for someone who would like a predictable, regular office routine. However, if you like challenges, nothing can beat this. The merits of working in a fast paced industry with high profile colleagues is the steepest learning platform you can hope for and a tremendous adrenaline rush! 
There are two ways of getting into IB in India for fresh graduates with no Investment Banking experience:
  • Make it to the top tier B schools – meaning the IIMs A, B, C or ISB or other institutes in this league. Bulge bracket IBs visit these campuses to select analysts either for internships or directly for their global IB program
  • Graduate from the next tier of MBA institutes (MDI, IIFT, IIT SOMs etc.), or complete Chartered Accountancy, or pass out of top undergrad institutes like the IITs, Stephen’s, Xavier’s, etc. (economics or related subjects preferred). This route could take you to the offshored IB outfits within these big banks, which usually feeds into their global analyst program. The only hitch being you need to work in the offshored role for some time before you make the cut to the front-end client-facing role. Still, it is a great way to finally get to front end IB (More and more banks are recruiting from undergrad colleges for these offshored entities)
Boutique investment banks often recruit laterally based on experience and skills. It may serve you well to know a bit of financial analytics and modeling. A CFA would be a good qualification to have to prove your focus and knowledge in this area. 
To sum up, an MBA in finance is beneficial, but not essential. A CFA or similar finance certification may stand in good stead. However, an undergraduate from a top tier institute with a great resume stands as good a chance to get a foot in the door of an IB as a post graduate.

At the entry level, candidates join as analysts. Typically they have MBAs in finance or are CAs, some are even undergrads.

  • The role of an analyst is to help the senior bankers with presentations, financial analysis including modeling and valuation and also other administrative items. Initially an analyst will spend 80% of his/her time doing admin items, researching data, making pretty slides and building and maintaining databases. The exciting work of valuations, modeling and client interactions may be limited to only 20% of the time. This varies depending on the team (Capital raising work is quite different from that of M&A teams), analyst capability and of course, the market conditions
  • As they move up to be associates, they take on more responsibility. Leadership and project management become important
  • As they move further up to become Vice Presidents (VPs / SVPs) or Managing Directors (MDs), they become increasingly responsible for bringing business into the firm. So slowly the focus shifts from getting the numbers right to getting the client interested in your idea. They have to continuously network and be close to their clients and essentially the role becomes more aligned to ‘sales &marketing’. Of course, this does not mean they can drop the ball on being accurate and financially sound. Senior bankers are often on the move, traveling to meet clients or to close deals

Companies to target:

  • Notable International names: Goldman Sachs, JP Morgan, Morgan Stanley, UBS, Nomura, Barclays, Deutsche Bank, Credit Suisse, Citi, Bank of America Merrill Lynch, HSBC, Standard Chartered

  • Notable Indian names: Kotak Mahindra, ICICI Securities, Yes Bank, Avendus, HDFC, SBI Capital, Edelweiss

A day in the life of an I Banker (entry level):

  • A typical day starts off with either continuing with a project or getting staffed on something new or both. Throughout the day, the analyst helps senior bankers put together client presentation materials including company and industry pages, valuation pages or just basic research
  • Apart from client related work, there is usually some internal database or market update that the analyst is responsible for on a daily basis (at least in the first year). There maybe several other administrative items that need to be done (e.g. compiling client meeting notes for the senior banker)
  • If the team has a lot of deals or pitch work going on, the analyst can expect to be very busy – maybe even put in all-nighters. However, there can be low activity periods where the analyst has nothing much to do and has to just wait around for work. The workflow therefore is quite unpredictive, both in quantity and quality. It is often a function of what the larger team is doing and what the client requirements are

Salary and perks:

•  Investment Banking in a bulge bracket IB is a financially rewarding career
   a.  The starting salary for front-end analysts in bulge bracket IBs is over INR 25 Lakhs/annum. This is just the fixed pay and there is usually a bonus that could range anywhere from 20% to 70% of the basic pay. In great market conditions, one has even heard of fat bonuses upto 100% of the basic! Those were the glorious pre-recession days however, and right now the market is not offering such generous bonuses. However, things may improve as the market picks up again
   b.  As one climbs up the ladder, there are often ESOPs as well
   c.  Other perks of the job (mostly at senior levels) are meeting high profile clients, traveling, wining and dining in style (though recent cost cutting measures have curbed a few of these things)
•  If one joins the offshored units, they could hope to start off at a fixed pay of around INR 10 Lakhs/annum with a bonus in a similar range as above. Once they move on to the global program the salaries are on par with front-end roles as mentioned above
•  In Indian boutique investment banks, one may have to start a bit lower at around INR 7 Lakhs/annum or so and a lower bonus than the bulge bracket firms

Interview with Mitesh Gandhi, Associate, Investment Banking Division of an MNC Investment Bank

Proschool : Please tell us about your background and qualifications
Mitesh : I am a commerce graduate from Narsee Monjee College of Commerce and Economics, Mumbai and a chartered accountant from ICAI. I have also cleared 3 levels of CFA, USA. I started my career in the IB division of an MNC Investment Bank (offshored entity) in 2007 in India and moved to the London front-end office in 2010. There, I covered the European Industrial sector for 3 years and then moved back to India in 2013 within the same company

Proschool : Why did you decide to pursue IB?
Mitesh : I was always fascinated by finance, especially the M&A side of it. Since my college days I used to track deals through newspapers and gradually my interest developed. I further wanted to explore the sell side aspect of Investment Banks. During my CA course also, I found the Financial Management module very exciting and my interest further gained momentum

Proschool : How did you get into IB?
Mitesh : I joined as an Investment Banking analyst in the Indian offshored entity of an MNC Investment Bank through a lateral hiring program conducted by the bank. On joining, I supported its European Industrial team in London. Three years down the line, I got an opportunity to move to the front-end London office based on my performance and by way of the company’s structured mobility program

Proschool : A typical day for an analyst?
Mitesh : An analyst plays a key role in the following activities:
         i.   Making pitch books involving company profiles, industry analysis, valuation work, benchmarking, peer analysis, etc.
         ii.  Conducting research and gathering reports
         iii. Analyzing the data gathered
         iv.  Building simple to complex financial models

Proschool : High points in your IB career so far?
Mitesh : I have been a part of several live and executed transactions. I have also had the opportunity to present full pitch books to clients

Proschool : Some deals you have worked on?
Mitesh : I worked on a sell side for a Dutch poultry processing machinery manufacturer. We helped a PE investor in the company to divest its stake to a US based company for an undisclosed amount. Another deal I worked on was the Accelerated BookBuild (ABB) of a French Industrial company

Proschool : Challenges faced?
Mitesh : Investment banking is a very dynamic industry. Bankers constantly need to be abreast of the latest events in their space. Banking business works on first mover advantage. Hence, being on top of everything in their sector is a necessity. Long and demanding working hours along with tight deadlines is another feature and a big challenge as well

Proschool : Outlook for the industry?
Mitesh : With global markets recovering, the medium term outlook for the industry looks very positive. This is further substantiated by recent momentum in the M&A activity globally. The surge in ECM, DCM and other products is definitely a healthy sign for the industry

Proschool : Career opportunities for IB aspirants in India (and elsewhere)?
Mitesh : As the industry is set to recover, IB job opportunities are further opening up. The top banks are again gearing into hiring mode with their businesses growing. I would expect the opportunities to further expand in India and abroad as well

Proschool : A Word of advice for IB aspirants?
Mitesh : ‘Passion’ and ‘motivation’ – these are the two key aspects that will take you a long way in an investment banking career. You need both to have a long, sustainable and successful career in banking