Opportunity Overview Undergrads and MBAs from top schools are recruited for a number of openings that is small even in the best of times. Competition is fierce, so if you’re not from a top-tier school, you may need to be more resourceful and persistent than those who are. Doing an internship in investment banking is essential to breaking into the field in today’s business environment. Networking is key; make use of your alumni network. Undergrads vie for 2-year positions as analysts. If you do well, depending on the firm, you may get to stay for a third year, perhaps even abroad. MBAs compete for fast-track associate slots, and international assignments may be available for those who want them. Midcareer people are recruited by headhunters or hired on an ad hoc basis for positions at various levels. Though relatively few people come into the industry from other fields, it can be done, especially by those who have a technical background in a specific industry and an aptitude for and interest in finance. Otherwise, expect to start at the bottom. Major Pluses about Careers in Investment Banking • Big bucks. Despite the fact that investment banking compensation is down in recent years from its apex during the tech and dot-com boom, this industry still pays more than just about any other you can think of. • Excellent opportunity to learn the financial aspects of business inside out. • Work with talented, intelligent, hardworking people. • Build a network of networked people. • Your life is the market—riding a bull is exciting and lucrative. Major Minuses about Careers in Investment Banking • How many different ways can you say, “Work your tail off?” • No job security—only the unemployment line has more people who have been fired. • The work can be tedious, especially at the lower levels. At a Glance • The industry has more than its share of big egos, abrasive personalities, and workaholics. • Your life is the market—a bear could put you out of work. Recruiting Overview • Very formalized and extremely competitive process at the entry level; it’s exceedingly difficult to get in the door these days if you haven’t done an internship in the industry. • Primary channel is on-campus recruiting, but there are opportunities for midcareer hires, non-MBA advanced-degree holders, and candidates from non-top-tier schools. • Heavy emphasis on quantitative and analytical abilities. • Hard work is rewarded regardless of race or gender; however, white males dominate the industry. You’ve seen all the headlines, over the past few years, deriding Wall Street firms. You’ve seen the news photos of disgraced research analysts who recommended certain stocks to the public even while they trashed them in e-mails to colleagues; you’ve heard about the nine-figure fines investment banks have had to pay for transgressions like conflicts of interest. Still, there’s something intriguing about the industry—the legendary long hours and mega-bonuses—and you like to imagine yourself a pinstripe-wearing, jet-setting investment banker. But suddenly it dawns on you. What the heck is investment banking? You panic. What do investment bankers do? What’s the difference between sales and trading and corporate finance? More to the point, why do you want to be a banker? The intensely competitive, action-oriented, profit-hungry world of investment banking can seem like a bigger-than-life place where deals are done and fortunes are made. In fact, it’s a great place to learn the ins and outs of corporate finance and pick up analytical skills that will prove useful throughout your business career. But investment banking has a very steep learning curve, and chances are you’ll start off in a job whose duties are more Working Girl than Wall Street. Wall Street is filled with high-energy, hardworking young hotshots. Some are investment bankers who spend hours hunched behind computers, poring over financial statements and churning out spreadsheets by the pound. Others are traders who keep one eye on their Bloomberg screen, a phone over each ear, and a buyer or seller on hold every minute the market’s in session. Traders work hand in hand with the institutional sales group, whose members hop from airport to airport trying to sell big institutions a piece of the new stock offering they have coming down the pipeline. Then there are the analytically minded research analysts, who read, write, live, and breathe whichever industry they follow. The Industry So where do you begin, and how do you focus your job search? Let’s begin with an important reminder: Investment banking isn’t one specific service or function. It is an umbrella term for a range of activities: • Underwriting, selling, and trading securities (stocks and bonds) • Providing financial advisory services, such as M&A advice • Managing assets Investment banks offer these services to companies, governments, nonprofit institutions, and individuals. Traditionally, commercial banks and investment banks performed completely distinct functions. When Joe on Main Street needed a loan to buy a car, he visited a commercial bank. When Sprint needed to raise cash to fund an acquisition or build its fiber-optic network, it called on its investment bank. Paychecks and lifestyles reflected this division, too, with investment bankers reveling in their large bonuses and glamorous ways while commercial bankers worked 9 to 5 and then went home to their families. Today, as the laws requiring the separation of investment and commercial banking are reformed, more and more firms are making sure they have a foot in both camps, thus blurring the lines and the cultures. The action and players are still centered in New York City and a few other money centers around the world, but the list of players is getting smaller as the industry consolidates. Today, leading banks include Merrill Lynch, Goldman Sachs, Morgan Stanley, Citigroup (whose investment banking arm was until recently known as Salomon Smith Barney), Credit Suisse First Boston, and J.P. Morgan Chase. These and other firms are regular visitors to campus career centers. But before you get excited about the promise of riches (and bid all your oncampus interview points), you’ll want to do a little research on the industry and think about whether investment banking is a good career for you. One thing is The Industry certain: You shouldn’t go into investment banking just for the money—the lifestyle is too demanding. To survive in investment banking, much less to do well, you’ll need to like the work itself. And, even if you love the work, an investment banking career can still be a tough road. If the market or your industry group is in a slump (or if your firm suddenly decides to get out of a certain segment of the business), there’s always the chance that you may find a pink slip on your desk Monday morning. Things were tough on Wall Street for a few years after the stock market tumble of the early 2000s. The demise of the dot coms and the drop in the stock market ended one major source of revenues for I-banks: IPOs, which became all but impossible to bring to market. In 1999, there were 480 initial public offerings, which raised a total of $91.7 billion. In contrast, the first quarter of 2003 saw only five IPOs, worth a total of $1 billion. At the same time, M&A activity all but dried up. The extended market decline hurt the profits of investment banks’ brokerage operations, as investors (and the commissions they pay each time they trade) dropped out of the market. And September 11, 2001, hit the industry hard: Morgan Stanley and Merrill Lynch both had offices in the World Trade Center, and bankers throughout the Street had a frightening new understanding of how they make ideal symbolic targets for those who hate the West. One result of all this turmoil on the Street has been layoffs: By 2003, according to some, Wall Street employment levels were some 25 percent lower than they were at their peak in 2000. But things have been looking better of late. The economy has gotten stronger, and industry is spending money again, meaning more mergers and more acquisitions. Indeed, in the first half of 2004, M&A dollar volume clocked in at $891 billion, up from $625 billion in the first half of 2003. The stock market is up, meaning more equity underwriting and rising brokerage volume. Indeed, global equity and equity-related dollar volume was $256 billion in the first half of 2004, up from $149 billion in the first half of 2003. The Industry Still, firms are always looking for new (read: cheaper) bodies; even though they might not be hiring to the extent they did back in the late 1990s, banks are still bringing on best-and-brightest hires for analyst and associate programs. So if you like fast-paced, deal-oriented work; are at ease with numbers and analysis; have a tolerance for risk; and don’t mind putting your personal life on hold for the sake of your job, then investment banking may be a great career choice. But if this doesn’t sound like you, a job in investment banking could turn out to be a bad dream come true. The Industry The Bottom Line Investment banking is one of the best ways a young person can learn about finance and make good money right out of school. Even if you ultimately decide to reclaim your personal life by pursuing other options, the skills you learn on Wall Street will be valuable in most business careers. But before you can cash in on those potential returns, you’ll have to put up with some very substantial hardships, including high pressure, long days and nights of hard work, a few difficult personalities, and the expectation—no, the requirement— that all personal plans are subject to the demands of work. In addition, you’ll find that life on the Street is very much at the mercy of the markets. Bull markets bring more work to do than is humanly possible, but you’ll be rewarded with a paycheck that can sometimes double year-to-year. Bear markets can leave you sitting at your desk with a pile of deals on hold, hoping that the rumored layoffs and smaller-than-usual bonuses don’t come to pass. Despite this inherent uncertainty, the field remains an extremely popular destination for undergraduates and MBAs. Indeed, Citigroup, Goldman Sachs, Bank of America, Morgan Stanley, Lehman Brothers, J.P. Morgan Chase, Merrill Lynch, UBS, and Deutsche Bank are all on Fortune’s 2004 list of the “50 Most Desirable MBA Employers.” And, because of the current difficult economic environment and the resulting lower demand for employees among investment banks, competition for open spots is especially stiff. As a result, getting your foot in the door by doing an internship with a bank should be your top priority if you want to start a career in investment banking.