A Preface to Investment Banking

Posted: March 31, 2007 in MBA Ramblings

An ode to the beginning of my Journey to the haloed world of the Big-eye (I-banking). It all started when I took a conscious call to move out of software services to core investment banking while still making software solutions for a leading north American bank. It really had nothing to do with the fact that they (the ‘business users’ as they would call themselves) would always have the last and final say on all issues sometimes asking for the impossible to be done!

Anyways, in the past one year I have had ample discussions and debriefings with people in various stages of investment banking career. I knew all about (or so I thought!) the hardships of getting selected and then slogging relentlessly to stand out even among the outstanding peers and finally the obscene compensation packets. I also knew of the fantasy of work-life balance, of failed marriages lending itself to a costly divorce, of early health problems and other folklore associated with this profession. This is one of the reasons I thought I would put down my thoughts just as I complete the first few days of internship with India’s leading Investment Bank
(and the largest in Asia Pacific region). I intend to put forward my thoughts in later phases of this journey and maybe compare my notes later down the line.

What it takes: People keep giving interviews about how much you need to know in order to get into I-Banking. Rediff, Times of India, Sify and what not keep featuring ‘experts’ who let people insights into what it takes! Frankly, most of it is loads of crap. So nice and pretty Miss Su (an imaginary name!) might have made it to Goldman Sachs (GS) just due to the pretty face and that flirtatious
smile (and not because of her supposed prowess in ‘Valuation’ theories). It is a known fact that most I-Banks and Consulting firms would recruit pretty sexy girls in a jiffy, without batting so much as an eyelid while taking male candidates through 8-10 odd steps of selection. The pecking order is true and very much present. What I mean to say is this, do not go for all the sermonizing that people keep spreading as to ‘What to do’ just because they have been successful in getting through. It might be a ‘Inspite of that’ rather than ‘because of that’ causal relationship that it shares! Truth remains that you need to be pretty good in communication, in general calculation ability, in articulating business documents and possess a good overall knowledge about finance world (in that order of preference) in order to have a good chance of making it. Most misconceptions arise due to lack of understanding of difference of I-Banking from treasury, Wealth Management and Mutual Fund Management Roles. I-Banking is a very relationship and a customer oriented role. It requires a different level of interpersonal skills and a finesse which enables you to better understand your client’s business requirements and to communicate your ideas across. Hardly a ‘fully technical role’ as most people tend to portray it! Mutual Fund Management and Treasury on the contrary are hard core financial technical roles requiring very little of client-interaction! In fact the highest paid people in the industry are Fund managers and the treasury heads, but you would never hear too much about them because they are geeky, quiet and sober and hence highly un-glamorous! A brilliant example in this case is of Sunil Singhania, Fund Manager of Reliance Mutual Funds.

What it has to offer: I will not deal with the tangible benefits like an affluent bank balance and a prestigious role (Not in India though, where your next door aunt thinks you are some kind of salesman who could not get into a ‘proper bank’ like ICICI or HDFC!). I will talk about the numerous intangible benefits it has to offer like a systematic honing of your negotiation skills and your domain knowledge of various businesses. Investment banking typically requires performing valuation of various business models, projects and companies. Like Aswath Damodaran writes in his famous book on Valuations, “Valuation is neither the science that some of its proponents make it out to be nor the objective search for the true value that idealists would like it to become. The models that we use in valuation may be quantitative, but the inputs leave plenty of room for subjective judgments. Thus, the final value that we obtain from these models is colored by the bias that we bring into the process!”
Thus our understanding of underlying facets of the expected returns and the anticipated/unanticipated risk factors has wide ranging implications on our performance as I-Bankers. This makes is a much more wholesome job, so instead of limiting ourselves to financial documents of the project/firm what is required is to get well acquainted with the scenarios under which the businesses would be operating. Quite akin to doing a knowledge transfer from a 15 year old veteran in the business. This requires extensive and exhausting readings into the nitty-gritties of the business and leads to the infamous 18X7 working hours per week schedules! The good part about this whole exercise is that by the time you have spent two or three years in an I-Bank and have taken pains to work across different industry verticals, you would have acquired an enviable exposure to businesses which few others could afford. This would however require a conscious effort not to get ‘holed up‘ in the comfort zones that one creates after getting a good knowledge about any industry.

Where the Roads Lead: Investment Banking is rarely if ever a career move. It is generally a ‘pit-stop’ with the next destination being off to various domain knowledge intensive positions. The roads from here lead to consulting, Treasury, fund management and wealth management. As I read from various international authors about their accounts, the half-fife of an MBA graduate in an I-Bank is about 19 months, so 50% of fresh recruits leave I-Banking jobs within the first 19 months!

More Insight: A lot more insight is available in these two world renowned booksMonkey Businesses’ and ‘Liar’s Poker’. The former is about the more recent version of Investment Banking profession whereas the later is about ‘Trading’ profile, which is now one of the subsets of the complete gamut of services of an I-Bank. For a little more technically inclined two other books to read in addition to these are ‘Random walk down the Wall Street’ and ‘Investment Fables’.

  1. siddharth says:

    hi…..i am Siddharth….i am 23 years old …i am doing my mba and i am almost done with it…..i have taken finance as my specialization. I always wanted to make a carrier in investment baking. But the problem is i don’t have much knowledge about investment banking. So i am currently making a project on investment banking which will help me to get my basics right. It would be a great help from your side if u manage to take sometime out from your busy schedule and help me making this project. Waiting for your reply.

  2. Cheetos says:

    @ Siddharth : Investment banking is really an ocean. I wrote this post over a year back when I myself had even lesser of a clue as to what all it can encompass. A general guideline into the ambit of it would run into the size of a normal book. Internet is very useful a media for learning the knick-knacks. I personally am infatuated with Wikipedia. Check it out and then let me know if you have any specific queries.

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