What is investment banking

What is Investment Banking?

Patrick Fearon
Autumn 2012

© Patrick Fearon 2012

This year we have split the Banking and Finance
Lecture into two:

First Session

Second Session

2

What is Investment Banking?

What Careers in Banking and Finance
are available outside Investment
Banking?

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In the Investment Banking lecture this morning we
will be looking at:

Corporate Finance
–
–
–
–
–

Financial Advisory
Advice on M&A
Private Equity
Debt Capital Markets Origination (DCM)
Equity Capital Markets Origination (ECM)

FICC
–
–

Sales & Trading
Research

Equities
–
–

Sales & Trading
Research

Support Functions
–
–
–
–
–

Finance
Compliance
Risk (Market, Credit, Operational)
Audit
Operations

Skills and Opportunities required in Banking

3

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In the “Careers in Finance Outside Investment
Banking” lecture this afternoon we will look at:

Why you might look at a career outside of Investment Banking
Investment Banking careers that can be done outside Investment Banks
–
–
–
–

FICC
Equities
M&A
Private Equity

Wealth Management
–
–

Private Banking
Institutional Asset Management

Corporate Lending
–
–
–
–

Project Finance
Leveraged Finance
Syndicated Lending
Some of the active Corporate Lending Banks you might consider

Retail Banking
–

Domestic and International

Audit
Governmental Banks

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Contents of this morning’s lecture

Which are the various divisions of an Investment Bank?
What do those divisions do?
What would a graduate do in each of those divisions?
What skills and personality traits are the banks looking for?

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An Overview of Investment Banking


What does an Investment Bank look like?
Goldman Sachs International

Asset & Wealth
Management

Securities
Services

Corporate
Functions

Equities
Debt
Investment
Banking

7

Source: www.gs.com/careers

www.prospect.ac.uk

Trading &
Sales & Trading
Principal
and Principal
Investments
Investments

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But Investment Banks do not all look alike
JP Morgan Chase: A Commercial Bank that has expanded into Investment Banking

Corporate
Functions

8

Source: www.careers.jpmorganchase.com

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Investment Banking

The Commercial Banks that have expanded
into Investment Banking
versus
The Traditional Investment Banks

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The Commercial/Investment Banks versus the
Traditional Investment Banks

The Commercial/Investment Banks:
–
–

What were they?
What are they today?
Highly capitalised and therefore
Able to underwrite and lend significant amounts
Able to lend their own money
Have developed or acquired Investment Banking skills

–

10

Who are they?

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The Commercial/Investment Banks versus the
Traditional Investment Banks

The Traditional Investment Banks
–
–
–
–

11

How have they changed?
How successful have they been in beating off the challenge
of the Commercial Banks?
To what extent have they had to expand into commercial
banking to compete?
Who are they? Who is left?

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This distinction is becoming historical
The traditional US Investment Banks are now required to
structure themselves as bank holding companies
Increasingly they will be competing for deposits and lending
money
And the governments are legislating against “casino banking”
which will limit their trading activities

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Investment Banking

Be careful,
“Investment Banking” means different things to
different people.

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Different definitions of ‘Investment Banking’

JP Morgan

Morgan Stanley

Credit Suisse

Financial Advisory
Advice on M&A
Corporate Lending
Loan Syndication

Investment
Banking

Investment
Banking

Corporate

Debt Capital Markets Origination
Equity Capital Markets Origination
Debt Capital Markets Sales & Trading

Institutional Sales
& Trading

Equity Capital Markets Sales & Trading

Institutional
Research

Debt Capital Markets Research
Equity Capital Markets Research

14

Source: Banks’ own websites

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Different definitions of Investment Banking Summary

How a bank defines Investment Banking reflects
–
–

15

the personality of the bank
the power groups or profit centres within the organisation

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How to understand the culture of an Investment
Bank
Look at the website/Annual Report/recruiting material
Network to understand the culture
Understand how the bank was put together
–
–
–

e.g. UBS: merger of UBS/SBC/Warburg/Phillips & Drew
Citi: merger of Salomon/Schroder’s/Citibank/Smith Barney
vs Goldman Sachs which has grown organically

Is there one business area that drives the Bank?
–
–
–

16

Merrill Lynch: Sales/creating product to sell to institutions and individuals
JP Morgan: Corporate Finance
Societe Generale: Equity Derivatives

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But above all, look at the numbers
Global Net Revenues of Investment Banks 2011

41.0
35.4

US$ Billions

30.4

17

Source: Banks’ Annual Reports

26.7
20.4

-Debt and Equity Origination
-M&A
-Loan Syndication

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Investment Banking

A typical Investment Banking deal can involve
many areas of the Bank

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A typical Investment Banking deal can involve many
areas of the bank

DIVISION

Corporate
Finance

Equities

Corporate
Finance

Equity
Syndicate

Sales &
Trading

Corporate
Finance

FICC
Syndicate

Sales &
Trading

Corporate
Lending

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Corporate
Finance

FICC

RELATIONSHIP
MANAGER

PRICING

Corporate
Finance

CLIENT

PRODUCT
DELIVERY

Loan
Syndication

Loan
Syndication

Sales &
Trading

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INTO MARKET


A typical Investment Banking deal involves many
areas of the bank

The deal fans out to all the Investment Banking divisions
It moves through each of those divisions from structuring to
pricing to conclusion
In the case of the market-oriented divisions (Debt, Equity and
Loan Syndication) conclusion = Selling/Trading the asset.
The Relationship Manager remains the focal point with the
client throughout
In this example, M&A is the catalyst for a chain reaction of
deals throughout the Investment Bank

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What is the future of Investment Banking?
The regulatory environment with Volcker Rule and Basel 3 in response to
the defaults and losses brought about by the crisis will continue to cause
changes in the investment banking industry.
Basel 3 requires banks to raise significant amounts of capital to ensure
capital adequacy
A number of governments (e.g. Switzerland) are putting pressure on local
banks to raise capital over and above Basel 3 requirements
The emphasis of Investment Banks is on developing businesses that are
not capital intensive (e.g. Mergers & Acquisitions) as opposed to
businesses that are (e.g. commercial lending).
You should expect to see banks focusing on their core businesses as
opposed to being “all things to all men”. (E.g. SocGen Equity Derivatives) to
conserve capital
And this will become more evident as we come out of recession and loan
demand increases
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What is the future of Investment Banking?
Volcker Rule prevents banks from undertaking activities that are deemed to
be speculative
And therefore,
Activities like Proprietary Trading fall foul of the Volcker Rule and are being
floated off into hedge funds (e.g. Goldman Sachs).
The emphasis of banks is increasingly on “plain vanilla” flow trading
The problem is that these high risk activities can also be high profit
With the result that Investment Banks are being pushed towards more
commoditised, low-profit activities
Moreover, flow business will increasingly move on to exchanges, which will
mean Investment Banks will have more competition in flow product activities
and, therefore, lower earnings.
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What does this mean for banking careers?
The market is increasingly dividing between Investment
Banks/Brokers (fee business), Hedge Funds, Private Equity (risk
takers) and Third Party money managers (AM, PB).
What you’re seeing is a combination of pressure on bank earnings
and greater capital requirements, and, therefore, lower returns on
Equity.
Bank bonuses will inevitably be curbed and careers in Banking will
be less well remunerated than they have been.

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What kind of positive market signs do you see?
Very few this year
Almost every area of Investment Banking activity had a disastrous
quarter in either Q1 or Q2 of 2012
M&A was down 16% in the first 9 months of this year.
New issues were down 14% in Equities.
Only Debt is showing an improvement – up 4%
Commercial Lending is down 26%.
Nevertheless, at this stage the recruiters are saying that they intend
to recruit the same number of MSc’s as last year.

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The market remains extremely cautious
Much of Europe has slipped into a double dip recession
The US has lost its triple-A credit rating, which triggered a flight
to quality. In January, S&P down-graded Italy, Spain, France
and Austria.
Concerns about eurozone credit, inflation and recession
persist, and even the future viability of the Euro
Several rounds of lay-offs in the Investment Banking divisions
have been initiated.
There is still some hiring going on within front office investment
banking divisions (but more within alternative financial services
sectors and internal control functions like risk management).
.

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http://useconomy.about.com/od/fiscalpolicy/p/US_Debt.htm

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A detailed look at Investment Banking


Investment Banking involves four main activities

Corporate Finance
–
–
–
–
–

Financial Advisory
Advice on M&A
Private Equity

FICC
–
–

Sales & Trading
Research

Equities
–
–

Sales & Trading
Research

Support Functions
–
–
–
–
–

Finance
Compliance
Risk (Market,Credit, Operational)
Audit
Operations


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What does Corporate Finance mean?

It’s an Advisory Activity focused on changes of ownership and raising
capital to finance those changes.
Mergers and Acquisitions, Equity Capital Markets, Debt Capital
Markets are some of the main activities.
M&A team can represent the defending or the acquiring company
Can refer to any “Corporate Development” including Management
Buy Outs and Joint Ventures
Also general financial advice to corporates
Most banks view this as an international business and will have units
in at least New York, London, Tokyo and Hong Kong (sometimes
Latin America, Australia) to follow global clients’ international
activities.
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How is a Corporate Finance department structured?
Corporate
Advisory Group
• Often houses
the Relationship
managers that
are split into
industry
specialists:
• Financial
Institutions
Group
• Telecoms &
Media

M&A

• Advise on
mergers and
acquisitions,
joint ventures
and other
corporate
development
actions.

Debt/Equity
Origination

• Underwriting
new equity/bond
issues.

• Finding target
buyers or
sellers.

• Oil & Gas
• Healthcare
• Real Estate

Corporate Solutions

• The solutions
team, may work
with any of the
other teams to
come up with
derivative add-on
products that will
permit the bank
to obtain more
margin and allow
clients to
complete risk
hedging
solutions
strategy within
one institution.

• Etc.
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What would a graduate do in Corporate Finance?
Client wants to make an acquisition
– Analysts evaluate potential candidates
Corporate Finance wants to pitch an idea to a client
– Analysts prepare the presentation to the client
Corporate Finance needs to value an acquisition
– Analysts value through analysis of previous transactions and forecasting
future cash flows
Client wants to know how much debt his balance sheet will bear
– Analysts run the financial modelling

Sometimes Analysts will attend client meetings but will
not usually have primary client contact

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These were the most active M&A advisors globally
in 2011

Advisors

Rank Value $US
billion

2010 ranking

Number of deals

1

636

2

360

2

Goldman Sachs

631

1

355

3

JP Morgan

509

3

285

4

Bank of America Merrill Lynch

387

8

254

5

Citi

367

5

199

6

UBS

347

9

254

7

Credit Suisse

337

4

262

8

Deutsche Bank

293

7

216

9

Barclays Capital

268

6

155

10

Lazard

248

10

216

11

Rothschild

236

11

248

12

Nomura

164

13

187

13

BNP Paribas

143

15

127

14

Evercore Partners

142

14

65

15
31

Morgan Stanley

Societe Generale

137

28

96

Source: http://thomsonreuters.com.

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In the next tier of 15, the advisors are very different
institutions
The Accountancy firms
–
–
–

PriceWaterhouseCoopers
Ernst & Young
Deloitte and Touche

The Regional Experts
–
–
–

Enskilda (Nordic)
Mediobanca (Italy)
Santander Global Banking (Spain)

The Boutique Investment Banks
–
–
–
–

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Greenhill & Co (generalist boutique)
GPKCCW (Financial Services boutique)
Allen & Company (entertainment industry boutique)
Blackstone Group

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There are significant regional variations that you
should be aware of
Announced Deals 2011
Advisors

Global Value $US
billion

US ranking

European
ranking

Asian ranking

1

647

1

1

1

2

Morgan Stanley

511

2

2

3

3

JP Morgan

482

3

3

7

4

Credit Suisse

401

5

5

6

5


395

4

11

5

6

Citi

383

6

6

2

7

Barclays Capital

327

7

7

16

8

Deutsche Bank

273

11

4

8

9

UBS

261

10

9

4

10

Lazard

250

8

13

N/A

11

Rothschild

224

12

8

9

12

33

Goldman Sachs

Evercore

166

9

N/A

N/A

http://www.politico.com/static/PPM153_bb_080110.html

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M&A volume collapsed in 2007 and is showing clear
signs of a double-dip

Worldwide Announced M&A Quarter by Quarter

2007

34

Source: http://bankerthomsonib.com.

2008

2009

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2010

2011

2012


What is the state of Corporate Finance?

The last full year (2011) was weak, particularly in the second
half of the year
– M&A deals announced worldwide were up 7% in value in
2011 year on year, but 5% down in volume
– Volume reached $2.6 trillion in 2011 ($2.4 trillion in 2010)
but first half volume amounted to $1.5 trillion; second half
was $1.1 trillion, down 24%
– Emerging Markets M&A in 2011 reached $667 million
versus $806.3 billion in 2010.
– The only really buoyant area was Private Equity M&A,
which was up 32% year on year.
– Goldman’s Net Fee Income from M&A was $1.8 billion last
year versus $2.1 billion in 2010 (over $3 billion in 2007)
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What do you see happening in M&A right now?
M&A was down 17% in the first 9 months of 2012 versus the same period
last year. $ 1.7 trillion versus $ 1.9 trillion for the first 9 months of 2011
Q1 2012 was the weakest quarter for M&A since the first quarter of 2009
($485 billion), but Q2 and Q3 were a lot stronger ($626 billion and $552
billion respectively), so maybe we are coming slowly out of the double
dip.
France has been particularly badly hit. New deals completed in the first 9
months of this year were 71% down in value on the first 9 months of
2011.
Emerging Markets M&A in 2012 has reached US$ 465 billion, a 7%
decrease compared to 2011. Now driving 28% of M&A worldwide
Completed advisory fees were down 22% for the first 9 months of 2012
and totalled $ 11.7 billion

http://online.thomsonreuters.com/DealsIntelligence/Content/Files/2Q10_MA_Financial_Advisory_Review.pdf
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Which sectors were active in 2011?

http://online.thomsonreuters.com/DealsIntelligence

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The deals announced this year are mostly trade
transactions. No major Private Equity deals so far.

Announced M&A transactions YTD (June 2012)
Acquiror

Target

$ billion

1

Glencore

Xstrata Plc

48.8

2

FROB

Banco Financiero y de Ahorros

23.8

3

Shareholders

ConocoPhillips Refining & Marketing

21.7

4

Walgren Co

Alliance Boots GmbH

21.4

5

Anheuser-Busch Inbev

Grupo Modelo SAB de CV

20.1

6

Electrobel

International Power Plc (40.9%)

12.9

7

Nuclear Damage Liability

TEPCO (75.7%)

12.6

8

Eaton Corp

Cooper Industries Plc

12.2

9

Nestle SA

Pfizer Nutrition

11.9

Lehman Brothers Holdings Inc

Archatone –Smith Trust (26.5%)

11.8

10

http://online.thomsonreuters.com/DealsIntelligence

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Are Corporate Finance Divisions recruiting?
In the major investment Banks outside of France, the 2013
Graduate Programme has largely been filled out of the 2012
Summer internship.
Your best way in is through a Summer Internship in 2013.
Alternatively, look for a 2013 Spring week internship
Within France, the usual route in is through internships.
There are a number of these internships available, but full-time
roles are very selective.

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Are Corporate Finance Divisions recruiting?
Boutiques are recruiting (VTB, Jefferies), but the numbers they
recruit are relatively small.
Some of these boutiques outsource their graduate and
internship recruiting to firms such as The Cornell Partnership.
www.cornellpartnership.com
Some firms have difficulty filling their internships in the second
half of the gap year. (E.g. Rothschilds)
Don’t overlook the Transaction Services arms of the Big 4, or
Audit.

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Private Equity


What is Private Equity?
A Private Equity company raises a fund with external investors
to make acquisitions (quoted or unquoted) on a leveraged basis
Time horizon for holding the investment is 3-4 years
Private Equity companies, therefore, compete for acquisitions
with trade purchasers
The funds can be huge. Latest Blackstone fund is $21.0 billion
Which division of a bank does it sit in?
–
–
–

42

Asset Management (Morgan Stanley). External Investors.
Equities (Goldman Sachs). It’s the purchase of the shares of a
company.
Separate entity (JP Morgan). It competes with the bank’s clients.

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What are the differences between Private Equity
acquirers and Public Company acquirers?
Leverage
–
–
–
–
–

The banks were prepared to lend up to 5 times the Private Equity investment
Huge ‘return on investment’
Private Equity companies are paid back before the banks
Leaves the private equity funds free to play again
What would happen if the debt markets dried up?

Quality of Management
–
–
–
–

Operating in the Private Sector
Not driven by short-term earnings performance
Private Equity companies can attract top quality management
And they can remunerate management

They are major clients of the Investment Banks
–
–
–
–
–
43

M&A advisory on both purchases and sales
Equity
Debt
Syndicated loans
Financing and re-financing
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How is a Private Equity company structured?

Origination
Group

• Usually a senior
who liaises with the
Corporate Finance
departments

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Evaluation
Group

• The team that
values the target
company, and
assesses its
prospects

Funding
Group

• The team that
decides on the
appropriate mix of
senior
debt/intermediate
and equity and
external co-investors

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Research

• Back-up to the
Evaluation and
Funding Groups


The largest Private Equity funds

Targeted Funds ($billion) as at August 2012
Bain Capital Fund

8

GS Partners V

8.5

Cinven IV

8.6

Thomas H Lee

9

Warburg Pincus

9

Apollo Management

10.1

Blackstone Real Estate

11

Permira IV

14.7

Texas Pacific

15

Carlyle

15

Blackstone V

15.6

KKR

16.6

KKR

18

GS Partners VI

19

Blackstone VI

21
0.0

5.0

10.0

15.0

20.0

25.0

Source: Financial Times/Private Equity Intelligence Ltd

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Where is the Private Equity industry now?
Institutions are once again increasing exposure to the Private
Equity industry
New funds are being raised, but they are small
The largest Private Equity purchase in 2011 was the $7.2 billion
purchase of Samson Investment Co. (a US Oil & Gas producer)
by KKR
More than 1,700 deals have been announced this year. The
Carlyle Group, in particular, has announced 33 deals year to
date worth $16 billion, the highest number of deals it has
undertaken since 2007
Still a large number of work-outs and write-downs in the Private
Equity funds’ portfolios
Many of the larger funds remain unspent
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Are Private Equity companies recruiting?

There is some graduate recruitment but relatively small scale
Private Equity companies tend to be lean, and delegate a lot of
the technical work to bank Corporate Finance departments
For example, KKR employs only 320 people worldwide vs
565,000 employees in portfolio companies and $107 billion of
revenues from portfolio companies
Corporate Finance, Audit and Acquisition Finance are,
therefore, the usual stepping stones into Private Equity
Don’t overlook the mid-sized firms, eg 3i, Candover, Apax,
Cinven

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Corporate Finance
–
–
–
–
–

Financial Advisory
Advice on M&A
Private Equity

FICC
–
–

Sales & Trading
Research

Equities
–
–

Sales & Trading
Research

Support Functions
–
–
–
–
–

Finance
Compliance
Audit
Operations


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What does FICC mean?

FICC refers to the Fixed Income, Currency and
Commodites products within
–
–
–
–

Sales
Trading
Structuring
Research

The feeder of the business is the origination of fixed
income securities issued by governments or corporates,
which is called DCM or Debt Capital Markets.

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What asset classes do you find in FICC? How are
the product teams split up?
Interest Rate
Products

Credit
Products

• Flow Products (gov’t
bonds, swaps,
options)

• Flow Products
(Credit Default
Swaps, Corporate
Bonds, Distressed
or High Yield bonds
- Junk)

• Structured products
(rates linked notes,
complex derivatives
– reverse floaters,
IR spread options –
barrier options,
PRDC)

Commodities

Currency
Products

• Metals

• Flow Products
(Forex spot, Forex
swap, forwards,
Forex Options

• Agricultural
Products

• Structured products
(Forex linked notes)

• Energy (Natural
Gas, Oil, Electricity)

• Securitized Products
(Asset Backed
Securities, Mortgage
Backed Securities)
• Structured Products
(CDO Collateralised Debt
Obligations, CLO –
Collateralised Loan
Obligations)
• Emerging Markets
from BRIC, LATAM,
MENA, APAC

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How is a Fixed Income (FICC) division structured?
How is each department structured?

Origination/
Syndication

Trading

• Underwriting and
Placement of new
bond issues.

• Client Execution

• Prices new issues

• Proprietary Trading

• Researches pricing
on previous new
issues

• Arbitrage (relative
value trading, cash
and carry,statistical
arbitrage.)

• Types of bonds that
can be issued:
Agency Bonds,
Corporate Bonds,
Distressed debt,
government bonds,
sovereign bonds,
municipal bonds

51

• Market Making

• Portfolio Risk
Management

Structuring
• Propose solutions to
clients for complex
investment or
liability
management.
- Tax effective
products
- Structuring
derivative products
across all FICC
asset classes.
- Complex derivative
pricing.

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Sales
• Usually divided into
product focus
(flow/structured
across all FICC
products). Flow
product sales are
usually divided into
asset class groups
(commodities,
credit, rates, but
structured products
could be sold out of
one team).
• Then further divided
into Client focus:
Corporate
clients/Institutional
clients (insurance, a
m, pf)

Research
• Research prepared
for clients
• Gives ideas to
Sales & Clients
(increasingly
focused on Clients
and working more
closely with the
sales trading desks
to give Clients
ideas) as long as
not in violation of
chinese wall.
• In-house quants
model research for
valuation and
trading of complex
derivatives.


Who are the major originators of international
bonds?
Eurobond New Issues 2011
Bookrunners

Proceeds
US$ billion

Market
share

#
of issues

2010
Ranking

Barclays Capital

249.0

8.2

627

1

Deutsche Bank

242.5

8.0

903

3

JP Morgan

232.7

7.7

737

2

BNP Paribas

169.3

5.6

515

9

Citi

169.2

5.6

511

6

HSBC

168.8

5.6

568

5


164.7

5.4

589

4

UBS

139.7

4.6

424

7

Goldman Sachs

136.0

4.5

388

11

Morgan Stanley

119.0

3.9

413

12

Industry total

52

Source: http://banker.thomsonib.com/

3,027

4,788

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Bond issuance was down for the second year
running in 2011

US$ billion

Volume of New Eurobond Issues

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What is happening in the debt issuance market
now?
Global Debt Capital Markets activity increased by 4% to $2.8
trillion during the first 9 months of 2012 compared to the same
time last year, thanks to a strong Q1 and Q3.
Nevertheless, there is a “flight to quality” going on. Investors
are seeking out Government Bonds, Agencies and Investment
Grade Debt, particularly Investment Grade Corporate Debt.
Q2 2012 was particularly poor - global activity at $1.1 trillion
was down 50% compared to Q2 of 2011 and compares to $1.7
trillion in Q1 2012. This coincided with real concerns about
Greek Sovereign debt default
Fee income has increased by 15% in the first 9 months of 2012,
compared to the same period last year.
High Yield debt has been surprisingly strong – up 12% year on
year, evidence that the hedge funds are back in the market.
JP Morgan is currently in top spot in league tables.
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What is happening in the commodities market?

January 1st 2009

September 1st
2012

Copper

$7,670

Aluminium

$1,412

$1,962

Gold

$878

$1,737

Oil (Brent Crude)

55

$2,825

$45

$114.25

IB Grenoble 2012


Which commodity divisions recruit MScs?
The Commodity divisions of the Investment Banks have been
big recruiters of MSc. students in recent years.
All the major banks have been involved, particularly Barclays,
Citi and JP Morgan
They have recruited in Sales, Trading, Structuring and
Research, as well as Middle Office functions and Risk.
Preliminary indications from the Recruiters are that Risk is likely
to be the focal point this year.

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IB Grenoble 2012


How are the other asset classes in FICC doing?

FX
Rates
Credit
The main trend is flow or lightly structured products –
NOT complex structured products.

57

IB Grenoble 2012


Which banks have the largest market share in FX?

http://www.euromoneyfix.com/Article.aspx?ArticleID=2191629&PageID=3594%20%20for%20fx%20info
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IB Grenoble 2012


What would a graduate do in FICC?
Origination pitches financing to a client
–

Analysts might do some financial modelling and put the pitch presentation together.

Sales desk wants to expand
–

Junior members work with senior members putting term sheets and marketing
presentations together and trying to understand the products. May have some
administration email follow up with clients regarding an order.

Client wants a structured deal
–

juniors work with the senior structurers often working on term-sheets and complex
pricing simulation to better understand the products.

Trading needs more man-power
–

Junior would put together spreadsheets that run risk reports and book trades. Do a lot
of spread sheet programming to better capture trading data, including risk parameters.

Research needs to recruit
–

59

Analysts would crunch historical data to analyze market behaviour. Synthesizes
research that a senior member has produced to get ready for distribution.

IB Grenoble 2012


Are the FICC divisions of banks recruiting?
There are still plenty of internships, particularly in Sales
Outside of France, the only way into a Graduate Programme is
through a SUMMER Internship.
Even better, try a SPRING internship.
Be aware of the application periods and deadlines. They
normally start in September and end in November, but
November is an end date. Often banks are full before then.

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IB Grenoble 2012



Corporate Finance
–
–
–
–
–

Financial Advisory
Advice on M&A
Private Equity

FICC
–
–

Sales & Trading
Research

Equities
–
–

Sales & Trading
Research

Support Functions
–
–
–
–
–

Finance
Compliance
Audit
Operations


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IB Grenoble 2012


What is an Equities Division?
Deals in shares, of course, but also convertibles which are treated as Equity,
not Debt
New issuance drives the market
a. Previous issuers raising additional Equity (“Secondary Offerings”)
- to replace debt
- to restructure stretched balance sheet
- to finance acquisitions
b. First time issuers: IPOs (“Initial Public Offerings”)
- worth $164 billion in 2011 globally versus Total Equity Issuance of $617
billion (27% of total)
- can be from emerging markets seeking an international investor base
(India, Eastern Europe, China etc) and equity with which to make acquisitions
- frequently part of a government’s privatisation programme (e.g. EDF,
Air France, ENEL)
- IPOs were up 131% in 2010, driven by Chinese issuance, but
decreased by 40% last year.

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IB Grenoble 2012


The largest IPOs to date (as at June 2012)

$ billion

Agricultural Bank of China
Industrial & Commercial Bank of China
AIA Group Ltd
NTT Mobile Comms
Visa Inc
ENEL
Facebook
General Motors
Deutsche Telecom
Bank of China
OAO Rosneft
AT&T Wireless
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IB Grenoble 2012

19.2
19.1
18.5
18.1
16.6
17.4
16.0
15.8
12.5
11.1
10.7
10.6

Date

October 2010
October 2006
October 2010
October 1998
March 2008
October 1999
May 2012
November 2010
November 1996
June 2006
March 2006
April 2000

The effect is to create institutions with a widely
quoted share base

Top Banks by Market Capitalisation (as at January 2012)

Source: FT

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IB Grenoble 2012


How is an Equities division structured?

Syndication/
Origination
• Underwriting and
Placement of new
issues.
• Prices new issues
• Researches pricing
on previous new
issues
• Works with
Derivatives team for
risk hedging
purposes

Trading
• Market Making
(single stock
option/index option
trading)
• Proprietary Trading
(cash equity,single
stock option/index
option trading,
long/short etc.)
• Arbitrage (merger
arbitrage, basket
trading,statistical
arbitrage and high
frequency trading.)

Sales Trading and
Execution Services

Sales

Structuring

• Executes sales
orders for clients

• Usually divided into
product focus
(cash/derivatives).

• Electronic Trading
Platforms could
include; execution
services,
algorithmic trading,
direct market
access (DMA
services)

• Cash Equity
Sales/research
sales: Interprets
Analysts’
recommendations
and sells ideas to
institutional clients.

• Propose solutions to
clients for complex
investments and
capital preservation.

• Derivatives sales
usually covering
institutional clients
and selling risk
hedging solutions,
or capital
guaranteed
investment
products.

• Portfolio Risk
Management
• Stock lending

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- Tax effective
products
- Structuring
derivative products
including hybrids (ex
equity inflation
product).
- Complex derivative
pricing.
- Sectorial basket
structuring –
bespoke index
products.


Which are the leading houses for EMEA Equities?

All EMEA Equity and Equity Related Issues 2011

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IB Grenoble 2012


Outside of the top 10 who are in the top 20 as equity
issuance advisors?
JP Morgan tops ECM rankings list.
11
12

UniCredit

13

Nomura

14

ING

15

Société Générale

16

VTB Capital

17

SEB Enskilda

18

Royal Bank of Scotland

19

Mediobanca

20
67

HSBC

RMB Holdings Ltd

http://online.thomsonreuters.com/DealsIntelligence/Content/Files/2Q10_Equity_Capital_Markets_Review.pdf
IB Grenoble 2012


What kinds of products do you see in the equities
division?

Flow

• Single stock
• Block trades
• Single Stock
options
• Index options
• ETF’s
(Exchange
traded funds)

Structured

• Equity linked
EMTN
(European
Medium Term
Note)
• Complex
Equity
Derivatives
(eg. reverse
convertibles).

• Convertible
bonds

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IB Grenoble 2012


Where is the Equities market?
New Issue Volume, Worldwide

US$ billion

New issuance fell by
28% in 2011
IPOs and Follow-on’s
were down across all
geographical areas

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IB Grenoble 2012


How are Equity Issuances doing this year…?

Global ECM activity was down 14% in the first 9 months of
this year.
Q1 was the slowest quarter in 2 years, down 52% on the
same period last year
IPOs were down 41% on the same period last year
This was despite the $16 billion IPO by Facebook in Q2. As
a result of Facebook, the volume of $42.4 billion for Q2 was
double that of Q1.
Follow-on’s, however, are running at roughly the same level
as last year.
Fees are down by 29%, the lowest level since 2003
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Which industries were the most active...?

5 sectors currently account for nearly three-quarters of activity.

13%

Financial

Financial Issuers were 11% strongest in 24%
the
overall volume with 24%.
Energy & Power
Materials
Energy & Power 14%
13%
14%
Industrials
pie chart
Materials 14%
High Technology
11%
14%
Real Estate
Industrials 11%
Other
High Technology 13%
Real Estate 11%
The remnant was shared by High Tech (8%), Consumer (6%),
Media & Entertainment (4%), Retail (2%), Healthcare (2%) and
Telecoms (1%)

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What would a graduate do in Equities – from cash to
derivatives?
Client looks for risk hedging solution for Equity exposure
–

Sales bring structurers into the deal to create appropriate
structured solutions for the client.

Research needs to get out a report on the European Chemical
Industry
–

Analyst works with senior industry analysts and evaluates
companies within industry

Sales need to expand client coverage
–

Junior sales would be given some small accounts or work with
senior sales to make presentations or term sheets.

Trading needs more man power
–

72

Juniors would help senior traders, and might start just with setting
up pricing spreadsheets or risk spread sheets to get them familiar
with the products.

IB Grenoble 2012


Are Equities recruiting?
It is never as strong an area for recruitment as Debt. ECM and Equity
Markets hire relatively few graduates. Both are very competitive areas
Same process as for FICC. The only way into a Graduate Programme
outside of France is through a SUMMER or SPRING Internship
There are internships with the French and international institutions in
both Sales and Equity Research
Jobs in Equity Research are hard to find. The sector has contracted by
about a third in 4 years, and Debt and Equity Research teams are
being merged in a number of houses
Look at institutions with a weak equity presence that are trying to
expand, for example Unicredit, Macquarie, MUFJ, Daiwa, Standard
Chartered etc.

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IB Grenoble 2012


will be looking at:

Corporate Finance
–
–
–
–
–

Financial Advisory
Advice on M&A
Private Equity

FICC
–
–

Sales & Trading
Research

Equities
–
–

Sales & Trading
Research

Support Functions
–
–
–
–
–

Finance
Compliance
Audit
Operations


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IB Grenoble 2012


Support Functions


How are the Support Functions structured?
Risk
Management

Finance

• Consists of 3
main risks;

• Reporting into
the CFO
includes;

Compliance
• Compliance
consists of;

• Credit Risk

• Product
Control

• Regulatory
risk/
relationships,

• Operational
Risk

• Financial
Control

• Asset class
specialists

• Management
Reporting

• Trade
surveillance

• Treasury

• AML and
KYC.

• Market Risk.

76

• Securities
Operations

• Policy

• Strategy

• Provides
independent
opinions on
the firm’s
control
environment

Operations

• Training,

• Tax

Audit

http://www.goldmansachs.com/careers

IB Grenoble 2012

• Clearing
Operations
• Derivatives
Operations
• Project
Management


Why consider a career in any of the support
functions?

Gives you a broad understanding of the bank’s activities from
the beginning.
Allows interaction with senior leaders from whom you can gain
perspective.
Due to the crisis and tougher regulatory environment, the
support functions have gained visibility and power within the
organization.
Lack of high quality senior leader pipe line makes good career
possibilities for the future.
$$$ - senior level support function compensation levels have
been rising considerably (outside of continental Europe).
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IB Grenoble 2012


Are support functions hiring?

YES!

With more focus on internal control, all of the support
functions are a hiring focus especially market risk
management.
Due to the crisis, the support functions have gained visibility
and power within the organization.
In particular, the Investment Banks are looking for students
to work in Risk
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IB Grenoble 2012


What would a graduate do in the support functions?
Credit Risk
–

Work with senior risk managers to analyze ratings and counterparty risk associated with perspective or existing clients.

Market Risk
–

Work closely with traders to make sure portfolios are marked
correctly; respect of Value at Risk (VAR) limits, and look at risk
factors including stock prices, interest rates, foreign exchange
rates, commodity prices, volatility etc.

Audit
–

Junior auditors would be sent on missions to verify the firm’s
control environment.

Finance
–

79

Junior product controller would work closely with the traders to
make sure that the trades are booked correctly.

IB Grenoble 2012


will be looking at:

Corporate Finance
–
–
–
–
–

Financial Advisory
Advice on M&A
Private Equity

FICC
–
–

Sales & Trading
Research

Equities
–
–

Sales & Trading
Research

Support Functions
–
–
–
–
–

Finance
Compliance
Audit
Operations


80

IB Grenoble 2012


Skills and Opportunities in Banking


In all of these departments, there are only 5 roles
You’re EITHER an Originator of New Business
– OR you’re a Product Specialist/deal doer
– OR you’re in Research/Analytics
– OR you’re in Sales
– OR you’re in Trading

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IB Grenoble 2012


In all of these departments, there are only 5 roles
Origination

Product Delivery

Product
Research

Corporate
Finance

Relationship Manager

Corporate Financier

Analyst/ Researcher

-

-

Corporate
Lending


Corporate Banker

Credit Analyst

-

-

Loan Syndication


Loan Syndication
Officer

Researcher

Asset Salesman

Asset Trader

Debt


- Structured Products
- Syndicate

Research Analyst

Debt Salesman

Debt Trader

Equity


- Structured Products
- Syndicate

Research Analyst

Equity Salesman

Equity Trader

Asset Management

Senior Product Delivery
People

Asset Manager

Research

-

-

Private Banking


Research Analyst

-

Client Execution Trader

Private Equity

Senior Product Delivery
People

-

-

Institutional

Sales

Trading

- Asset Manager

83

– Specialist Product
People

Evaluation Team

Analyst/ Researcher

IB Grenoble 2012


Personality traits needed to work in Banking

Energetic
Enthusiastic
Team player
Willing to work all hours
Ability to work under pressure
Numerate
Articulate
Innovative
A problem solver
Seeks new ideas
Driven
High performer
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IB Grenoble 2012


Personality traits required for an Originator

Generalist
Extrovert
A people person
Good at marketing
Good listening skills
Enjoys negotiation
Needs stimulation of varied
deals (may get bored easily)
Creative

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IB Grenoble 2012


Personality traits needed as a Product Specialist

Corporate Financier

Asset Manager

Does not need to be extrovert
More than usually numerate
Good communicator of complex
ideas
Deeply interested in his product
area
Explains product to client in a
way he will understand
Has a clear idea of value (Asset
Manager/Financier)
Advisor
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IB Grenoble 2012

All the same characteristics, but
acts as a Principal not an
Advisor, and therefore has a
longer-term time horizon than
an Advisor. Lives with the
consequences of his decisions.


Personality traits needed in Product
Support/Research

Researcher

Quantitative Analyst

More than usually analytical
Highly numerate
Good oral and written presenter
Will need to ‘sell’ ideas to
investors and/or internally
Known for original ideas
Likes exploring new sources of
information

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Exceptionally numerate
Capable of being a PhD
Excellent at modelling
Has new ways of looking at
problems
Creative
Likes taking a solution to the
next rung


Personality traits needed in Sales & Trading

Sales

Trading

Outgoing
Clients trust him/her
Receptive to new ideas
Good at packaging ideas for
client
Will fight the trader to get the
best price for client
Value aware
Will look after the same clients
year after year
Enjoys new product
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IB Grenoble 2012

Not much external contact
Thrives on pressure
Real feel for value
Could enjoy anything from very
unsophisticated product (spot
fx) to very sophisticated
(derivatives)
A risk taker but also someone
who will think hard about
minimising risk


But there is good news too…

You don’t need me to tell you that it’s a very difficult marketplace
this year
The recruiters tell us that they intend to recruit in the same
numbers as last year
Investment Banks will still need Analysts and Associates.
In the second lecture we will look at the strategy and stepping
stones you might adopt
But don’t ignore internships and go broad in your choice of
employer
And above all, ensure that you are prepared for the interviews
you are offered
Good luck will come if you are PREPARED!
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IB Grenoble 2012


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