A Career in Investment Banking Lafayette College Easton, PA November 8, 2013.
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Transcript of A Career in Investment Banking Lafayette College Easton, PA November 8, 2013.
2
Career Path / Education
2011 – Today BMO Capital Markets (Bank of Montreal)
2007 – 2011 Banc of America Securities / BAML
1992 – 2007 Citigroup Investment Banking (Salomon Brothers)
1991 MBA, Finance, NYU – Stern
1987 – 1992 Bank of New York, Strategic Planning
1984 – 1987 KPMG Peat Marwick – CPA (NY)
1984 Lafayette College, A.B., Economics
3
Investment Banking Job Description
Buying other companies (or merger)
Selling businesses
Raising money (stock and bond offerings)
Assist Companies (the client)
in:
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Investment Banking
Clients Pay Fees for Products and Services
Financial advisory (Buy / selling companies; M&A) Source idea (pitch) Negotiate transaction (execute) Valuation analysis (fairness opinion)
Underwriting / Capital Markets (Raising money) Assume the risk of distributing securities to investors Structure the security Market and sell to investors
– Valuation
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Underwriting / Capital Markets
Issuer Options:
Borrow (Bond)
Sell ownership (Stock)
Hybrid (Convertible Bond)
Objective:
Company XYZ
InvestmentBank
Investor
Raise $Cash $
Security
Cash $
Security
Coordinates between Issuer and Investor
Determine appropriate size / price
Owner of security
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How a Security is Priced
Issuer Investor
HIGH price
Underwriting Commission
LOW Price
Sales commission
Traders
InvestmentBanker
CapitalMarkets
Salesforce
Investment Bank DeterminesMarket-Clearing Price
ResearchAnalyst
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Investment Banking Careers
Corporate Finance Investment Banker
Trading Trader
Sales Bond / Equity Salesperson
Research Research Analyst (FI and Equity)
Product Specialist Capital Markets
8
Career Path / Education Requirements
CollegeFinancialAnalyst
Earn MBA
InvestmentBanking EntryLevel Position
Yes
Business Degree Finance Accounting Mathematics
Liberal Arts English History Economics
Go to Business School?
Crunch numbers
Long hours
Great learning experience
Program lasts 2–3 years
No
Career Choices:
Return to investment bank as Associate
Private Equity
Hedge Fund
Economist
Strategic Planning
Accounting
Select group promoted from Analyst to Associate
Other finance jobs, eg, hedge fund, private equity
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The Path to Success
Highly analytical Comfortable with math Make the complex simple
Marketing / sales Idea generation / “break new ground” Make the simple interesting
Attention to detail Pitch books Prospectuses
Persistence / teamwork Maintain client relationships One out of ten pitches may land an assignment Competitive "fire"
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Rewards of the Job
Creativity is encouraged
Every day and every deal is different
Meet interesting people
You see the results of your work in the newspaper
Travel
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Challenges of the Job
The client is always right
The client has many “friends”
Long hours
“Roadmaps” don't apply Answers / agenda often not obvious
Travel
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Companies That Provide Investment Banking
Traditional Investment Banks
Universal Banks
Include Other Banking Services and Other Businesses (Credit Cards)
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ECM 43.43% 4.80% 7.72% 5.13% 6.90% 2.78% 2.57% 2.39% 0.85% 1.92% 0.17% 1.56% 1.56% 0.02% 0.93% 0.95% 0.06% 0.33% 0.48%
M&A 38.52% 1.51% 6.31% 4.43% 5.44% 3.83% 1.81% 2.24% 0.41% 1.77% 1.15% 0.60% 0.49% 1.87% 0.52% 0.27% 0.30% 0.70% 0.11%
DCM1 43.29% 7.47% 5.30% 7.30% 5.94% 3.92% 4.41% 3.16% 1.41% 0.31% 0.55% 0.40% 0.10% 0.05% 0.04% - 0.32% 0.07% 0.09%
LOAN 43.83% 7.70% 4.04% 5.74% 4.05% 3.01% 3.82% 3.11% 2.17% - 0.80% 0.02% - - - - 0.44% - -
YoY(bps) +291 -24 -94 -32 +25 -17 -50 -2 -9 -15 -12 -2 -2 +5 -7 -9 +9 -5 -3
BMO Target Market
Fee Share by Firm, TTM: % of Market, Companies with EV $200MM – $5Bn (incl. Loan Syndications)
Companies with EV $200MM – $5BnTotal IB Fees, TTM = $17,818MM
42.58%
Firms outside of the top 9 competed for $6.3Bn
remaining IB fee wallet in F13; ~2x size of Canadian market
Source: Dealogic, US IB Fees incl. Loan Synd (DCM, ECM, M&A, LOAN); TTM as of October 30, 20131. DCM excludes investment grade issuance
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My Lessons Learned
1. Understand before being understood
2. Make the complex simple; and make the simple interesting
3. Consider the source
4. Ask the second question
5. Sleep on it
6. Lead by example, not by cloning
7. Don’t oversell familiarity
8. Engage in face to face
9. Everyone’s allowed to have a bad day
10.Think different
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Issuing Common Stock (Ownership)Today
Ownership of Company
Sell Ownership
Earnings of Company
Earnings
100% $10
80%
20%
$8.00
$2.00
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Issuing Debt (Bond)Today
Ownership of Company
Ownership
Earnings of Company
Pay Interest
100% $10
100% $9.00
$1.00
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Borrow Versus Sell Ownership Comparison
Earnings Today Company's Earnings Next Year
$10.00 ZERO $1.00 $10.00 $20.00
Borrow
$10.00 $9.00 You Get: ($1.00) ZERO $9.00 $19.00
$1.00 Interest Bondholder: $1.00 $1.00 $1.00 $1.00
Sell Ownership of 20%
$10.00 $8.00
You Get: ZERO $0.80 $8.00 $16.00
Shareholder: ZERO $0.20 $2.00 $4.00