If you have been put off a career in corporate finance because you think investment banks are elitist ‘gentlemen’s clubs’ that are utterly impossible to break into, and are only open to those who have the right contacts and insider knowledge, you may miss out on joining one of the most glamorous professions in the City.
You could be forgiven for all the negative thoughts, though, because to some extent they are true. Investment banks do not deny that they only hire the cream of the graduate population and typically target the best universities and business schools in Europe. However, investment banks are constantly working towards distancing themselves from the above stereotypes. Talk to any investment banker and they will tell you that investment banks today are culturally diverse places to work, and recent initiatives to attract more women into investment banking have seen a rise in applications from female candidates.
Nevertheless, the recent case of Louise Barton, who was employed by South African bank Investec Henderson Crosthwaite Securities, shows that investment banks still have a long way to go in their treatment of female employees. Barton, who was based in the City, discovered salary and discretionary bonus discrepancies between herself and certain male colleagues, including a male peer being awarded 70,000 more in bonuses one year. Last month, the Employment Appeals Tribunal found in favour of Barton and said that no employment tribunal should be seen to condone a secret City bonus culture.
|‘If I were being terribly 80s about it, you can almost sense the smell of money in the air’
Hugo Farmer, Dresdner Kleinwort Wasserstein
A career in corporate finance can offer many rewards. Investment bankers work in a fast-moving, dynamic environment at some of the most high-profile City institutions. They also enjoy high levels of responsibility at a reasonably early stage in their careers. Playing a key role in the business world, they advise companies, institutions and governments on how to raise money and spend it. Investment bankers structure and manage headline-grabbing mergers and acquisitions, takeovers, share issues and privatisations. Investment banks, like many of their clients, are truly global, so there are also plenty of opportunities to travel and work overseas.
Hugo Farmer joined Dresdner Kleinwort Wasserstein, a European-focused investment bank, 18 months ago, after completing a joint law and chemistry degree at Bristol University and an internship with the investment bank in the summer of 2000. Now an analyst in Dresdner’s corporate brokering team, Farmer’s day-to-day responsibilities include carrying out financial modelling, research, gathering information and undertaking detailed data analyses and valuations. Farmer enjoys most aspects of his job, but especially likes working on transactions. “There’s a buzz when there’s a transaction in progress,” he says. “Everyone steps up a few gears, the team pulls together and the pressure’s on. Often we get to read about our work in the papers. And if I were being terribly 80s about it, you can almost sense the smell of money in the air.”
|Useful addresses and websites|
The Financial Services Authority (FSA)
25 The North Colonnade, Canary Wharf, London E14 5HS
Tel: 020 7676 1000
The London Investment Banking Association
Even though Farmer studied law at degree level, he never wanted to be a lawyer. Instead he used it as a springboard for a career in banking. “I came at it from completely the other side. I never considered being a lawyer, but I chose law because it would be relevant to the job I wanted to do in the future, which was always banking,” he says.
Farmer explains that it is very useful to have knowledge of the law in his line of work as it is relevant to the business and financial services environment generally. He says his legal background also helps him to interpret company legislation, such as the Companies Act 1985, and regulations such as the Listing Rules (or Purple Book) and the Takeover Code (or Blue Book).
The financial rewards are also enormous, with graduates receiving hefty starting salaries and discretionary bonuses. According to an Association of Graduate Recruiters (AGR) survey, graduates entering an investment bank or fund management firm last year received the highest median salaries – 35,000 per annum compared with 28,000 paid to graduates entering the legal profession.
The January 2003 Graduate Recruitment Survey also reveals that graduates joining investment banks in 2003 are expected to earn the same as those who joined in 2002. But Terence Perrin, head of graduate recruitment at Dresdner, points out: “Generally, the more informed applicants have a much better sense of expectation around their salary and bonus, and I think they recognise as well that the bonus package is likely to follow economic trends and at some point, when things pick up considerably, bonuses may well reflect that.”
However, the pressures of the job can be equally hard. For instance, investment bankers work extremely long hours and at some stages of a deal all-nighters are not uncommon. Farmer admits that he spends a lot of time in the office, especially if a transaction is coming to a critical stage.
Graduates traditionally enter corporate finance either through investment, commercial, corporate or retail banks. Alternatively, they can gain relevant experience and training at some venture capital firms, or even in the corporate finance divisions of accountancy firms.
The corporate finance and equities divisions of investment banks have suffered severely due to the continuing economic slump. During the last 12 months the financial press has been saturated with stories of mass redundancies at investment banks.
Consequently, it is hardly surprising that the AGR 2003 recruitment survey revealed that between 2002 and 2003 the volume of graduate vacancies in investment banks fell by 13.3 per cent. Nevertheless, while corporate finance has been in decline, debt capital markets work has grown enormously over the last two years. Fixed income operations also seem to have weathered the depressed stock markets.
Typically, graduates are expected to have at least 24 UCAS points (or 300 points under the new tariff) and a 2:1 honours degree (or equivalent overseas qualification) in any subject, although a qualification in law, mathematics, economics or business studies, or an MBA, may be an advantage.
Additionally, graduates should be able to demonstrate the usual non-academic attributes, such as very good numerical, analytical and interpersonal skills, self-motivation and bags of drive.
Perrin stresses the importance of personal attributes and says that Dresdner’s whole selection process is geared towards measuring six key skills. “There are a number of skills we look for in our graduates: high levels of drive and self-motivation; strong organisational skills; the ability to work well under pressure; and effective analytical skills,” he says. “Underpinning all of these we expect graduates to demonstrate to us their enthusiasm and passion for financial markets and the investment banking arena as a whole.”
Relevant work experience will also give applicants an edge, so a graduate during their penultimate year should try to apply for a place on a summer analyst programme (commonly referred to as internships) with an investment bank.
Summer analyst programmes are akin to the summer vacation schemes run by law firms, but last between six and 12 weeks. Interns can earn up to 600 per week. “The amount summer analysts in investment banks are paid reflects the kind of work they’ll be expected to do,” explains Perrin. “This isn’t an exercise in making tea and photocopying. Summer analysts at Dresdner have challenging work to undertake. The programme’s designed to give them an insight in what they’d actually be doing if they joined as a permanent hire.”
Perrin also says that participating in a summer analyst programme may in some cases even lead to a permanent job, should a graduate create the right impression.
Another common route into corporate finance is to qualify as a lawyer or accountant and then cross over into an investment bank. For instance, Phillip Shapiro qualified as a lawyer in the corporate department of City firm Herbert Smith in 1999. Shortly after qualification he joined UBS Warburg as an investment banker and then moved to Dresdner in September 2001. “Lawyers make good investment bankers as long as they’re numerate,” says Shapiro.
Shapiro is currently a first-year vice-president in Dresdner’s UK emerging companies team within the corporate finance division, and is working on the sale of Fitness First and advising Selfridges in connection with a potential bid.
He switched to investment banking because, while at Herbert Smith, he was frustrated by the fact that most of the key strategic decisions had already been made by the time lawyers became involved in a deal. He says investment bankers work very closely with management and originate deals by researching potential acquisitions.
“As a lawyer, you’re more reactive and only get called in to draft the documents, whereas investment bankers get involved in structuring a deal,” says Shapiro.
The work-based training offered to graduates varies from bank to bank, although in all cases this will be supplemented by lectures, seminars and conferences. Some have a rotational system lasting three years, while with others, graduates will stay in the same division throughout. It is also common in some banks to specialise in a specific industry sector quite soon after joining.
In addition to work-based training, graduates will also be expected to study towards a professional qualification. The most common qualification is the Securities Institute Diploma, which is recognised by the Financial Services Authority, the sole UK financial services regulator, as an approved qualification for a number of specified activities, including corporate finance. Another key qualification is to become a Chartered Financial Analyst (CFA), which is internationally recognised. The CFA qualification is the preferred route at most US investment banks.
The titles used to describe graduate trainees also vary, but typically they are known as analysts. (Note that this is different to ‘equity analysts’, who prepare research reports on companies.)
Promotion from an analyst to an associate also varies. At Dresdner, for example, this typically takes three years, while at other banks promotion can take less time for very talented analysts. The position above associate is commonly referred to as vice-president. Unlike law and accountancy firms, very few investment banks are organised as partner-ships, so graduates aim to become directors as opposed to partners.
|Qualifying as an investment banker|
|Investment bankers advise corporate, institutional and governmental clients on capital-raising, mergers and acquisitions, takeovers and privatisations.
Applicants must typically have at least 24 UCAS points and a 2:1 honours degree in any subject. Applicants should also be numerate and have some knowledge of the financial services industry.
Undergraduates in their penultimate year should consider applying for summer analyst programmes (or internships) during their autumn terms. Most applications for summer analyst programmes close in or around February of the year in which they run.
The timetable for receipt of applications is flexible. The investment banks have different deadlines, and unlike law it is advisable to start applying as early as possible in your final year.
A lot of investment banks only accept online applications.
The selection process is rigorous and will involve a combination of interviews, presentations, numeracy tests, verbal reasoning and psychometric tests. In some cases applicants will be invited to attend full or half-day assessments. Some banks still conduct milk-round interviews. Check with your careers library for relevant dates. Starting salaries vary depending on the size and reputation of the investment bank.
The median starting salary is 35,000 and the level of training varies between banks. Although it is predominantly work-based, analysts will also have to sit either the Securities Institute Diploma or the Chartered Financial Analyst (CFA) exams. The latter is more common in US investment banks.
Employers should pay for fees towards your professional courses.
Promotion from analyst to associate also varies between investment banks.
At some, such as Dresdner Kleinwort Wasserstein, promotion is fairly automatic after three years; while at others promotion is based only on performance and not length of service.