Getting through the investment banking interview process is notoriously tough, but provided you know your chosen business area, have a good grasp of the markets, understand the firm you’re applying to and, importantly, have a realistic idea of your own strengths and weaknesses, it should – in theory – be relatively formulaic.
All banks ask the same types of questions: competency, motivational, technical, ‘fit’ and brain-teasers. To give you an idea of what to expect, and how to answer them, we’ve asked a panel of experts to give their views on what constitutes an ideal response to real investment banking interview questions. They are:
-Peter Harrison, a former Goldman Sachs executive director turned founder of careers advisors Harrison Careers.
-Mark Hatz, an ex-Goldman Sachs and Perella Weinberg associate, now author of the Investment Banking Interview Preparation Pack.
-An investment banking analyst from the class of 2013, now working at a top institution in London. For reasons of compliance, he’s chosen to remain anonymous.
What do you think you’ll be doing in the first year of the job [investment banking division]?
Question type: Competency
Peter Harrison’s ideal response: “I expect to be doing whatever it takes to make the life of the team easier so we can get on with the business of executing deals for clients and doing pitches to bring in more deals. Some specific things might include:
1. Preparing pitch books.
2. Liaising with lawyers and accountants as they help us perform due diligence work.
3. Research to gather data that will be used to provide advice to clients.
4. Preparing financial models, usually involving Excel and comparable ratio analysis.
5. Figuring out key drivers for each industry.
6. Supporting transaction teams who are executing deals and supporting teams pitching for business.
7. I know you require total attention to detail. You need me to be enthusiastic and full of energy, with a 'can do' attitude and be willing to ask for advice. That is exactly what you will get from me.”
What are the implications of expansionary monetary policy, more specifically for the debt capital markets (DCM) - i.e. bond issuance?
Question type: Technical
Investment banking analysts’ ideal response: “This question was asked at an interview for a DCM position and it was particularly aimed at testing the understanding of the market reaction to policies adopted to fend off the financial crisis. Candidates should immediately narrow the field, probably thinking backwards is the trick here, or it's easy to get lost in the reaction chain of the variables that drive markets. Ideally, you should cover the following:
-Low interest rates from central banks stimulate investors to put their cash to work, instead of leaving it in safe term deposits with banks, which more specifically drives a rush to invest in creditworthy companies as soon as they issue a bond.
-This strong demand has pushed the borrowing cost of firms to the lowest levels in history. The next step has been the ‘search for yield’, as investors started trying not to crowd their demand only on extremely safe and creditworthy companies, but on the so-called high yield (more risky ones).
-This trend ultimately helps companies be able to tap the bond market (not all of them) to achieve funding at extremely low rates, kicking off investments into new products, acquisitions etc. On the other side, it also risks fuelling a bubble, as companies deemed quite risky pay a very low cost for borrowing money, simply thanks to an artificially created investor demand.
It’s worth pointing out that one of the main reasons people receive bad reviews after interviews is because they don't know how to talk about markets, as this is what ultimately drives every single investment banking product, from trading to M&A.”
What was the last thing you read in in the FT / Wall Street Journal that interested you?
Question type: Motivational/Fit
Mark Hatz’s ideal response: “If you have already spoken about the firm’s latest transactions or the transactions you have worked on, pick an unusual or amusing story that may attract your interviewer’s interest. Stay professional, but show you can also be interesting or funny. Interviewers are often trying to find people with character, with ability to keep their sense of humour in stressful situations. They will notice you have taken a risk in your reply, and might interpret it as a sign of honesty or maturity. This will cool down the atmosphere and involve your interviewer.
I remember a senior colleague of mine once coming back from the interview room, pushing in his feedback for the application of the analyst candidate he had just met. His main argument was: “He made me laugh. He cracked a few funny jokes. He is not very technical but I think we should give him a chance to get to the next round”. This candidate did not go to the next round as the rest of us found him quite weak technically, but he had won the favour of one of our people just by being amusing. Although I would not recommend you go over the board, you should show here that you can think out of the box and be interesting.”
Why have you decided to apply for this role?
Question type: Motivational
Investment banking analysts’ ideal response: “This question is very common and most likely no candidate will get through the whole interview process for a graduate role without being asked. It can be tricky as everybody tends to apply to a huge number of banks and advisory firms that have similar structures and describe themselves in the same way on their websites - i.e. the independent boutique extremely close and fair to clients, or the bulge bracket firm with global capabilities etc.
With this ‘flat’ information, it's often difficult not to come up with a standard answer. Candidates should utilise the firms' own websites only to understand the areas they focus on and the way they structure their graduate programmes, the rest needs to be sourced from articles and specialist websites. Ideally, the answer should be related to specific tangible strengths of the firm, their own unique position in the market, areas of expertise etc. Another good idea might be to try and follow from the press which area of the investment bank the firm is adding headcount and expanding in, so to add a strategic spin to the answer.”
What do you know about our business model? What makes [Goldman Sachs] different from our competitors?
Question type: Fit
Peter Harrison’s ideal response: “That's a tough question. I know how investment banks work but I think describing the entire business model of each business within Goldman Sachs could take hours. My perception is that investment banks primarily deal with organisations and people who have money, and help organisations who need money. So our investment and wealth management businesses, and our equities, fixed income, FX and commodities businesses help organisations and individuals invest and manage money. Our investment banking division helps companies, governments and other organisations raise money, generally by selling debt and equity. IBD also helps companies manage growth by buying and selling other companies. This is all very simplistic and I can go into a lot more detail. Should I?
What makes Goldman Sachs different? The world's financial press devotes millions of column inches to this question every year. I think the people of Goldman are the differentiator. Simply put, you recruit, train and retain the best.”
Do you have any questions?
Question type: Not a type, but one last opportunity to impress and something many fail to capitalise on.
Mark Hatz’s ideal response: “It is best to ask two questions. But if you see it goes well and your interviewer gets involved, go for three or even four. It is a way to tell your interviewer you enjoyed the interview and you do not want the conversation to end, and also highlights your motivation for the job and the industry.
A good strategy can be to ask questions you already know the answer to, so that you can follow up and argue with the interviewer. You also might want to simply ask for his opinion on something you know you can sound bright about.
Questions to avoid are those about financial compensation and anything that you could have found by yourself (like ‘how is the team organised?’).
Here’s an example if you were interviewing at a boutique investment bank: ‘My first question has to do with the boutique model. I am trying to understand why boutique investment banks are more successful than bulge bracket banks in recession times. Is it simply because when you are a Morgan Stanley and you weigh 30% of the market, whenever the market goes down, you would go down with it, whereas boutiques with a 2% market share cannot feel the hit? Or is there something else?
Another question if I may: a lot of boutique investment banks get into asset management on the side of financial advisory to compensate for the unpredictability of large deals. Is it a strategy that could interest you in the future, opening an asset management arm?
Back to my internship and more on the attitude side now, I know I have already given you my opinion on this, but I would find very interesting to hear yours: what do you think are the top three qualities for an intern to be successful at Alpha Partners?
One last question, if you think we still have time. Very simple. Do you make offers at the end of internships?’”
We realise there are no brain-teasers here, and this is largely because banks tend to vary these each year, and are designed to test candidates' reasoning and logical skills. Recently, according to Glassdoor, JPMorgan was rumoured to ask how many street lights there were in Manhattan, while Morgan Stanley wanted to know how much annual revenue the Starbucks in Time Square made. There are no shortages of examples on eFinancialCareers - you can find them here.