From the monthly archives:

January 2012

When Warren Buffet is looking for a top investment professional, he looks for three distinct qualities. How well do you stack up against these three criteria, and communicate these qualities in your quest for an investment banking job?

The three criteria are intelligence, energy, and integrity, according to a recent story from CBSnews. Buffet says a leader having only 2 out of 3 of them can kill a business, or, as one might surmise, dampen your chances of landing that job.

High intelligence and high energy but without high integrity basically means you have a “smart, fast-moving thief.” Low energy but high intelligence and integrity means you have a “shop keeper,” not someone who is going to drive growth. And low intelligence but high energy and integrity means you have someone who will follow the rules, but not be great in the problem solving or vision department.

How well are you expressing these qualities in your job hunting materials? The article is written for the recruiter or person on the other side of the desk. But you could just as easily translate them for yourself. How well are you communicating your energy level? What sports or physical regimens do you have? Do you work out? Run? Practice a martial art or meditate? You need to demonstrate your capacity for hard work and endurance.

As for mental acuity, expect to be put through the ringer, taking various tests from games like “Connect Four” to making a presentation solving a financial or business problem. Shrewd interviewers may also ask you to give the same presentation over again, in half the time or cutting it down to one minute, to show your ability to think on your feet.

Demonstrating your integrity may be a trickier issue. They will likely perform a thorough background check on you. However, think of what you can do in terms of awards or service citations that indicate your strength of character.

Are you covering all these bases in your job-hunting efforts? How are you addressing the integrity issue? Add your comments below.

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John Carney offers an interesting glimpse into the backroom negotiating techniques of investment bankers in a recent column for CNBC.

Carney was responding to an op-ed piece by former investment banker William Cohan who had attacked Mitt Romney and his Bain Capital cohorts as being a “bunch of jerks” in the negotiating process for buy-outs. Cohan says Bain Capital “gamed” the system by offering the highest price in the early rounds of bidding for a prospective company, just to get to the exclusive second round of the process. Then they would suddenly find all sorts of warts and wrinkles during the more extensive due diligence process, and start lowering their big, but only after all their competitors had been booted out of the process. Cohan accuses Bain of being particularly rapacious capitalists.

But Carney argues this beating down of the bid was not limited to Bain Capital, nor was it driven solely by greed. It was also a function of the normal and valuable risk management processes of creditor investment banks.

“Investment banks were typically not just found on the side of the deal where Cohan worked, arranging for owners of companies to cash out to private equity firms. They were almost always on the other side of the deal as well, providing the cash the private equity firms would use to buy the companies,” writes Carney.

These creditor banks would go through their own bidding process to win the privilege of financing a private equity firm’s buyout deal. But once they won that right, they, too, had the right to dig more deeply into the guts of the deal looking for potential problems.

Very often it was the creditor banks that forced the private equity guys to adjust their bids. “We cared a lot about managing the risk we were taking on with these loans. From the lending bank’s perspective, it often seemed like the private equity guys had been so eager to win the role of buyer that they had overlooked serious problems at the company,” writes Carney.

Of course, things went “off the rails” between 2005 and 2007, when M&A activity reached such a fever pitch that banks were rushing credit out the door at a frantic pace to keep up with their competitors. The result was astronomical acquisition prices and far less attention paid to risk and due diligence.

The process wasn’t always simple and it wasn’t always polite, says Carney, but it helped keep valuations in line with reality says Carney.

Have you ever been involved in one of these negotiating sessions in one of your investment banking jobs, either on the buy-side or sell-side, at an investment bank? Add your comments below.

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At least one major investment bank is weighing the option of freezing bonuses for their junior investment banking jobs, a move that could catch on if other major banks follow their lead.

Credit Suisse is reportedly considering suspending the automatic bonuses doled out each year to analysts, associates and some vice presidents, according to a story in Businessweek. These staff will still get their regular annual salaries, but bonuses may be lowered to keep total pay flat from the year before.

Industry insiders are watching to see if other big banks such as Goldman Sachs or JPMorgan Chase follow suit. If they do, it could mark a turning point on the Street. But if not, it could open up Credit Suisse to large-scale defections by junior bankers who are able to get higher pay packages elsewhere.

Junior-level bankers typically comprise about three quarters of a firm’s workforce. They often start with base salaries in the $200,000 range, and can expect increases of 15 to 20 percent each year. An investment banker often spends three to four years as an analyst or associate, then three more years as a vice president before being named as a director. Top-producing vice presidents in their third year can earn in the neighborhood of $600,000 to $700,000 in total compensation, according to the article.

A plunge in trading revenue and European debt worries have put a crimp in profits for the big banks, thus leading to more strategies for cutting costs. However, limiting pay among junior bankers could be a risky move since juniors tend to talk more with peers and former classmates and compare notes. The news of lower entry-level pay at one firm can put it at a disadvantage recruiting new employees.

Many of the big U.S. banks will inform their employees about salaries and total compensation by the end of January. New compensation schemes would go into effect at the beginning of February. With earnings estimates slashed by a downturn in trading revenues, the banks are eyeing each other’s compensation plans carefully this month before determining their next step.

What’s your opinion? Do you think the inevitable downward pressure on total compensation, especially for more junior employees, is going to put a damper on young people pursuing investment banking jobs? Add your comments below.

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Pay for Investment Banking Jobs Heats Up at this Location

January 9, 2012

Bloomberg reports that compensation for investment bankers in Brazil is heating up in a big way, with pay hikes in the neighborhood of 25% for bankers ready to defect to rival firms. And while the financial services industry continues to shink in such centers as London and New York, the opposite is true in Brazil. […]

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Where to Find Investment Banking Jobs in 2012

January 2, 2012

It takes more than a Hermes tie and a snappy Powerpoint presentation to make a Maserati-sized living these days, says Rob Cox in his Reuters column on investment banking jobs and the industry. Gone are the days of being a plain vanilla banker. But the crises of the moment, namely Eurozone debt doubts and increasing […]

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