Why the hype over I-banking?

Graduate School Business School - MBA
1

<p>Hi,</p>

<p>If those of you who have experience with the investment banking profession aren't too busy, I'd appreciate it a lot if you could take some time out to answer some of my questions.</p>

<p>First off, I'm a high school senior heading to a good college (Yale) in Connecticut next year. I was talking to some of my future classmates recently, and a number of them told me that they wanted to become investment bankers later on in life. Up until that point, I'd never even heard of investment banking, since I'm surrounded by people who are very science and medical professions-oriented. However, when I asked my future classmates what investment banking involved, they didn't really seem to have a clear idea.</p>

<p>Searching on the Internet didn't really help. All I found out about investment banking was that it involves managing the assets of corporations and dealing with securities and bonds and stuff like that, jargon which kind of went right over my head. What I did find out was that investment bankers have a very hefty salary, which intrigued me because my family is poor and I'd like my future profession (whatever it may be) to afford me some financial freedom. However, the high pay also made me a little suspicious, for reasons below.</p>

<p>So, in my roundabout way, what I mean to ask is whether an investment banker out there, or anyone who has experience that ties into investment banking in some way, could tell me, preferrably in layman's terms, what investment banking really involves, and why a previous poster in this forum (sorry, I can't remember who) said that a high school student would run away if he/she were to find out what the profession consisted of. As well, why do investment bankers make so much? Is the job really that difficult/the hours that gruelling/the job environment that stressful that investment bankers have to have a high salary so that they don't quit their jobs, or is it just because investment bankers are working with very wealthy corporations that can afford to pay? A high salary is desirable to me, but not at the cost of my sanity and some family time.</p>

<p>Thanks for reading the above, and further thanks if you took the time to make a reply!</p>

2

<p>MONEY
Very long work hours</p>

<p>At the top of this page,click on search,advanced search,type in 'investment banking', and below that-select 'titles only.'</p>

3

<p>i think it has to do with $$$</p>

4

<p>how does the $/hr in IBanking compare to consulting? accounting? operations? etc?</p>

5

<p>a lot of the reason why is money more than anything. There is a lot more potential to make in investment banking rather than accounting or something like that because investing is your daily life. You'll know what will work and what wont. Something like accounting just pays you a salary, so then any money left over that you would want to invest either goes to an investment banker to help you invest, or goes to something you're not sure that will give you good returns.</p>

6

<p>I think there is a certain "rush" associated with being in I-Banking; the deals, the people and,for some, above all else, the bonuses. </p>

<p>I-Banking seems to be a good fit for obssesive-compulsive type As:D</p>

7

<p>you were wanting reasons for doing i-banking. yes, you will be working bad hours, think 90 hours a week average with spikes of 120 hours to 140 hours during a big deal.</p>

<p>investment bankers are on the sell-side, they do everything from underwriting IPOs (where they end up pricing what the stock will be released at, etc) to advisory (when two firms are merging, banks are usually hired to oversee the process or in some cases work with the specific companies to further their interests) and there are generally other roles. Most banks break analysts into industry groups so you end up learning about companies in a specific sector, like telecoms, you would follow all the news on these firms and end up pitching services, ex: trying to tell one telecom how it'd be good to acquire another smaller telecom, etc.</p>

<p>investment banking provides great exit opportunities, the only thing that will come close to matching this is management consulting.</p>

<p>After 2-3 years as an investment banker you've got so many options:</p>

<p>you can join a private equity firm and be on the buy side of transactions, your firm will work to acquire private firms or bring public firms private, you work will be more exciting, more earning potential, and usually hours are a bit better</p>

<p>you can work for a venture capital firm where your firm funds start up companies, you end up trying to find the next google</p>

<p>you can work in corporate development or business development, this means you'll be at a fortune 500 company making strategic business decisions, you work on how to expand or contract, whether you should acquire firms or not, you make decisions that actually affect your business -- but you also take a haircut in pay, 75-110k base pay with bonus potential, but not as much as i-banking. however, you will only work 40-60 hrs a week. great lifestyle</p>

<p>you can work for a hedge fund doing analysis work on specific industries.</p>

<p>And yes, pay is good. 100k or a little higher for your first year out of college.</p>

<p>Also, investment banks have Sales & Trading groups, these guys are actually generating the most revenue for banks these days, recently Goldman Sachs named its new CEO who actually comes from their S&T side. If you're a trader you end up trying to make plays on how you think the market will move. If you're very good at trading you can make more money than any banker, if you're not good you can get fired. Compensation is tied to performance, its much more of an eat what you kill atmosphere, easy to get fired, much riskier than traditional investment banking. Lifestyle is much better, hours are much less, you have fewer exit opportunites though. Being a good trader just makes you a good trader, you lack the exit opportunities that a normal i-bank analyst would receive, but if you're good at trading that shouldn't matter</p>

8

<p>Out of the options you listed (PE/VC/corp dev/hedge funds/trading), which is the..</p>

<ol>
<li>easiest to break into coming from ibanking?</li>
<li>most money (+bonuses) per number of hours a week?</li>
<li>least risky? (is it an inverse relationship to $$$ in all cases?)</li>
<li>least repetitive/mundane?</li>
</ol>

9

<p>I pretty much touched on most of those subjects in the above post.</p>

10

<p>I've heard of lawyers sometimes making the switch to investment banking without going through business school. Is it possible for some investment bankers to make the opposite switch?</p>

11

<p>First, it's pretty tough to make the switch from law to banking -- but it's possible. Bruce Wasserstein is an example of this, he went from Cravath to i-banking. </p>

<p>Keep in mind that an MBA isn't always needed to advance within i-banking, if you perform well you can be promoted without one.</p>

<p>As for I-Bankers becoming lawyers, you'd have to go to law school. You need a law degree to be a lawyer at one of those big law firms. However, I think the i-banking analyst stint would probably be good experience, and while it wont help for all the law firms you apply to -- it may help when you're seeking a job with a big law firm after law school.</p>

12

<p>Money and Prestige</p>

<p>Everyone wants to do it so that makes more people want to do it and makes the salary higher "strangely" if you think about it</p>

<p>It's like a stock, everyone wants to buy it so it becomes higher priced</p>

13

<p>No... I don't believe that's how it works at all lol.... More supply (people who want to be I-Bankers) should make the salary decrease as long is there is a constant number of I-Banking jobs...</p>

14

<p>thats why i said "strangley"</p>

<p>you're going to tell me that the reason why IBanking salaries are so high is because of a dearth of supply?</p>

<p>it's one of the most popular prospective careers besides lawyer or doctor</p>

<p>it's not as simple as a supply and demand curve, "lol"</p>

<p>haven't you read liar's poker? people lined up around the block to interview for IBanking jobs in the early 80's, you think less people know about it now?</p>

<p>I like how people who think they will become future IBankers think they discovered this big secret career promised land and they are guaranteed a shot at it</p>

15

<p>1) what investment banking really involves, </p>

<p><a href="http://en.wikipedia.org/wiki/Investment_bank%5B/url%5D"&gt;http://en.wikipedia.org/wiki/Investment_bank&lt;/a&gt;&lt;/p>

<p>2) why a previous poster in this forum (sorry, I can't remember who) said that a high school student would run away if he/she were to find out what the profession consisted of. </p>

<p>MY guess: someone who has never been personally involved in the business themselves, first-hand, but get's their infomation by reading a few best-sellers or snippets from the news.</p>

<p>3) Why do investment bankers make so much? </p>

<p>I banks think their capital is really the ingenuity and talent of their employees. To successfully compete they think they need the best and the brightest.</p>

<p>As for why they have the wherewithall to compensate like that, I don't really know. It must have something to do with ologopoly. And perhaps companies desperate to pay for the best advice. Their daily deicisions directly affect the financial well-being of major companies with huge resources and a lot at stake.</p>

<p>Every now and then a company like General Electric buys an I Bank, decides "geez, it's ridiculous what these guys are getting paid", and tries to cut compensation to more sane levels. And it never works. The best bankers leave, the companies do worse and the banks are sold or closed.</p>

<p>4) Is the job really that difficult/the hours that gruelling/the job environment that stressful that investment bankers have to have a high salary so that they don't quit their jobs,</p>

<p>Yes. But they don't have to have THAT high a salary.</p>

<p>5) or is it just because investment bankers are working with very wealthy corporations that can afford to pay? </p>

<p>In part, see above. I think it's also competition within the industry, perhaps.</p>

<p>It's true that there is an ever-increasing supply of people who desire to get into investment banking. However, the supply of the absolute brightest people in America who share this desire is more limited. The banks don't really feel that they can succeed by settling for a lower rung on the talent totem pole in order to save some salary bucks. Because in the end it's the talent that gets the business.</p>

<p>6) A high salary is desirable to me, but not at the cost of my sanity and some family time.</p>

<p>There is no way this field will be fully compatible with your family life. Long hours at the office, weekend hours too, evening entertainment oblgations, and frequent business travel are staples of many investment banking jobs.</p>

<p>However, there ARE some related areas that might work better in this regard. Speciifically, securities sales, trading, research.</p>

16

<p>cmaher... I was only saying it is nothing like a stock...lol...still</p>

17

<p>Wow, Yale. Investment Banking as a profession is notoriously difficult to enter, but undergraduate college prestige matters alot and yours will help a bit.</p>

<p>I only have a bit of experience as an intern and low-level operations, but I think I can demistify it for you. Investment Banking and all it encompasses is head over heals the most competitive industry in our country. This is because of the very unique nature of an ibanks revenues, one that is very closely tied to human resources more than anything else. The revenues that star bankers and traders can generate for a firm are much more than their own personal incomes. They know that and the industry knows that, and firms simply cannot risk lowering stratospheric income levels for these guys. If they do, they can easily jump ship or even start their own lucrative firms.</p>

<p>That said, you'll have to be at the top of your game to enter the good fields of this or similar professions. Because of the insane competition, everything matters- from where you went to school to how you dress. It appeals to almost everyone that has heard of it, including myself. The unfortunate truth is that the vast majority will not be successful and even more won't even get a chance. For the upcoming year, I've already prepared myself for that kind of outcome.</p>

<p>pm me or ask any more questions, i enjoy talking and dreaming when I should be studying and working :)</p>

18

<p>How big of a salary are we talking about here? I know that on average, business majors from the UG level make about 50K per year, so how much more do I-Bankers make?</p>

19

<p>Ibankers out of undergraduate make about 55k base and 30-60k bonus, depending on performance and firm's revenue.</p>

20

<p>Okay, then I want no part of it, lol. Although that bonus is amazing, lol.</p>