Mr. Exclusive

Investment Banking
Aug 13, 2014
This last part will focus on technical questions (which aren’t really that technical for Spring Weeks) as well as commercial awareness, brainteasers and the end of the interview.

Technical Interview Questions
- Briefly describe what an investment bank actually does?
This may sound like a ridiculous and stupid question at first but a surprising number of candidates manage to screw this up, fail to articulate an answer simply and hence it is a firm favourite to ask. The key aspect to remember here is that an investment bank is an intermediary. They make markets, bring buyers and sellers together as well as execute transactions. An answer might consist of “An investment bank acts as an intermediary in different scenarios such as making markets, executing transactions, raising capital and ultimately bringing buyers and sellers together in a variety of different divisions assisting both corporate and government clients in their financing-related problems”.

- Outline the stages involved in an M&A or IPO transaction
For example, during an IPO the following stages occur: Hiring the Managers (Beauty Contests etc.); Due Diligence & Drafting; Marketing (Road Show) and finally the stock starts trading. For M&A this might be something like: Preliminary Valuation Analysis/Setting Expectations; Prepare Marketing Materials; Execute Marketing Programme; Preliminary Due Diligence; Final Bids, Negotiation and Buyer Selection. See the M&I guide.

- Pitch me a stock
Pick a stock; outline a recommendation plus three key reasons for that recommendation. Then explain those three key points in more depth - presentation is imperative here. There is no wrong answer as long as you can justify well and answer any key questions an interviewer might have. Prepare an answer to this carefully before interviewing if you have applied to Research or S&T.

- When one shareholder relinquishes their stake, what happens?
No new capital is raised and there is no new issue of shares. It allows for easier future secondary offerings if the large shareholder sells shares on an exchange. Questions of this variety can be asked and some banks such as Credit Suisse use them more than others.

- What is the difference between developed markets and emerging markets?
Throw in some commercial awareness on this one - what are the key differences? Why do they exist? How is it likely to change moving forward? How does that impact the markets? It is hard to provide generic guidance here as the answer to this will change from time to time.

- You are buying a car (or any other asset) and have the option to either buy the car now at £9,000 or pay £10,000 in three years’ time. What option are you going to take?
This question is looking for your understanding of basic concepts in finance such as present value, future value and discount rates. It is based on the principle that a £1 today is worth more than a £1 tomorrow. See the Investopedia guide.

Commercial Awareness
The questions below don’t have any hints because they really are very self-explanatory. The key point here is that you will be asked this. Some banks do it more than others but you should be prepared. This will not be an overnight fix either - you should immerse yourself in the news and commercial awareness gradually from now onwards which will shine through in your answer and make this question an easy to answer one. It can really help seal the deal so do not mess it up, it is easy to tell if a candidate does not very often read the news and has just got this one article ready for the interview.

For this reason, interviewers are always keen to ask follow-up questions. Therefore, it can be best if you answer with a long-standing news story and talk through some of the developments over a period of time on that specific issue. You should also form your own opinion on the news item and express this at interview showing conviction.

- Describe a recent transaction or other news article relating to the industry that you found interesting and why?
- Explain some recent form of regulation and how that will impact the division you have applied to?
- What did the FTSE100 close at yesterday?
- Describe a recent event and how that impacted financial markets?

The key with all these questions is the logic you use, the exact answer doesn't matter. They want to see your thought process.

- If I start a tie company in China, what sales revenue can I expect after five years of operating?
This type of question is slightly different. It is looking for you to take something basic you know and then logically develop it to reach a conclusion (even if it is wrong). You should lay out your assumptions. A starting place with this question might be you know the population of China is around 1 billion. You then go on to make the assumption that the tie market this company has will be about 10% of this so 100 million. Finally, you make the assumption that each tie, on average, sells for £10 and therefore sales revenue in your first year is 1 billion. You assume a growth rate of 2% because it is a mature market and reach a slightly higher figure for your fifth year. This is obviously the wrong answer but your approach to answering it is correct.

- What is the angle between the hour-hand and the minute-hand of a clock at 3.15?
The above is a different type of brainteaser where there is a correct answer but they still want to see your thought process as far as it can go - this is what they are assessing. This is very common and it is testing your attention to detail in terms of whether you have integrated the fact into your logic that the hand moves one quarter round between 3 and 4 because of it being fifteen minutes past. The clock has 360 degrees so there is 90 degrees between 3 and 6. Divide again to get the difference between each hour and then find what a quarter of this would be.

To be honest, brainteasers are increasingly less common and quite rare in interviews for Spring Weeks. Also, the answers are likely to be on the internet as the interviewer is unlikely to have time to come up with one themselves – the chances are in your favour that it is taken from Google so be well-prepared.

End Questions

What has your experience of the bank been so far?”
Why did you decide to pursue a career in equities trading?”
Has the culture of xyz been your experience here?”
Why did you pick this bank over other banks?”
What did you think of the recent transaction of x merging with y?”
During the interview, you mentioned about x, I was wondering if you could expand on this at all?”

The above are some examples of questions you could ask but really there is no right answer to this. Whatever you do, you should not ask questions for too long, but DO ask questions. Five minutes is enough. Likewise, you should not ask questions that are clearly out of depth for the person you are asking. If you are chatting with HR, then asking something like “Was the Royal Mail IPO undervalued?” is not going to be easy for them to answer. Of course, asking the standard questions such as when you will hear back are fine. If you are interviewing with an industry representative, sometimes it can be a good idea to ask for their email so you can just send a simple follow-up message after the interview. This helps them remember you.

Different banks conduct interviews differently. At some institutions you will just be interviewed by HR. At others it will be HR and an Analyst. At some it might even be VP or above and others it will be a combination of HR plus Analysts/Associates from various departments. Likewise, the format of the interview (telephone, face to face) can be one or both.

Your questions at the end could focus, for example, on something that was said in the interview: perhaps about the background of the interviewer, why they joined the bank, what appeals to them, if they like the culture, maybe you have a common interest (like the same sport, went to the same university), what is the best deal they have worked on etc. anything that shows you are a good listener, proactive, interested and gets them talking about themselves - everyone loves talking about themselves, it's a massive ego boost. If you make the interviewer feel good about themselves then they will feel good about you.

During the course of interviews you need to convince them that:

1. You are serious and have real passion for the industry
2. You are interesting or can talk about a wide range of topics (the typical “can I sit on a plane with this guy/girl?”) - I can get on with this person
3. You know your shit

It is perfectly okay to ask for clarification during an interview and you should view each one as positive, even if it is totally disastrous, as any experience gained through the process will make a difference to your performance in future.

The three guides are far from exhaustive on this and you should have answers prepared to these as an absolute minimum but nonetheless, this should help steer you in the right direction – best of luck with the process!

Part I (fit interview questions) is here.
Part II (competency interview questions) is here.