20 ways to tell... (Humour)

20 ways to tell... you're either a prostitute or an investment banker:

1. You work very odd hours.

2. You are paid a lot of money to keep your clients happy.

3. You are paid well but your boss gets most of the money.

4. You spend a disproportionate amount of time in a hotel room.

5. You would change employers at the drop of a hat for more money.

6. Creating fantasies for your clients is rewarded.

7. It's difficult to have a family.

8. You have no job satisfaction.

9. If a client beats you up, the boss just sends you to another client.

10. When people ask you, "What do you do?”, you can't explain it.

11. If you don't do everything to please the client, the boss gets angry, your compensation suffers, and he might even ditch you for a better model.

12. Your clients always want to know what they get for their money, often make strict demands as an excuse to get their "money's worth".

13. Your boss drives nice cars like Mercedes or Porsche.

14. Your boss encourages drinking to ease the pain of it all.

15. When you leave to go see a client, you look great, but return looking like hell.

16. You are rated on your "performance" in an excruciating ordeal.

17. Even though you get paid the big bucks, it's the client who walksway smiling.

18. Your boss keeps close tabs on what you're doing, who you're doing it with, how much time you're spending with them, and your "productivity" levels.

19. You're always telling clients what they want to hear.

20. To feel better, you keep saying to yourself, "Well, I at least I'm not a lawyer."

Internal rate of return (IRR) - (FT)

Internal rate of return (IRR)

Imagine an investment that requires a payment of Dollars 5,000 up front and then produces positive cash flows of Dollars 3,000 in years two to 10. At a 10 per cent discount rate, this project will have a positive net present value of just over Dollars 11,160 and an internal rate of return of 59 per cent. Now assume the investor can sell out at fair value in year three, receiving Dollars 14,605 (the NPV of the cash flows in years four to 10). The project's overall NPV remains exactly the same. But the IRR more than doubles to 120 per cent - even though no extra value has been created. 

This is hardly news. But all too often, it creeps into practice: IRR is the private equity industry's main yardstick for judging performance, raising funds and rewarding managers. Indeed, the sector makes much of its superior, 25 per cent, returns. Yet as the example shows, such IRR-based numbers can be

artificially boosted by extracting cash early - through trade sales, listings or recapitalisations. Indeed, the theoretical investor could accept as little as Dollars 5,000 in year three, thereby destroying considerable shareholder value, and still trumpet an IRR of over 59 per cent. 

IRR calculations implicitly assume that interim cash flows are reinvested at the original IRR. It would be more realistic to assume, as NPV does, reinvestment at the cost of capital. Because it is intuitive and easy to calculate, IRR will remain popular. But it should not be used in isolation and investors should recognise its flaws. 

(c) 2005 The Financial Times Limited. All rights reserved

Bonus figure first, lame explanation next...

Line managers will typically communicate the bonus and total compensation figures first.

If you ever feel disappointed, chances are you will hear one of the following lame and generally not-so-true commentary...

- "It will be better next year, I promise."

- "You got the best bonus of anyone in the team."

- "It has been a challenging year (for the bank, the team, you). We hope you understand."

- "It could have been worse; you could have got nothing!"

- "Don't take it personally."

- "Once we paid out the guaranteed bonuses and others, there wasn't much left over."

- "There's nothing I can do about it, so there is no point in complaining."

- "At least you still have a job!"

Deutsche Bank's Unofficial Guide to Investment Banking

Deutsche Bank's had an "Unofficial Guide to Investment Banking" and have now made a Facebook page of it https://en-gb.facebook.com/UnofficialGuideToBanking (as well as a website, currently under construction www.unofficialguidetobanking.com) 

Beware the (overly) positive spin, though... 

A Game of Clones; Stories of an MBA graduate at a bulge bracket bank

A Game of Clones tells, live from the trenches and in a funny way, stories of an MBA graduate working for a bulge bracket investment bank in the City. It is intended for "all those who feel that they actually sit in the bank and ask themselves everyday, sometimes exasperated and many times very depressed "what am I doing here?""

What does an equity research report look like?

Equity research report take various shape and forms (from ~5 pages including long disclaimers to several hundreds of pages, from slides to redacted documents, industry overviews or specific company analyses, etc.).  Here is an example of a sector piece.

Regrets on the deathbed

A palliative nurse who has counselled the dying in their last days has revealed the most common regrets we have at the end of our lives.
A career in Investment Banking does not help avoiding these...

Tales from an overworked City (FT)

From toilet naps, through the willingness of junior bankers to work around policies to prove themselves, the pride of working long hours, the gap between policies and the reality of the job... this article has many little interesting tales.

Rolling shit - a funny way to look at delegation in investment banking

These slides are widely shared amongst junior finance professionals...

Andrew Lahde's goodbye letter

Andrew Lahde, hedge fund manager, wrote a famous and somewhat controversial goodbye letter in 2008. 

He was arguably wealthy enough to take that decision and to afford expressing strong opinions.

Some statements could be interesting nonetheless:

"(...) I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life. (...)"

"(...) I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life -- where I had to compete for spaces in universities and graduate schools, jobs and assets under management (...)"

Pushing the limits through hard work

This article discusses how junior Investment Bankers are pushing the limits through their hard work.

It relates to the earlier blog BBC Sleepless in the City

No sex and the City (The Times)

It is not all about money, or sex.  But also about relationships.

No sex and the City will make some readers smile, others not quite.

Patience and finance

Investment Banking is a fast-paced career, the article "Patience and Finance" by Andrew G Haldane is interesting in that respect.

Better be ruthless or smart? (Humour)

The following is said to be an initiative test that has been used as part of the recruitment process by a well-known investment bank.

You are driving along in your two-seater car, on a cold, stormy night.

You pass by a bus stop, and notice three people waiting for a ride home.

There in the queue is a very old lady, who's clearly seriously ill and needs to get to a hospital, an old friend who once saved your life, and the perfect partner you have spent many years dreaming about.

Knowing that you only have room for one passenger in your car, who do you decide to give a lift to? You could pick up the old lady and help save her life, select your old friend as he once saved yours, or choose that perfect partner you may never see again, unless you make an immediate move.

The smart answer is:

Give the car keys to your old friend, and get him or her to take the old lady to hospital. Then remain behind to be with the man or woman of your dreams. (This shows commonsense, compassion, and the fact that you are able to grasp opportunities as they arise)

The correct answer is:

Run over the old lady to put her out of her misery, obtain your perfect partner's address and telephone number, and drive off for a beer or glass of wine with your old friend'. (This shows that you are ruthless, well organised and are loyal to those who have supported you in the past - in essence, a perfect investment banker).

The wrong answer is to take the old lady to hospital, and leave your perfect partner in the hands of your old friend. (This shows that you are easily side-tracked from the main task at hand, fail to grasp opportunities as they arise, and allow rivals to get one up on you).

An alternative answer, provided by one of our readers, is to lend your car to your friend to take the old lady to hospital, get on the bus with your dream partner to ensure that she gets home safely and obtain her mobile phone number in the process. (This shows strategic thinking and compassion, and demonstrates that you are able to see a task through to completion).

90million about relationship and health...

There are many blogs about investment banking - this one has interesting views on, for example, "Gaining and maintaining a relationship in investment banking" and "Investment Banking: How bad is it for your health?".

The "banker porn" reading list

For those interested in getting brainwashed by outdated stories and willing to believe they will live the dream... there is a decent reading list of "banker porn" here.

Sadly, the books by David Charters are missing.  They are amongst the very best, though, and closer to reality than it might appear at first sight.

Mergers & Inquisitions

The On-the-Job section of Mergers & Inquisitions is full of nice articles...

BBC Sleepless in the City

The Report broadcast on BBC Radio 4 is very interesting... Sleepless in the City (MP3) came in the context of the death of Moritz Erhardt.

Joris Luyendijk's banking blog

Joris Luyendijk's banking blog has an amazing wealth of very unique interviews and thoughts, in particular in the Voices of finance section.  The comments in the forum are sometimes quite interesting, too.

Not all contributions are of equal quality of course and not everyone may agree to what interviewees say, but it is really worthwhile for everyone to read this stuff...

Vault guide to investment banking

When talking to graduates interested in investment banking / corporate finance advisory, it can be surprising how little they have read about "adjacent" careers such as in Sales and Trading and Equity Research.  These are all different careers, usually suitable for different personalities and skills.  But I believe it is important to have a broader understanding of the investment banking industry, instead of being blindly focused on only the somewhat more "famous" M&A side of things.

The Vault guide to investment banking may be helpful in that respect.  The link is to the 2010 edition but to be fair to Vault, I would encourage readers to buy a more recent version.

Introduction

Dear reader,

This blog is intended to be a little eye opener to curious graduates, professionals in "investment banking" (esp. corporate finance advisory roles) as well as the broader public.

The approach will be to share readings from different sources and about various topics to give some perspectives on the industry and a career in banking.