Investment Banking Interview 101

For it’s always easier to remember definite numbers than lengthy and multiple bullet points. Of course, for full information, feel free to click on other reference links on this post.

1. ONE thing you should avoid at all cost: being too direct and negative with your weakness

Or in other word, to remind you again, don’t be late for you Superday. Automatic rejection will come to any candidate who cannot watch their time. 

Half an hour before the interview is the ideal time to be present at the interview location. However, if your intention is to use that time to revise one last time before the real nerve-wracking interview, don’t do that at the exact spot of the interview. You should find a coffee nearby and do your revision there.

If you are late, and you have a logical reason for that, inform the contact person in advance.

2. TWO minutes is the ideal length you should consider for the first question – “Walk me through your resume”

Similar questions that you will get asked are:

“Tell me about yourself”

“Can you introduce yourself”

And “Why are you here today?”

Your answer to this type of question should be as concise as possible, ideally in 1 to 2 minutes, which equals to 200-300 speech words.

3. THREE short stories for anything could be asked in your interview

When being asked about both your personal and professional experience, you should give your answer in a short stories. Depending on what the question is specifically about, there are 3 types of story answer for you to choose:

• A SUCCESS story: The journey you took to overcome a super difficult task, an overwhelming challenge. 
• A FAILURE story: One time when you missed the shot, and the lesson you learned.
• A LEADERSHIP story: How you nailed it at teamwork, and how can you be a star team-player?

This is an example for your success story. You did a strategy/corporate finance internship at IBM where you had to analyze thousands of financial transactions related to outsourced providers of company services; you found the top 5 most time-consuming processes and made a recommendation to simplify some of them, which saved thousands of man-hours each year (the equivalent of several full-time jobs). 

With this answer, you can show your quantitative skills, attention to details, and interest in finance. Relevant interview questions can be about your ability to add value, work in teams, or improve processes.

4. FOUR particular parts of the story you tell when answering the “Walk me through your resume” question

5. FIVE industries that can appear in the industry-specific technical questions

FIG (Financial Institution Groups)

Question: How does an insurance firm make money?

Answer: Insurance firms collect Premiums upfront from customers who pay to be protected in the case of an accident (car, house, business, health) or death (Life Insurance). They pay out Claims to customers if the accident happens.

In the meantime, they collect a lot of money upfront (similar to commercial banks), and they use this money (“the float”) to make investments and earn interest and investment income. Many insurance companies are unprofitable based on their Underwriting activities and only become profitable due to their Investing activities.

Restructuring/ Distressed M&A

Question: How much do you know about what you actually do in Restructuring?

Answer: Restructuring bankers advised distressed companies – businesses going bankrupt, in the midst of bankruptcy, or getting out of bankruptcy – and help them change their capital structure to get out of bankruptcy, avoid it in the first place, or assist with a sale of the company depending on the scenario.

REIT (Real Estate Investment Trust)

Question: How do REITs operate, and what are their main requirements?

Answer: REITs operate, acquire, develop, and dispose of properties and continually raise Debt and Equity to fund these activities. They are similar to private equity firms, but for properties rather than companies.

REITs must distribute a high percentage of their Net Income as Dividends (90% in the U.S.), must earn a high percentage of revenue from real estate-related sources (often 75%+), and must maintain a high percentage of real estate-related Assets (often 75%+).

If REITs follow these requirements, they pay no corporate income taxes (or very low taxes). In many countries, there are also requirements related to the number of shareholders and the concentration of shareholder ownership.

RE – Properties and Real Estate

Question:  Why would you invest in real estate?

Answer: As an asset class, real estate combines many elements of fixed income and equities and is somewhere in between them regarding risk/volatility and potential returns.

You could invest in properties with risk and potential returns in-line with investment-grade corporate bonds, high-yield bonds, blue-chip equities, growth equities, or ones with even higher risk and potential returns than growth equities.

Real estate investments could provide anything from a stable, tax-advantaged income stream (due to the Depreciation deduction for individuals) to the potential for high capital appreciation.

Natural Resources

Question:   What are the different segments of the oil & gas and mining industries?

Answer: The major segments for oil & gas are upstream (also known as Exploration & Production (E&P)), midstream, downstream (also known as Refining & Marketing (R&M)), oil field services, and integrated majors.

Most M&A activity takes place in the upstream segment because those companies focus on finding and producing energy in the first place, which is the biggest value driver in the industry.

6. SIX traits interviewers will look for to see whether you are suitable to this position

For each of the questions you get asked, remember the interviewer is definitely looking for some of these six traits of a future banker in your answer, so the best tactic is to always remember to  imply those traits in what you’re going to say.

• Numerical/Analytical Skills – Playing with numbers like toys in your hands, practise so miscalculation won’t happen.
• Client Management – Communications, business etiquette, soft skills, what to do to make clients like you?
• Teamwork/Leadership – Are you a team player, or if in the leadership position, are you able to manage your group to finish the work on time, or resolve all the conflicts between members?
• You Can Burn the Midnight Oil – You can work in long gruelling hours and in an extremely stressful environment. You also have the mindset of prioritizing work over family or friends.
• You Don’t Shake the Jello – You must be super detail-oriented, and can spot others’ small mistakes.
• Burning Desire to Learn, and Great Appetite for Work – Prove that through your experience. You’ve traded stocks, worked on deals, created financial forecasts, and completed finance internships.

7. SEVEN mistakes you should avoid when telling your stories

The objective of crafting all these 3 stories is for the interviewers to capture the most of meaning behind your experience, and to see how fit you are to investment banking. Therefore, make sure your effort will not be wasted by getting your stories far away from these 7 mistakes:

#1 Rambling on the beginning: Your class schedule, your previous 11 internships, or all 114 of your extracurricular activities. They are all the things that only you see as necessary, but actually, it’s no-one-cares.

#2 A generic spark: Name, name, and name. That’s a single simple recipe for you spark to be “sparkling” – attractive and specific. Put name anywhere you see as possible – a professor, a competition, a deal, a company.

#3 Too many plot twists: One or two “hops” in your “Growing Interest” section is fine, but you should avoid going beyond that, or you’ll give the impression that you don’t know what you’re doing in life.

#4 Illogical experience arrangements: Make sure one transition is followed up with one logical reason, and the experience should be arranged in chronological order as well. It’s OK to group together experiences and act like they took place at the same time, but you should not jump back and forth between time periods.

#5 Jump straight into negativity: Be careful with listing reasons why you quit  your previous job. Playing the “blame game” in an interview is a losing battle. Get back to number 1 for more examples of negativity, especially in weakness QnA.

#6 A not-so-clear vision: Even if you’re not quite sure of your career plans, you must define something for interview purposes. This point is especially critical at the MBA level because interviewers will reject you if you don’t seem committed. If you don’t explain why you’re there by saying, literally, “I’m here today because…” then interviewers may not understand why you’re there, and you won’t get offers.

#7 Redundant information: If there’s information that does not make a bank more likely to hire you, leave it out. Don’t include your 2-month internship that was irrelevant to finance, or a work experience gap of 4 months.

8. EIGHT other types of questions besides technical cases and technical questions

The best interview preparation strategy is to practise by question types. Other than the “Walk me through your resume” question, these are 8 question types that you should practise one by one:

8.1 Strengths and Weaknesses QnA

Question: “What are your strengths and weaknesses?”

Suggestion: You should present 2-3 strengths and 2-3 weaknesses and then give a short example – probably one of your “short stories” – to support them. If you don’t have one story that illustrates everything, you can use one story for your strengths and another story for your weaknesses, but you have to make them CONCISE.

8.2 Resume/CV and Academic Experience QnA

Question: “What are the 3 most impressive entries on your resume?”

Suggestion: This question should be easy because you can answer it with your 3 short stories: The  “Success” one, the “Failure” one, and the “Leadership” one.

8.3 Flaws and Failures QnA

Question: “You went to business school in Los Angeles, but you want to work in investment banking. Why didn’t you go to school in or near New York City instead?”

Suggestion: With this question, you need a specific reason for attending the MBA program you did. That reason is usually that you were working full-time in the area and wanted to continue working during a part-time or evening program. You could also say you were interested in an industry in this area (e.g., tech for San Francisco or energy for Houston).

8.4 “Outside the box” QnA

Question: “If you were a billionaire, would you be interviewing for this job right now?”

Suggestion: Give a “middle of the road” answer where you admit that you probably wouldn’t stay in the field for life if you were a billionaire, but that you are still interested in the work itself.

8.5 Teamwork and Leadership QnA

Question: “Can you talk about a team project or group activity you’ve worked on before?”

Suggestion: You should use your “Success” story and the STAR (Situation, Task, Action, Result) structure for this one. Aim for 100-150 words to keep your answer under 60 seconds.

8.6 Recruiting process QnA

Question: “Within banking, which other firms are you applying to?”

Suggestion: At the MBA level or above, you must say, “only investment banking” or you will be dinged immediately.

As an undergraduate, you can get away with: “I’m focused on investment banking,” but admit that you would consider other options if you don’t win an offer.

8.7 “Why banking and why us?” QnA

Question: “Why are you moving from a small bank to a larger bank? It sounds like your internship there went well.”

Suggestion: It’s easier to explain this move because it’s very common, and larger banks offer distinct advantages over smaller ones.

8.8 Understanding banking and finance QnA

Question: “Walk me through the process of a typical sell-side M&A deal.”

Suggestion: If you’ve done enough research to win interviews in the first place, you should know these topics like the back of your hand. If you’ve completed an investment banking internship, you are unlikely to get these questions. Instead, they’ll focus on your work experience and technical questions.

9. NINE technical concepts require much of your preparation effort

Technical questions – The most familiar part that anyone can think of when mentioning an investment banking interview. Again, break the technical concepts down, and practise by types:

Concept 1. Accounting and The Three Financial Statements

Concept 2. Projecting Three Financial Statement

Concept 3. Enterprise Value and Equity Value

Concept 4. Valuation and DCF Analysis

Concept 5. Merging and Acquisition

Concept 6. Leveraged Buyouts and LBO Models

Concept 7. Equity Capital Markets (ECM), Debt Capital Markets (DCM) and Leveraged Finance (LevFin)

Concept 8. Private Company Analysis

Concept 9. Industry-specific concepts, including FIG (Financial Institution Groups), Restructuring/ Distressed M&A, REIT (Real Estate Investment Trust), RE – Properties, and Natural Resources