section: Perspectives
section link: /news/2001/10/22/Perspectives/
headline: My Investment Banking Internship: A Story for First-Years
subheadline:
By: Bob Donnell
author link:
Issue date: 10/22/01
section link: /news/2001/10/22/Perspectives/
headline: My Investment Banking Internship: A Story for First-Years
subheadline:
By: Bob Donnell
author link:
Issue date: 10/22/01
When people ask how my summer was, I just say, "great." For most second-years, this answer is sufficient. They want to know my offer status without really asking. But for first-years, it's probably not what they were looking for. They want all the gory details, but I don't have the time to explain it to everyone who asks.
About this time last year, I was clueless about what it was like to work in an investment bank. Answers I got from bankers at company presentations were useless and predictable: challenging, rewarding, exciting, and other words taken off their brochure. Second-years generally gave two answers. They either worked 120 hours every week or all they did was meaningless word processing.
That's all bullshit. Truth is there are plenty of good and bad things about banking. It would have been nice if someone took the time to give me an honest idea about his internship without bias and hyperbole. So I thought it might be worthwhile to tell first-years about my summer. I am not an internship expert and your summer may be different than mine. But if you are considering banking, I hope this helps.
The Dough
Doctors and lawyers can pretend that they are doing their job out of compassion and for justice. Bankers do it for the money. Money is the good part of banking and I saw plenty of it around me. You might be telling yourself that you really like banking work and that money is secondary. Remember that when you are in the office staring at a copy machine on a Saturday night. Sure, some people really love the job. But most of us would probably quit working obscene hours without equally obscene bonus checks. If any would-be consultant or lawyer tells you that their pay is comparable, tell them to shove it. It's not even close.
I was in a MD's (managing director) office before a conference call when the MD and a VP were talking about cars. The MD wanted to get the new Porsche convertible because his Porsche (3 years old, mind you) was "shitty." The VP responded, "I was thinking about getting one in silver." Next to him was a picture of the MD with three golf pros at a famous resort. The MD was wearing a grin the size of Texas.
Life was pretty good for him and I wanted to be like him. When I had to do crappy work during the summer, I would console myself by fondly thinking about this moment. Unfortunately, money is probably the only major thing that's good about banking. What about the chance to work for a private equity firm later, you ask? If you think you are just going to do banking for a little while before joining a PE firm, you better have a backup plan.
Glimpse into Private Equity
Many of us talk about private equity (financial sponsors) like it's nirvana. I thought so too until I talked to one of them. Now, I'm not so sure. I was on a sell-side M&A deal for a well-known financial sponsor. While waiting for other people to dial in for a conference call, an associate and I tried to pass the time by chatting with Mike who worked for the sponsor. We wanted to talk about light-hearted stuff like vacations and golf, but Mike couldn't stop bitching about his work. "There's too much money chasing after too few deals," he complained. "[The industry] raised too much money. Just look at Tommy Lee and KKR."
A couple of the premier PE firms were about to lose $800 million in just one of their investments. That's a lot of money even for the Masters of the Universe. A VP in the Financial Sponsors Group told me that many PE firms were overly optimistic and over-hired during the boom like everyone else. Now, EBITDA multiples are dropping, VC funds are getting diluted in "down-rounds" and the comatose high-yield market is shutting LBO deals down. And if you don't know what a "claw-back" is, it is as ugly as it sounds. The VP invested in a VC fund during the mania and confessed that he flushed a small fortune down the toilet. "It's going to be nasty," he warned, "LPs will see nasty IRRs for '98 and '99 funds."
Monkey Business
At some point during your career in banking, you will have to deal with assholes. If you can't handle that, sign up for the Peace Corps. Almost everyone I have worked with was nice and considerate. I thought everyone in the office was reasonable. It took a late night call from an analyst to change my perspective. He sounded frantic and scattered. He told me that he's been looking all over for me and that Nick had to speak to me right away. Something about the analyst's voice told me that Nick wasn't pleased. Before I knew it, I was in the conference call.
This was my own Monkey Business moment. Nick was a VP and known for his outbursts of abuse to little people like you and me. He was really outdoing himself that night. The wrath of Nick was directed at Allen, a really smart analyst and a nice guy besides. There was nothing I could do or say to mollify Nick. Nick was going ape-shit. "What the fuck do you mean you don't know? You can't remember what Dave told you? What the fuck were you thinking?"
I pressed the mute button so that they wouldn't hear me laughing. It was hilarious because Nick was blowing things way out of proportion. I felt bad since Allen was being humiliated on the phone in front of other people, but what can I do? It wouldn't do Allen any good for me to stand in front of an angry freight train. To be honest, I was afraid of catching shrapnel. Afterwards, I called Allen to make him feel better by telling him what an asshole Nick was. Allen has been through this before and was unfazed. "Some day, it'll be your turn," he said. I didn't think it was so funny after that.
Financial Analysis
A lot of interns complain about doing too much word processing and not enough value-added work. I have to admit, it's stupid when a VP tells you to change "King Company: Leading the Industry" to "King Company: Leader in the Sector" in a pitch book. I did my fair share of pitch books and I hated it. But I also did a lot interesting financial analysis, too. Some people say that all you need to know is 310 accounting. That's horseshit.
Because of our solid GSB education, I think I knew more than interns from other schools did. I found a $60 million mistake on a client's financial model (430 with Prof. Piotroski). I explained the effect of reversing a deferred tax asset valuation allowance to an associate thanks to 316 with Prof. Hayes. I knew why it was appropriate not to allocate goodwill amortization to the minority interest account due to 317 with Prof. Sapra. And I was able to explain why IPO valuations must be done on a post-money basis to my analysts (333 with Prof. Marciano). You get the picture.
I earned a lot of brownie points from my deal teams for little things like that. Those classes at $3,000 a pop proved to be positive NPV projects. If all I knew was 310, I might as well be a guy from Kellogg or Harvard but without well-honed ass-kissing skills. So if second-years tell you that banking is just basic accounting, don't listen to them. You don't become the "go-to" guy by being just like everyone else.
Analysts
Hierarchy at a bank goes something like this: MD, Director, VP, Associate, and Analyst. Summer associates fall between associates and analysts. But unless you were an analyst before MBA school, analysts will know more about this business than you. So you should leave your ego in Chicago and try to learn from them. The problem is that not all analysts are created equal. A good analyst can save your rump while a bad one can ruin your summer. If your analyst makes a mistake and a VP catches it, he will dump on both you and your analyst. So a good analyst is worth a hundred lucites. A bad analyst is your enemy.
I was on a deal with an analyst named Danny. Danny was an idiot. He was hired during the tech bubble when banks were desperate to fill open positions. Almost every time I checked his work, I found glaring mistakes. One day, I completed a project for a MD for his presentation to a financial sponsor that afternoon. Afterwards, I had to check Danny's model by 5 pm for another deal. The MD called to say that I did a good job on his project and wanted to know if I would like to join him at the presentation. I couldn't go and I hated Danny for it.
If Danny wasn't such a moron, I could have skimmed his model and gone to the meeting. Instead, I was staring at his Excel spreadsheet and pressing the "F2" button. His stupidity cost me an opportunity to get to know the MD and to meet with people from a premier PE firm. I told myself that I would tear into Danny as soon as I found an excuse to do so. Then it occurred to me that I was about to act like psycho Nick. I was beginning to understand why Nick sometimes acted the way he did. This is a stressful business and that was his way of handling it. I wondered if I was going to end up like Nick. I managed to not yell at Danny during the summer.
Straight Shooters
In banking, straight shooters are hard to come by, especially during the summer. You get a lot of company propaganda with a double helping of bullshit on the side. Guys like Gary are rare. He always gave me the straight story. I met Gary during a campus presentation. I asked him why he was in banking and he answered without hesitation, "the money." I liked Gary. I think it's important to gain the confidence of people like him. I built a good relationship with a few people like Gary and found it very useful.
They can tell you things like which analysts suck at modeling (this is how I found out about Danny), who I should talk to about a question, and which Director/VP I should not piss off. They will tell you things that recruiters never will. Around week 7, two of my friends muttered something about how they could live on their savings for 2 to 3 years even if they got fired. They heard through the grapevine that another round of layoffs were imminent. It was cool of them to give me a heads-up, even if it didn't involve me. It was nice to know the latest "unofficial" news circulating around the firm.
El Fin
The last week sucked. My deal teams knew that I would be leaving soon, so they started to phase me out. I was not put on new deals. So I had plenty of time to ponder whether I would get an offer. This was not a happy time for any of the interns, especially in this environment. When interns at other banks finished their summer, we frantically called them for their offer ratio. All the interns were on edge.
It's finally the last day and I get the call. They would like me to join them for my exit interview. I have been waiting for a long time for this and I am full of doubt. I think back to all the mistakes I've made during the summer. I really wish I could go back and triple-check all my work. It's too late now.
I walk in the office where they are waiting for me. I try to look relaxed, but who am I kidding. I attempt to read their faces but I am not getting anything. One of them starts to talk and I nod my head but I am not really listening. I wish I were somewhere else. Then he said, "... these are some of the comments we got from your deal teams..." This is it. It seems so unfair for my entire summer to come down to the next 2 minutes.
About this time last year, I was clueless about what it was like to work in an investment bank. Answers I got from bankers at company presentations were useless and predictable: challenging, rewarding, exciting, and other words taken off their brochure. Second-years generally gave two answers. They either worked 120 hours every week or all they did was meaningless word processing.
That's all bullshit. Truth is there are plenty of good and bad things about banking. It would have been nice if someone took the time to give me an honest idea about his internship without bias and hyperbole. So I thought it might be worthwhile to tell first-years about my summer. I am not an internship expert and your summer may be different than mine. But if you are considering banking, I hope this helps.
The Dough
Doctors and lawyers can pretend that they are doing their job out of compassion and for justice. Bankers do it for the money. Money is the good part of banking and I saw plenty of it around me. You might be telling yourself that you really like banking work and that money is secondary. Remember that when you are in the office staring at a copy machine on a Saturday night. Sure, some people really love the job. But most of us would probably quit working obscene hours without equally obscene bonus checks. If any would-be consultant or lawyer tells you that their pay is comparable, tell them to shove it. It's not even close.
I was in a MD's (managing director) office before a conference call when the MD and a VP were talking about cars. The MD wanted to get the new Porsche convertible because his Porsche (3 years old, mind you) was "shitty." The VP responded, "I was thinking about getting one in silver." Next to him was a picture of the MD with three golf pros at a famous resort. The MD was wearing a grin the size of Texas.
Life was pretty good for him and I wanted to be like him. When I had to do crappy work during the summer, I would console myself by fondly thinking about this moment. Unfortunately, money is probably the only major thing that's good about banking. What about the chance to work for a private equity firm later, you ask? If you think you are just going to do banking for a little while before joining a PE firm, you better have a backup plan.
Glimpse into Private Equity
Many of us talk about private equity (financial sponsors) like it's nirvana. I thought so too until I talked to one of them. Now, I'm not so sure. I was on a sell-side M&A deal for a well-known financial sponsor. While waiting for other people to dial in for a conference call, an associate and I tried to pass the time by chatting with Mike who worked for the sponsor. We wanted to talk about light-hearted stuff like vacations and golf, but Mike couldn't stop bitching about his work. "There's too much money chasing after too few deals," he complained. "[The industry] raised too much money. Just look at Tommy Lee and KKR."
A couple of the premier PE firms were about to lose $800 million in just one of their investments. That's a lot of money even for the Masters of the Universe. A VP in the Financial Sponsors Group told me that many PE firms were overly optimistic and over-hired during the boom like everyone else. Now, EBITDA multiples are dropping, VC funds are getting diluted in "down-rounds" and the comatose high-yield market is shutting LBO deals down. And if you don't know what a "claw-back" is, it is as ugly as it sounds. The VP invested in a VC fund during the mania and confessed that he flushed a small fortune down the toilet. "It's going to be nasty," he warned, "LPs will see nasty IRRs for '98 and '99 funds."
Monkey Business
At some point during your career in banking, you will have to deal with assholes. If you can't handle that, sign up for the Peace Corps. Almost everyone I have worked with was nice and considerate. I thought everyone in the office was reasonable. It took a late night call from an analyst to change my perspective. He sounded frantic and scattered. He told me that he's been looking all over for me and that Nick had to speak to me right away. Something about the analyst's voice told me that Nick wasn't pleased. Before I knew it, I was in the conference call.
This was my own Monkey Business moment. Nick was a VP and known for his outbursts of abuse to little people like you and me. He was really outdoing himself that night. The wrath of Nick was directed at Allen, a really smart analyst and a nice guy besides. There was nothing I could do or say to mollify Nick. Nick was going ape-shit. "What the fuck do you mean you don't know? You can't remember what Dave told you? What the fuck were you thinking?"
I pressed the mute button so that they wouldn't hear me laughing. It was hilarious because Nick was blowing things way out of proportion. I felt bad since Allen was being humiliated on the phone in front of other people, but what can I do? It wouldn't do Allen any good for me to stand in front of an angry freight train. To be honest, I was afraid of catching shrapnel. Afterwards, I called Allen to make him feel better by telling him what an asshole Nick was. Allen has been through this before and was unfazed. "Some day, it'll be your turn," he said. I didn't think it was so funny after that.
Financial Analysis
A lot of interns complain about doing too much word processing and not enough value-added work. I have to admit, it's stupid when a VP tells you to change "King Company: Leading the Industry" to "King Company: Leader in the Sector" in a pitch book. I did my fair share of pitch books and I hated it. But I also did a lot interesting financial analysis, too. Some people say that all you need to know is 310 accounting. That's horseshit.
Because of our solid GSB education, I think I knew more than interns from other schools did. I found a $60 million mistake on a client's financial model (430 with Prof. Piotroski). I explained the effect of reversing a deferred tax asset valuation allowance to an associate thanks to 316 with Prof. Hayes. I knew why it was appropriate not to allocate goodwill amortization to the minority interest account due to 317 with Prof. Sapra. And I was able to explain why IPO valuations must be done on a post-money basis to my analysts (333 with Prof. Marciano). You get the picture.
I earned a lot of brownie points from my deal teams for little things like that. Those classes at $3,000 a pop proved to be positive NPV projects. If all I knew was 310, I might as well be a guy from Kellogg or Harvard but without well-honed ass-kissing skills. So if second-years tell you that banking is just basic accounting, don't listen to them. You don't become the "go-to" guy by being just like everyone else.
Analysts
Hierarchy at a bank goes something like this: MD, Director, VP, Associate, and Analyst. Summer associates fall between associates and analysts. But unless you were an analyst before MBA school, analysts will know more about this business than you. So you should leave your ego in Chicago and try to learn from them. The problem is that not all analysts are created equal. A good analyst can save your rump while a bad one can ruin your summer. If your analyst makes a mistake and a VP catches it, he will dump on both you and your analyst. So a good analyst is worth a hundred lucites. A bad analyst is your enemy.
I was on a deal with an analyst named Danny. Danny was an idiot. He was hired during the tech bubble when banks were desperate to fill open positions. Almost every time I checked his work, I found glaring mistakes. One day, I completed a project for a MD for his presentation to a financial sponsor that afternoon. Afterwards, I had to check Danny's model by 5 pm for another deal. The MD called to say that I did a good job on his project and wanted to know if I would like to join him at the presentation. I couldn't go and I hated Danny for it.
If Danny wasn't such a moron, I could have skimmed his model and gone to the meeting. Instead, I was staring at his Excel spreadsheet and pressing the "F2" button. His stupidity cost me an opportunity to get to know the MD and to meet with people from a premier PE firm. I told myself that I would tear into Danny as soon as I found an excuse to do so. Then it occurred to me that I was about to act like psycho Nick. I was beginning to understand why Nick sometimes acted the way he did. This is a stressful business and that was his way of handling it. I wondered if I was going to end up like Nick. I managed to not yell at Danny during the summer.
Straight Shooters
In banking, straight shooters are hard to come by, especially during the summer. You get a lot of company propaganda with a double helping of bullshit on the side. Guys like Gary are rare. He always gave me the straight story. I met Gary during a campus presentation. I asked him why he was in banking and he answered without hesitation, "the money." I liked Gary. I think it's important to gain the confidence of people like him. I built a good relationship with a few people like Gary and found it very useful.
They can tell you things like which analysts suck at modeling (this is how I found out about Danny), who I should talk to about a question, and which Director/VP I should not piss off. They will tell you things that recruiters never will. Around week 7, two of my friends muttered something about how they could live on their savings for 2 to 3 years even if they got fired. They heard through the grapevine that another round of layoffs were imminent. It was cool of them to give me a heads-up, even if it didn't involve me. It was nice to know the latest "unofficial" news circulating around the firm.
El Fin
The last week sucked. My deal teams knew that I would be leaving soon, so they started to phase me out. I was not put on new deals. So I had plenty of time to ponder whether I would get an offer. This was not a happy time for any of the interns, especially in this environment. When interns at other banks finished their summer, we frantically called them for their offer ratio. All the interns were on edge.
It's finally the last day and I get the call. They would like me to join them for my exit interview. I have been waiting for a long time for this and I am full of doubt. I think back to all the mistakes I've made during the summer. I really wish I could go back and triple-check all my work. It's too late now.
I walk in the office where they are waiting for me. I try to look relaxed, but who am I kidding. I attempt to read their faces but I am not getting anything. One of them starts to talk and I nod my head but I am not really listening. I wish I were somewhere else. Then he said, "... these are some of the comments we got from your deal teams..." This is it. It seems so unfair for my entire summer to come down to the next 2 minutes.