Investment Banking (Yes again!)

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Hello all, I must mention that I have read all the threads on Investment Banking. I have read most of the posts by people who have posted a lot about the same. I've used the search option too. I just want to discuss the below given points wit...
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Wall Street big shots out in the street- International Business-News-The Economic Times

:boat:

ps: did adventity fired 300 people :shocked:

also rumours copal partners will fire 200 people v v soon??
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anandv
@anandv  ·  2,055 karma

Interesting article about Outsourcing/KPO/Back office/Middle office etc:
http://www.nytimes.com/2008/08/12/business/worldbusiness/12indiawall.html?ref=business


Loved the quote:
"In the future, executives in India like to joke, the only function for highly paid bankers in New York or London will be to greet clients and shake hands when the deals close."

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Perception cannot be changed, at least in campuses people were terrified of IBDs and most of them preferred to go to trading instead. I have never heard horror stories in S&T;, at least they havent been documented well. On the other hand, blogs like www.leveragedsellout.com and Understanding Investment Banking | Mergers & Inquisitions recount IBD horror stories..
And regarding the timeframe, 45 days is a very typical timeframe from getting the mandate to at least taking the deal to PEs, without counting the time for pitching of course!!!!!

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The number of closed deals have certainly come down, but there is one difference. The number of unsuccessful deals have been very high especially in private placements and other such dealings with the PEs. Promoters not able to raise money through IPOs, go to PEs. For the uninitiated, this is how it typically works
Make a pitch, get the mandate, talk to the company and its employees ( which takes about 20 days including plant visits and others), make the financial model ( make the promoter understand that the valuation he is seeking is too aggressive and its not possible in this market), make the information memorandum, send it to 10-15 PEs ( of which only 1-2 would want to take it forward) and initiate the deal. This process easily takes about 40-45 days during which you are normally required to put a lot of '15+ hr days'. If the deal falls through, which is highly probable ( 2-3 in 10 is the current ratio), none of this even appears in the number of deals the company has done during the year. So lets just not go by number of deals. Ya working hours are not as long as it was during last year, but IBD has certainly not become a '9-5' job. There are people in IPO execution and ECM teams who are absolutely jobless, but they certainly are not representative of the majority :)


Valid point, one month stands a small timeline from getting a mandate till deal execution, and even then if it is best efforts, probability of raising money stands bleak - given present market conditions. In any of my previous posts on this thread or elsewhere, I never said any I banker could expect 9 to 5 working hours - however, I disagree to the statement "Trader works far less than some I banker - in Syndications / Mergers and Acquisitions sector".

It is difficult to generalize things, that someone in M&A; has more working hours compared to a trader in Sales and Trading. Like your example above, let me quote an example, A trader wanted to take position in debt markets, after some research he did, he realised that taking position in FCCBs issued by Indian companies since 2005, will provide better opportunities than investing in emerging equity markets. If you check Bloomberg you would know there are around 250 such FCCBs issued by 184 companies. After working with these 184 companies, it was concluded that investing in 12 such companies will provide the opportunity the trader was looking for. It might look simple to read that 12 of 184 he shortlisted, however it involves much more due diligence, than someone had did in deciding pricing for a LBO.

However, we always tend to forget the effort people take up, which eventually do not add up to the revenue of the institution. Traders are no different and same is for I bankers, getting a mandate, analyzing a screen for a prospective deal, which might get executed...however it is certianly a countable effort that some I banker does. But on the other hand a tarder does so many things which are not counted.

Just to point out one thing - I disagree to the fact that trader has average chill life when compared to someone in working in M&A; or probably in Syndicated Finance. However, it is an open forum and people have their own views, their own way of looking at things.
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Lets talk about numbers, a big I bank executes around 178-190 deals in a fiscal year (example - JPMorgan Chase, Bank of America), among these many deals, 30-32 deals are M&A;, probably 15-16 are LBOs /MBOs, given that - I understand a person involved in 16 odd deals need to grind for 15 hours for a couple of months, however on an average there is no single team in I banking section, which spends 15 hours for whole 6 months - leave alone 12 months for the time being. For relationship deals, same person will spend probably just 3 hours and that too bank meeting. Just to point these numbers (178-190) is for big I bank - small I banks get to execute 50-55 deals in an year! (probably even less or more, this could be a good average)


The number of closed deals have certainly come down, but there is one difference. The number of unsuccessful deals have been very high especially in private placements and other such dealings with the PEs. Promoters not able to raise money through IPOs, go to PEs. For the uninitiated, this is how it typically works
Make a pitch, get the mandate, talk to the company and its employees ( which takes about 20 days including plant visits and others), make the financial model ( make the promoter understand that the valuation he is seeking is too aggressive and its not possible in this market), make the information memorandum, send it to 10-15 PEs ( of which only 1-2 would want to take it forward) and initiate the deal. This process easily takes about 40-45 days during which you are normally required to put a lot of '15+ hr days'. If the deal falls through, which is highly probable ( 2-3 in 10 is the current ratio), none of this even appears in the number of deals the company has done during the year. So lets just not go by number of deals. Ya working hours are not as long as it was during last year, but IBD has certainly not become a '9-5' job. There are people in IPO execution and ECM teams who are absolutely jobless, but they certainly are not representative of the majority 😃
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konqueror_vivek Says
Dont confuse traders with Brokers - a Lehman Trader could be equally ranked person like Managing Director / Vice President in Syndicated Finance, however a broker who only works in market hours is only a contractor working for the institution.


Hey Vivek,

There is no confusion between a trader and a broker. I know what you are talking about. My point was really, so simple and straight. Even GS, DB, ML, SG, LB people will agree on that. It's just a universally accepted fact. I'm sure krishsuraj has made everything clear.


Krishsuraj - Thanks mate!


Cheers!
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I did not under-estimate the configuration for a trader. The work a trader does apart from taking positions is all fine. From what I know and understand, a trader will work less number of hours than an investment banker at a given bank. Maybe this does not happen in India but I'm sure it does in Europe and the US. Traders might work around 12 hours a day. But IBD people might work 15 hours+ everyday.

One shouldn't be surprised if IBD people working on a M&A; deal stay on till 2:00 a.m. at work for months. But this might hardly happen with any trader. Seriously, if we only talk about hours, a trader will work less number of hours than an investment banker.


Cheers!


Lets talk about numbers, a big I bank executes around 178-190 deals in a fiscal year (example - JPMorgan Chase, Bank of America), among these many deals, 30-32 deals are M&A;, probably 15-16 are LBOs /MBOs, given that - I understand a person involved in 16 odd deals need to grind for 15 hours for a couple of months, however on an average there is no single team in I banking section, which spends 15 hours for whole 6 months - leave alone 12 months for the time being. For relationship deals, same person will spend probably just 3 hours and that too bank meeting. Just to point these numbers (178-190) is for big I bank - small I banks get to execute 50-55 deals in an year! (probably even less or more, this could be a good average)

Above example illustrates that time, - when we had bull phase, the "good" time, when borrowers were in need of capital for a growing Industry and economy, however now the things have changed a lot, when everything has slowed down, the number of new issuance has reduced, and deals in pipelines are not being executed - resulting steep decline in business for I bankers working in Syndicated Finance, ABS / MBS, M&A; - you might have read how many of big arms have slashed a lot of headcount in recent months. Just to point out, last 6 months is only one example, this is what happens when economy takes downward direction (slowdown), which had happened previously as well.

Now for the Trader working under same roof, dosent get the same liberty - he has to measure risk involved, he still has the responsibility to track back the exposure and limits assigned to various brokers (example Lehman has the biggest share in brokerage across). Even when the economy has slowed down, the work a trader has does not get reduced - it is however increased. "A trader is different from a Broker".

Trading arms of these I banks have various line of businesses, they have Strategic Capital arm, Distressed debt / securities - Special Situations group, Risk group for Credit / debt / equity markets. Believe me it involves a lot of work. When it comes to I banking everyone is just gets one thing in mind M&A;, which is not the end of the road - however things start from that very point !

Dont confuse traders with Brokers - a Lehman Trader could be equally ranked person like Managing Director / Vice President in Syndicated Finance, however a broker who only works in market hours is only a contractor working for the institution.
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If I may still choose to disagree 😃 actually trade and sales units in an ibank are called as investment bankers. Commercial and corporate banks also have a sales and trading unit, and likewise they cannot be termed as ibankers. But, in an ibank, all sales and trade people are definitely called investment bankers. Hope this helps.

cheers,

-awr

Yes Sales & Trading and IBD(IPOs, M&As;) both come under an I-Bank, but not every one who works in an I-Bank is called an I-Banker. The term 'I-banker' or more commonly a 'banker', is reserved only for the IBD people.
So if you are working in S&T;, you can say that you work in an I-Bank but you normally dont call yourself an I-banker!
And regarding work hours, its an accepted fact that S&T; people work less hours than people in IBD. But S&T; people hardly get time to go off their seat even for their lunch while in IBD, people do have that comfort. So as far as intensity is concerned, both are as tiring
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That is right. Most of the investment banks make their profits from their sales and trading departments. For example, in the year 2005 the global markets division - Deutsche Bank contributed for around 50% profits of the firm. I never disagreed on that. Simple. My point was that traders and sales people are not called as investment banker in professional language. There wasn't anything for you to disagree on 😃

Thank you for taking part in the thread.

Cheers!


If I may still choose to disagree 😃 actually trade and sales units in an ibank are called as investment bankers. Commercial and corporate banks also have a sales and trading unit, and likewise they cannot be termed as ibankers. But, in an ibank, all sales and trade people are definitely called investment bankers. Hope this helps.

cheers,

-awr
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You just under-estimated the configuration for a trader and number of hours a trader has to work on {agreed to anupam}, just to add, traders are not supposed to work only in market hours, there is whole lot of other things they work on, apart from taking position in various debt / equity / and credit markets, the most important job of a trader is to evaluate risk involved in the exposure.


I did not under-estimate the configuration for a trader. The work a trader does apart from taking positions is all fine. From what I know and understand, a trader will work less number of hours than an investment banker at a given bank. Maybe this does not happen in India but I'm sure it does in Europe and the US. Traders might work around 12 hours a day. But IBD people might work 15 hours+ everyday.

One shouldn't be surprised if IBD people working on a M&A; deal stay on till 2:00 a.m. at work for months. But this might hardly happen with any trader. Seriously, if we only talk about hours, a trader will work less number of hours than an investment banker.


Cheers!
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