Banking Questions

What's your greatest fear about investment banking?

go with something more innocuous like, "Doing a lot of work on deals and not always getting to see them through to the conclusion because anything could cause a large transaction to collapse" or having concerns about the deal flow if the market is poor.

Let's say that in the future your name turns up as the front page headline of a newspaper one day - what would the story be about?

show more "banker-like" traits such as ambition and hard work - but you shouldn't take it too seriously. So maybe the headline states that you climbed Mt. Everest, sold your company in an IPO, or became a best-selling author - you want "ambition + creativity / coolness" for this type of question.

Imagine you want to draft a 1-slide company profile for an investor. What would you put there?

"Put the name of the company in the header, then divide the slide into 4 equal parts. The top-left is for the business description, headquarters, and key executives. Put a stock chart and the key historical and projected financial metrics and multiples on the top right. The bottom left can have descriptions of products and services, and the bottom right should have key geographies with a color-coded map to make it look pretty."

Tell me a joke.

"Q: What was the best part of Playboy's IPO? A: The pitch book." If you have a female interviewer or someone else who might get offended, then try the following corny but impossible to offend joke instead: "A dog goes into an investment banking job interview, and the banker says to him, 'You've got the job, but only if you can do three things. First, you have to be able to complete an LBO model in 30 minutes.' So the dog runs to a computer and astoundingly creates a full model in 30 minutes. That's very nice! Next, you must be able to spread 10 comps manually in under an hour. Immediately, the dog sits down at the computer and completes everything in only 30 minutes. 'That's perfect! Lastly, you must be bilingual.' So then the dog says, 'Meow!'"

That guy over there has a 4.0 from Wharton/Harvard - why should I hire you over him, given that you're much less impressive?

Bankers hire people who 1) Are smart 2) Can do the work and 3) Are likeable. In addition to meeting all of those criteria, you've also done well in the real-world and have stellar recommendations to back you up - plus, since you don't come from a "blue- chip" background you're more motivated to succeed than the Harvard guy."He does have impressive credentials. But at a bank, you want someone who's smart, can do the work, and is easy to get along with. I've done well in school and am working on an Honors Thesis right now, and I have great recommendations from my 2 previous bosses in my Sales & Trading internships. And I spend most of my free time sky diving and going on adventures in different countries. So while he may be qualified on paper, in banking it all comes down to real-world experience and what kind of camaraderie you have with everyone. I'm confident that I excel in both of those areas - and since I'm not from a privileged background, I'm even more motivated to succeed than someone who is."

I see you have a big gap in your work experience over the past few months / few years / I see you have a gap of 2-3 years a few years ago - what happened there?

If you've had some other type of gap because of school, economic hardship, or something similar, you need to find the strength in whatever weakness you had - this is really just a disguised "weakness" question. So if you had to wait tables for 1-2 years to pay for family expenses or support yourself / pay for tuition, talk about what that taught you in terms of work ethic and what you learned about yourself in the process.

Can you explain to me, in simple terms, the subprime crisis?

In simple terms, banks made mortgage loans to people who were in no position to pay them off - or even meet monthly payments. Since interest rates were at historical lows, borrowing was easy. At the same time, mortgages were no longer just loans made to individuals - they were sliced up, combined and "packaged" into securities that banks traded, acquired and sold to investors. A typical "package" might contain mortgages given to both "credible" borrowers as well as mortgages granted to more risky borrowers - the more risky ones were labeled "subprime." Banks acquired these "packaged" assets on the argument that even if one "piece" of the asset was risky or likely to default, the rest still had value. As it turns out, this was false and no one knew what any of these mortgage-related assets were worth - but as unqualified homeowners began defaulting, buyers disappeared overnight and the value of these assets plummeted to $0. As a result, the value of many banks also approached $0 and quite a few failed or went bankrupt in the process - all because the securities were so complex that no one understood their value or the true risks involved.

a pitch book?

It depends on the type of deal the bank is pitching for, but the most common structure is: Bank "credentials" (similar deals they've done to "prove" their expertise). Summary of a company's options ("strategic alternatives" in banker-speak). Valuation and appropriate financial models (for example, if you're pitching for an IPO you might show where the IPO proceeds would go). Potential acquisition targets (buy-side M&A deal) or potential buyers (sell-side M&A deal). This is not applicable for equity/debt deals. Summary and key recommendations.

Why did you NOT receive a return offer from your internship?

It's a better bet to say something like, "I did well in my internship and got positive reviews, but I didn't fit in with the group's culture. From those I've spoken with so far at your firm, I think this is a much better fit for me." It's hard to argue with doing the work well but just not fitting in with the group.

Let's say that you have $1 million, but you are NOT allowed to invest it or otherwise use it to create more money. What would you spend the capital on instead?

It's best to tie this back to whatever your interests and passions are - so you might use the money to support volunteer work you've done, extended travel that you've always wanted to take, or maybe even to buy that race car you've always wanted. Just make sure your answer is believable

Walk me through a debt issuance deal.

It's similar to the IPO process: Meet with the client and gather basic financial, industry, and customer information. Work closely with DCM / Leveraged Finance to develop a debt financing or LBO model for the company and figure out what kind of leverage, coverage ratios, and covenants might be appropriate. Create an investor memorandum describing all of this. Go out to potential debt investors and win commitments from them to finance the deal. The main differences vs. an IPO: there are fewer banks involved, and you don't need SEC approval to do any of this because debt is not sold to the "general public" but rather to sophisticated institutional investors and funds.

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

Meet with company, create initial marketing materials like the Executive Summary and Offering Memorandum (OM), and decide on potential buyers. Send out Executive Summary to potential buyers to gauge interest. Send NDAs (Non-Disclosure Agreements) to interested buyers along with more detailed information like the Offering Memorandum, and respond to any follow- up due diligence requests from the buyers. Set a "bid deadline" and solicit written Indications of Interest (IOIs) from buyers. Select which buyers advance to the next round. Continue responding to information requests and setting up due diligence meetings between the company and potential buyers. Set another bid deadline and pick the "winner." Negotiate terms of the Purchase Agreement with the winner and announce the deal.

How did you personally contribute to this deal?

One of the most difficult and most important questions you can get. For this one, you have to be careful to not exaggerate too much and claim that you generated millions of dollars for your bank - but you should also try to say something more than, "I made these graphs look pretty in PowerPoint." Here's an example: "As the intern, I helped some of the Analysts track down hard-to-find numbers to use for assumptions in our models. This played an important role in the deal, because buyers analyzed our operating model of the company and found everything more believable since we had laid out such detailed assumptions behind all the numbers."

If you owned a small business and were approached by a larger company about an acquisition, how would you think about the offer, and how would you make a decision on what to do?

Price Form of payment - cash, stock, or debt Future plans for the company vis-à-vis your own plans. Of course, there is much more to an M&A deal than this - you could list literally hundreds of different terms. But those are the key ones. To make a decision you'd have to weigh each one - there's no "magical" way to decide. You might also point out that if something is particularly important to you - such as retaining a role in the company - then a difference of intentions there could be a "deal-breaker."

How much do you know about the lifestyle in this industry? Do you know how many hours you're going to work each week?

Say that you've done your homework and you understand it's going to be an 80-100 hour per week job. It helps if you can reference specific times when you worked that much and how you dealt with it, whether it was in a summer internship or a previous job you've held.

What type of animal / vegetable would you be?

Some interviewees take this as a cue to tie your choice back to being a team player, hard worker, or such but that's not the best approach. For "creativity"-type questions, interviewers want you to be...creative. So think about your real personality and say something that matches that. Example: Maybe you'd be a "hedgehog" because it looks like you have "spikes" on the outside to an observer, but you're actually warm and fuzzy on the inside.

Walk me through the process of a typical buy-side M&A deal.

Spend a lot of time upfront doing research on dozens or hundreds of potential acquisition targets, and go through multiple cycles of selection and filtering with the company you're representing. Narrow down the list based on their feedback and decide which ones to approach. Conduct meetings and gauge the receptivity of each potential seller. As discussions with the most likely seller become more serious, conduct more in- depth due diligence and figure out your offer price. Negotiate the price and key terms of the Purchase Agreement and then announce the transaction.

You're a smart guy/girl with a lot of options, and right now the economy is not doing well and lots of banks have failed. Why are you still interested in banking when you could do anything else?

Talk about your long-term view and how a downturn could be an even better time to enter the industry because you'll know how to work when times are both good and bad. In addition, you've been interested in finance for a long time and are not going to let short-term difficulties deter you from entering the field - you've explored other options and concluded that this is the best one for you.

What's the difference between DCM and Leveraged Finance?

They're similar but Leveraged Finance is more "modeling-intensive" and does more of the deal execution with industry and M&A groups on LBOs and debt financings. DCM, by contrast, is more closely tied to the markets and tracks trends and relevant data. But there's always overlap and some banks have just 1 of these groups, some have both, and some divide it differently altogether.

Did you do anything quantitative for this deal? It looks like it just involved research.

This is a common scenario for summer interns or if you worked at a small boutique where financial modeling was not as common. Don't say that you did nothing quantitative, but also don't make it seem like you know everything there is to know about valuation or modeling. If you didn't build the model yourself, just point out how you contributed to it. Here's how you might respond: "A lot of what I worked on was qualitative and involved researching potential buyers to see what the best fit might be. Our team did some valuation and financial modeling work as well, but since I was an intern I supported the other Analyst and Associate by finding relevant facts and figures and then going through their models, figuring out how they worked, and then making sure the information was correct."

Can you talk about a time when you had to work long hours and make sacrifices?

This is similar to many of the other questions we've been over - once again, emphasize that you not only worked long hours, but also did it over several weeks or several months. One point that makes this question different: because of the way it was framed, you probably want to discuss something outside extracurricular activities.

How do companies select the bankers they work with?

This is usually based on relationships - banks develop relationships with companies over the years before they need anything, and then when it comes time to do a deal, the company calls different banks it has spoken with and asks them to "pitch" for the business. This is called a "bake-off" and the company selects the "winner" afterward.

We do most of our work with technology companies. Can you talk about a trend or company in the industry that has piqued your interest lately?

This is very common if you're interviewing for any industry group - I recommend doing some research beforehand and being able to speak about trends in that market. It's easy to find this information for Technology and anything that sells to consumers, but it's a bit harder for something like Chemicals. Most interviewees make 3 mistakes with this question: They describe something that is not recent or relevant. Don't talk about the emergence of the Internet - talk about how companies are shifting their software to the Internet. They don't explain the "why" - they're shifting to the web because it's cheaper and lower maintenance for them. They don't explain the impact on the market as a whole - such companies are growing very quickly while more traditional companies are either struggling or shifting to that model.

Can you tell me about the different product and industry groups at our bank?

This one is bank-dependent and will differ for boutiques, middle-market firms and bulge brackets - so you need to research it before your interview. Typical product groups include Mergers & Acquisitions (M&A), Leveraged Finance (LevFin) and Restructuring; you could also consider Equity Capital Markets and Debt Capital Markets "product groups" but that one is debatable. Common industry groups include Healthcare, Retail, Industrials, Energy, Natural Resources, Financial Institutions, Gaming, Real Estate and Technology, Media & Telecom (TMT). Not all banks are structured this way - Goldman Sachs, for example, does not have product groups and instead handles all types of deals in its industry groups. Meanwhile, most bulge bracket banks do not have Restructuring groups at all - that is something that only middle-market and boutique firms do. Finally, a lot of boutiques focus only on M&A and/or Restructuring and ones that are small enough are not even split into industry groups.

Tell me about an M&A deal that interested you recently.

You want to say who the buyer and seller were - and include background information if they are not household names - as well as the price and the multiples (Purchase Price / Revenue, Purchase Price / EBITDA) if they are readily available. Read the relevant Wall Street Journal article on it, and discuss the dynamics of the deal how it developed, if anyone else was interested, and what implications it has for the industry. You don't need to be an expert, but you do need to sound intelligent and know the basics. If they start asking for information you don't know, just admit upfront that you don't know whatever they've asked for.

What's your "Plan B" if you can't get into investment banking this year?

You'll do something finance-related, in a field like corporate finance / strategy or maybe something else at a bank / financial firm. You also want to point any offers you have, especially if they're in finance or consulting.

Let's say you could start any type of business you wanted, and you had $1 million in initial funds. What would you do?

You'll want to ask follow-up questions to see if the interviewer is looking for something more specific, because this one is wide open. If no further direction is provided, you probably want to say that you'd think about some type of niche business with high margins that requires little startup capital ($1 million is not enough to build 10 factories) and ongoing maintenance - those make it harder to turn a profit and sell the business one day. (This is one reason why some private equity investors focus on software companies). It's better to focus on a niche market because most broad, horizontal markets are already dominated by major companies (Microsoft, Goldman Sachs, Exxon Mobil, etc.). You should also explain your reasoning on why this type of business would be attractive and how it could grow with minimal future investment.

f you enjoyed your last internship and got an offer to come back, why are you trying to switch into investment banking now?

You're looking for something faster-paced where there's a better learning opportunity and more of a chance to make an impact. You've also been interested all along and realize you really do want to do it now, after having explored other alternatives and not liked them. If this is a small company to big company move (or vice versa) you can also say something about that, using the standard reasons we went through before - small means more responsibility and client interaction, and big means working on more major deals and learning more technical skills.

Do you agree with the $700 billion bank bailout?

Your specific answer doesn't matter too much - just make sure you actually give an answer ("yes" or "no") and that you back it up with solid reasoning. These days, it's probably better to say "yes" because, as we witnessed with the bankruptcy of Lehman Brothers, if a financial institution that's large enough collapses, it can have ripple effects and bring down the rest of the company and financial markets along with it.

Explain what a divestiture is.

It's when a company (public or private) decides to sell off a specific division rather than sell the entire company. The process is very similar to the sell-side M&A process above, but it tends to be "messier" because you're dealing with a part of one company rather than the whole thing. Creating a "standalone operating model" for the particular division they're selling is extremely important, and the transaction structure and valuation are more complex than they would be for a "plain-vanilla" M&A deal.

Let's say your MD is meeting with a client and you have been invited. As he's presenting, you notice a mistake in the materials - do you point it out?

No - unless it happens to come up in the meeting, in which case you speak only if the MD asks you about it. In that case you should just briefly acknowledge it and then move to a different topic. It's bad if you make a mistake like that, but it's even worse if you embarrass your MD by pointing it out in broad daylight - chances are that no one will notice anyway since they barely read pitch books in meetings.

What did you look at in the due diligence process?

The most important items here are the company's financial statements, contract (with customers, employees, and suppliers), and then tax, legal, environmental, IP, and regulatory issues. Note that as an investment banker you don't really "look at" much in the due diligence process for any deal - you just process requests. For IPOs, this changes and you're responsible for conducting customer due diligence calls - so you need to talk about that and what customers told you directly. "We looked at all the standard items, including the company's audit reports and financial statements, and then brought in specialists to look at the contracts, legal, and intellectual property issues. I came up with lists of questions for the customer due diligence calls we conducted, which was important because investors at the time were reluctant to invest in IPOs in emerging markets like Brazil - and by speaking with customers we were able to assess the risk for ourselves."

The economy has been improving lately, and more people are "getting interested" in finance. How do I know you're serious and not just following everyone else?

you hold a long-term view and haven't just become interested overnight. Being able to point to specific evidence of your interest - your own portfolio, the finance/business club you're in, or even day trading - also helps.

Where did your interest in finance begin?

Almost anything could work for this one - just make sure it's not too recent. Otherwise it looks like you became interested on a whim. Also be sure to explain how your initial interest led you into the internships, activities, or jobs you pursued and how those have led you to where you are today.

Let's say you had $10 million to invest in anything. What would you do with it?

Always ask for the investor's goals first. Are they looking to have big capital gains over 30- 40 years? Are they looking for tax-free retirement income? What types of assets interest them? Based on the response, you can give an appropriate answer. So if they're investing over 30-40 years and going for high capital gains, a well-diversified portfolio is probably best; if they are more concerned with tax-free income, maybe you should tell them about municipal bonds.

Let's say you're hired as the financial advisor for a company. What value could you add for them if they ask you about their suggested growth / M&A strategy?

At a high-level, first you'd want to see what their expansion goals are and how they can best achieve them - whether it's by partnering with another company, expanding with a merger or acquisition, or expanding organically with new products. As the investment banker, you could provide value by making introductions to potential M&A targets and partners, and then advising on the best negotiation strategy, what companies would be most receptive, what type of price to expect, and how to manage the entire process.

Can you talk about a company you admire and what makes them attractive to you

Do not say something commonly known. Saying Google or Apple, for example, would be bad. Instead, go more obscure and pick a company no one knows so that they can tell you've done your research and so that they're less likely to ask probing questions. You don't necessarily need to give financial details, but if the company is public and you can easily find the information, it definitely helps. When you talk about what makes the firm attractive, emphasize qualities that investors would find appealing, such as a great and well-diversified customer base, a unique competitive advantage in the market or a high-margin business model. Don't say that you like them because your new iPhone is awesome.

How are Equity Capital Markets (ECM) and Debt Capital Markets (DCM) different from M&A or industry groups?

ECM and DCM are both more "markets-based" than M&A. In M&A your job is to execute sell-side and buy-side transactions, whereas in ECM/DCM most of your tasks are related to staying on top of the market, following current trends, and making recommendations to industry and product groups for clients and pitch books. In ECM/DCM you go more in-depth on certain parts of the deal process, but you don't get as broad a view as you might in other groups.

pitch me a stock.

Even if you can't get Revenue or EBITDA multiples, looking up its P/E multiple and saying whether it's higher or lower than competitors is a step in the right direction. The 2 most common mistakes: Failing to list specific financial figures. Saying how the company stacks up relative to its competition, and why its prospects are more favorable. Structure your answer with the following 5 points in mind: Give the name and summarize what the company does. Give a brief overview of its financials to indicate its size and how profitable it is. State how it's undervalued or more attractive than its rivals, due to any competitive advantages it has. Say how there is a long-term trend in its favor - it's not just looking good in the past month. Talk about how the next 5-10 years will be really good for the company.

Let's say I'm working on an IPO for a client. Can you describe briefly what I would do?

First, you meet with the client and gather basic information - such as their financial details, an industry overview, and who their customers are. Next, you meet with other bankers and the lawyers to draft the S-1 registration statement - which describes the company's business and markets it to investors. You receive some comments from the SEC and keep revising the document until it's acceptable. Then, you spend a few weeks going on a "road show" where you present the company to institutional investors and convince them to invest. Afterwards, the company begins trading on an exchange once you've raised the capital from investors.

Let's assume you are going to start a laundry machine business. How would you analyze whether it's viable?

To assess whether it's "viable," you have to determine whether you can make a profit with the business. For a laundry machine operation, you'd start by looking at the location (the most important part of any retail business), estimate how many customers you could get, how frequently they do laundry and how much they pay each time to do their laundry. Those variables give you an idea of monthly / annual revenue. On the expense side, the biggest cost would be the upfront construction and/or purchase of the building and the machines. You would probably need a loan for this unless you had a spare $500K in your bank account. You would also have to take into account the cost of maintaining and servicing the machines, building maintenance, and hiring someone to collect cash, clean, and open/close the building each day. Overall, location plays the biggest role in the success of this type of business - if you put your new company next to an apartment complex where everyone has laundry machines, you're doomed from the beginning. Incidentally, laundry machines happen to be very profitable businesses if run correctly - mostly because they are not labor intensive and do not require huge investments after you've gotten started. So you could even use this as an example for the "What kind of business would you start with $1 million?" question.

What's the riskiest thing you've ever done?

Try to discuss an internship or job experience you had that you never expected to get, or some type of extracurricular/leadership experience that was somewhat random and turned out to be great - and talk about how it was a calculated risk and that you got a lot out of the decision you made. If you can point to something you had to be proactive to get, this is a good time to bring it up.

Walk me through one of the deals listed on your resume.

Try to pick an M&A deal rather than an equity/debt financing and aim for more "unique" deal types like divestitures or distressed M&A; also try to pick something that's either "high-profile" or a deal where you contributed a lot. Don't go into too much detail for an "opening question" like this - just give a brief overview and then let them ask the questions. Describe the company, give approximate financial (revenue, EBITDA, market cap) figures, and say what they wanted to do.

What's your personal Beta?

You probably want to say above 1.0, but not too much above it - you're much more ambitious than the average person, which causes you to try lots of new things and achieve quite a bit, so that inevitably carries some risk.