Banking is notoriously hard work. If you’re an entry-level candidate, recruiters will therefore want to ensure that you know what you’re letting yourself in for. When you’re answering ‘why banking’ questions, you need to be original and specific. ‘Avoid stating the generic’ says Mergers and Inquisitions. It helps to reference bankers you’ve spoken to (especially if they work for the firm you’re interviewing with) and the extent to which they inspired you. Talk about your passion for the industry. Explain that banking is more rewarding than consulting and that you’re more interested in strategic planning than financial modelling. Suggest your entrepreneurialism has prepared you for a career dealing with clients – much like this Deutsche M&A banker.
When you’re interviewing for a role in M&A in particular, you need to show that you’re “super-committed,” says Derek Walker, an independent careers consultant and a former director of campus recruitment at Barclays and of staffing for the investment bank at Merrill Lynch. “Corporate finance interviews don’t want to hear that you’re seeing their role as a means to something else,” adds Walker. “If you go into corprorate finance, you’re going to have to work really, really hard and if you’re not absolutely passionate about it you’re not going to be willing to work long hours.”
1. I can see you’re entrepreneurial, but you want to work in banking. Why is that?
2. What attracts you to a career in banking?
3. What kind of lifestyle do you expect to have in banking?
4. Why have you chosen banking over consulting?
5. Do you know what you’re letting yourself in for?
6. What would you be doing if you weren’t in finance?
7. Do you know about the investment banking lifestyle? Why don’t you have a problem with it?
The ‘why this bank’ questions
Don’t just regurgitate easy to find information in the public realm. Do make sure you do in-depth research – recruitment advisors suggest students talk to existing employees for specific information about what it’s like to work for that firm. We provide a list of other information sources here.
“Unfortunately, people don’t always bother doing the most basic research on the company,” says Malcolm Horton, head of recruitment at Nomura International. “What’s really needed here is something that explains why you think the bank you’re applying for is different to and better than the rest.” You’ll need to research every bank you’re interviewing with, says Horton. Your answers need to be specific: you need to find something that makes the bank stand out and to go with that. In the case of Nomura, for example, you might say you want to work for a bank with strong Asian connections so that you have exposure to the Asian market.
8. What are some of the most significant deals our bank has completed in the last 12 months?
9. What is our current stock price?
10. What do you think this bank’s biggest regulatory threats are at the moment?
11. What do you see as the strengths and weaknesses of this business/division?
12. What differentiates our firm?
13. Who’s our major competitor? How do we measure up? What are the risks and opportunities we face?
14. Tell me everything you know about our business model.
15. Which area of our business is strongest?
16. Who’s our CEO?
The ‘why this job’ questions
Rather than focusing on why you want the job in question, here you need to focus on what you can bring to it. What, specifically, have you done in the past that will suit you to performing well in this job in the future? Evidently you need a detailed understanding of the requirements of the job in order to respond aptly.
17. What do you think this position requires, and how well do you match those requirements?
18. Why should we hire you?
19. What do you think this job entails?
The brainteasers
Answering brainteaser questions is about method and attitude, says Mark Hatz, an ex-Goldman Sachs and Perella Weinberg associate who now offers advice on preparing for investment banking interviews. Banks want to hear your thought processes and to see that you’re flexible enough to attempt a solution. This is particularly the case for question 20 – where there is no hard answer.
20. How many pigs are there in China?
21. A snail climbs a 10 foot pole. It climbs three feet every day and sleeps at night. While sleeping, it slides down by one foot. When does it reach the top?
You might think the snail climbs a net of two feet a day and so reaches the top of the 10 foot pole at the end of five days. This is wrong. On the morning of day five, the snail starts out at the eight foot mark after sliding down from the nine foot mark overnight. It reaches the top of the pole two thirds of the way through the fifth day and then stops, because there’s nowhere else to go.
22. You have eight red socks and 11 blue socks in a drawer. They are identical but for the colour. You must select your socks in the dark. How many socks, at a minimum, must you take out of your sock drawer before you have a matching pair?
The answer is three. Two socks can be different, but the third sock must always match one of the first two.
The current market knowledge questions
Current market knowledge can’t be prescriptive – by definition it changes all the time. Make sure you know current key market metrics and have opinions about market trends and a selection of investment ideas.
23. What is the Dow Jones Industrial Average/FTSE as of today’s opening bell?
24. What is the Bank of England base rate/Fed funds rate as of this morning?
25. What’s the different between prop trading and market-making? (We have an explanation of this here).
26. Why would you or would you not invest in Apple?
27. What are your opinions on the Greek crisis? What’s going on in China?
28. Where are the 1-year, 5-year, and 10- year Treasury yields?
29. Would you invest in UK real estate now?”
30. What do you think is going to happen with interest rates over the next six months?
31. What has the market been doing? Why? What do you think it will do in the coming 12 months?
32. Tell me about some stocks you follow. Why should I buy them?
33. What does the yield curve look like now?
34. What major factors drive M&A? What are the major factors driving M&A in your sector? How do you see them evolving in the next year?
35. Where is the market (for bonds/equities/FX) going?
36. How would you hedge against the risk of a Greek default?
37. Where do you see the euro in 2018?
The past experience questions
Before you step into a finance interview, you need to know your CV inside out. Make sure you can answer detailed questions about any and every aspect (your choice of university and university course, your experiences as an intern, how you added value in a previous role) of your CV. Be prepared to use the S.T.A.R. technique to frame responses to questions about your past. You’ll need some examples of situations you were in, tasks you were asked to perform, actions you took and results you achieved.
38. Walk me through a deal you did in the past six months.
39. Walk me through your CV/resume without looking at it.
40. Why did you leave your last position?
41. What have been your failures and what have you learned from them?
42. What are your proudest accomplishments?
The technical investment banking questions
If you’re interviewing for a junior job in IBD, Matan Feldman at Wall Street Prep says technical knowledge is becoming increasingly important. This is echoed by other finance interview preparation professionals: banks want people who know the basics, even if you haven’t worked in finance (or studied finance) previously.
43. Define Beta
Beta tells you how much the price of a given security moves relative to movements in the overall market. A Beta of 1 means that if the market moves, the stock moves in unison with the market. A Beta < 1 means that if the market moves a certain amount, the stock will move less than that amount. A Beta >1 means that if the market moves a certain amount, the stock will move more than that amount.
44. Define CAPM
CAPM is the capital asset pricing model, and it is a model designed to find the expected return on an investment and therefore the appropriate discount rate for a company’s cash flows.
45. What is accretion and dilution?
Accretion is asset growth through addition or expansion. Accretion can occur through a company’s internal development or by way of mergers and acquisitions. Dilution is a reduction in earnings per share of stock that occurs when additional shares are issued or the stock changes into convertible securities.
46. If two companies are trading at the same trailing P/E multiple, are they also trading at the same trailing EV/EBITDA multiple?
47. Walk me through a DCF…
A DCF proposes that the value of a productive asset equals the present value of its cash flows. You’ll also need to talk about relative valuation multiples, in which you value a company similar to its peers based upon measures like enterprise value/revenue, enterprise value/EBITDA, and the price/earnings ratio.
48. What are the different methods of valuation and what are their pros and cons?
The three methods are DCF, public comparables (comparing other publicly traded companies) vs. transaction comparables (similar companies that have been involved in previous transactions). Each has its advantages: a DCF shows the maximum a company is worth – not just the value the markets assign to it. The transaction comparables take into account the synergies that can be expected to flow from a deal. For more information, see this tutorial from NYU Stern. Click here for more information on company valuations.
49. How are the 3 financial statements linked?
Click here for Wall Street Prep’s suggested answer.
50. What is working capital?
Working capital is the amount of liquid assets a company has on hand. It amounts to current assets and cash minus current liabilities.
51. Walk me through the major line items of a Cash Flow Statement
Click here for Wall Street Prep’s suggested answer.
52. What is DDM?
DDM is the dividend discount model of valuing a company.
53. Which is higher – the cost of equity or the cost of debt, and why?
The cost of equity is almost always higher than the cost of debt. This is mostly because debt holders have less risk than equity holders of not getting their money back and are therefore willing to accept lower returns. – Debt is secured against a company’s assets and is therefore less risky for the creditor, which can seize those assets if the company defaults. If a company goes bankrupt, debt holders receive proceeds of the liquidation ahead of equity holders. And debt holders receive interest on their investment in all situations (whereas equity holders are only paid dividends if the company is doing well). It helps too that debt s tax deductible.
54. Why should a company prefer equity finance to debt finance?
Equity financing is less risky (you won’t have to pay it back). You’ll have more cash on hand. You won’t have to channel profits into loan repayment. Your equity investors will have a longer term view. Your company will have more credibility. And you might get to tap your investors’ network to help you develop the business.
The culture questions
“Banks are increasingly realising that excellence isn’t just about making money,” says Logan Naidu at recruitment firm Dartmouth Partners. “Expect to be asked questions relating to banks’ own values and come with firm examples about how you’ve tackled ethical dilemmas.”
55. When have you worked in a bad team? Which steps did you take to make it better?
56. What is the most ethical decision you’ve ever had to make?
57. Give me an example of a person you think has integrity and explain why.
58. Give me an example of a person you think is credible and explain why.
59. How would you describe your leadership style?
60. What would you do if you did not have to work for money? How does that relate to this job?
61. Have you ever had to bend the rules to get the job done. Why was that?
62. Can you describe a situation in which you made a mistake and had to admit it to peers?
63. What kinds of people do you find it easiest to work with? Why?
64. How do you handle stress?
65. Why are you so special and what is one word that describes you best?
66. How would your classmates/colleagues describe you?
67. What’s the last book you read?
68. What is the riskiest thing you’ve ever done?
69. How would you spend $1m besides investing it?
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