How to prepare for your investment banking interview

right investment banker

So you’re in college and you’re getting ready to attend your very first investment banking interview. Investment banking jobs make for a great career, and you’re eager to work in a major firm, but you have to admit that you’re feeling a little nervous about the interview. Because IBD includes both equity capital markets (ECM) and debt capital markets (DCM), any interview is likely to include questions regarding both.

That’s a lot of information to cover, but don’t get too stressed out. There are some pretty common topics that repeatedly come up in these interviews. By covering a few of them in your preparation, and developing the tactics to respond, you’ll be all ready to go on the big day.

Know the current market
It’s an ECM banker’s job to provide advice on equity and equity-linked products, including shares, options and futures, so you need to go into your ECM interview ready and able to discuss at least one company that went public within the last few months. On top of that, you’re going to want to be able to offer a well-reasoned explanation of why the IPO is performing the way it is, the strategy used to market it to investors, and how you would have handled the public offering differently if you had been in charge.

“Hiring managers notice if your analysis has real energy and passion.”

What proves relevant to an ECM’s preparation isn’t necessarily what you should focus on for a DCM interview. For instance, bankers usually have a much better understanding of equity than they do debt, so technical questions about debt won’t feature much in an ECM interview, whereas they are a hallmark in the DCM process. DCM analysts offer advice on raising debt for acquisitions, as well as refinancing and restructuring of existing debt. That’s why being able to discuss current market conditions, and give informed opinions, is so important.

Remember that a sense of passion goes a long way in an interview. If you can invest your analysis with real energy and personal interest, hiring managers will notice.

Be prepared for a wide scope of inquiry
In a question and answer session with Mergers and Inquisitions, a finance news website, one DCM banker said that, due to DCM’s hybrid nature, during his hiring process interviewers came from several different backgrounds, including money-markets, investment banking and derivatives trading, and asked questions relevant to those pursuits. Questions covered basic knowledge of everything from fixed income products to interest rates.

On Glassdoor, one ECM analyst reported being asked if he had ever read S-1 statements, while another was asked to deal with hypothetical brain teasers like assuaging an unsatisfied client, and a third interviewee described a more traditional interview in which he was asked to describe himself, pitch a stock and offer market assessments.

The ability to analyze and discuss multiple fields is essential in an ECM or DCM interview. The ability to analyze and discuss multiple fields is essential in an ECM or DCM interview.

These topics weren’t random so much as they were broad. To prepare for a wide range of inquiry, and to make sure you have a suitable answer for whatever you’re asked, it’s better to make sure you’re familiar with key terms and can discuss basic principles of many fields, rather than have an in-depth knowledge of only limited fields.

Know the basics 
For ECM positions, the three methods for valuing a company – the asset, market and income approach – and the advantages and disadvantages of each are very likely to come up during an interview. This is relatively fundamental knowledge, but hiring managers want to assess your grasp of the basics before moving on to more complicated subjects.

The basic knowledge required for DCM interviews has a different focus. You want to be as comfortable as possible discussing things like valuation, duration, the leverage coverage ratio and the interest coverage ratio. Brush up on all of these concepts before the interview. Then spend time making sure you can read (and more importantly, fully understand) a company’s balance sheet. A hiring manager may hand you a balance sheet and ask you to assess things like cash flow during the interview, so the ability to respond confidently is essential.