Hi everyone!
Long time reader, first time poster here.
I'm currently being interviewed for FT analyst position at FIG group of a bulge-bracket bank (London office).
I already had 2 interviews with associates in Moscow which included both technical and fit questions (not intimidating ones). Now I'm going to have my second round in London and I'm afraid that's the point where the real interview hardcore will begin.
So I wonder what can I expect and how can I prepare myself in the best way? I know that I'll be interviewed by the head of FIG group and maybe by some more senior bankers. Should I focus more on polishing my story or technical side? How many candidates are usualy invited to the second round assuming they are going to hire 1 person?
Any insight is appreciated.
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which bank?
know about valuation (DDM and P/B) and regulation (Basel) and current trends and deals be sure you want to commit yourself for the long term the question why FIG is very important, because you cannot compare it to other industries btw, there are previous topics about FIG and the required skillset good luck!
Thanks, dagobert_duck! I'm not that worried about technical side because I have FIG related corporate finance experience and the questions about valuing a bank/insurance company went smoothly. But fit/behavioral questions are more troublesome to my taste. So I guess I should focus on that.
Prepare the why FIG question and be sure you want to commit yourself to the FIG business for the medium to long run. It is also one of the thoughest industries in terms of working hours.
Cabol,
I agree at all with dagobert_duck, common fit questions are: Why FIG? How committed are you? Strenghts/Weaknesses? Why our firm?
Don't undervalue technical questions...in the 2nd round they are very tough and don't refer exclusively with DDM/Comps. Samples: How can you roughly estimate the cost of equity? And the cost of the debt? What's the link between P/E and P/BV? If you were the CEO of a factoring company, how would you improve company's profitability?
Good luck!
Look at the official Damodaran website for technicals, it explaines very good the relationship between P/E and P/B for example.
Thank you, guys!
Bach, correct me please if I'm wrong with these answers: 1) Cost of equity - general approach is using CAPM with industry average/comps data for betas and D/E as inputs with further relevering and adjusting for country risk and size premiums. If company pays out dividends cost of equity can be estimated through dividend growth model. If it's a private company than use public comps/industry average data. 2) Cost of debt - if company has traded long-term debt than use YTM of this debt; if company doesn't have traded debt than try to find comparable companies with long-term debt and use that YTM. If everything else fails it's possible to use Interest expense/BV of debt as proxy. 3) I think P/E is greater than P/BV because retained earnings is only one part of total shareholders' equity. Thus in P/E the denominator is lower => the multiple is higher. 4) That's a tough one - I've never dealt with factoring companies. I think that CEO can either raise the commission rate or try to minimise non-payments through more careful debtor selection.
Cabol,
1) Yeah, you followed the right path. Cost of equity can be actually estimated through dividend growth model, but from a very practical point of view you can roughly estimate cost of equity by inverting P/E. In fact cost of equity is the discount rate making the present value of future dividends equal to its price; assuming dividends remain constant and approximating dividends to earnings, you can estimate cost of equity as E/P. It will be a little bit higher than actual cost of equity, but is a proxy very easy to compute. 2) Correct! 3) The link between P/BV and P/E is EPS; in fact EPS is E/BV, so P/BV=EPS * P/E. The interviewer then asked me to plot the graph and to determine the best region to pick up a stock. 4) Increasing interest rate can be a choice, but you may miss clients, which go to another factor with a lower interest rate. So, profitability key drivers are : (i) Operating cost: as low as possible, (ii) Outstanding amount: as low as possible, (iii) Funding: loans from banks at rates as low as possible, in order to have a decent interest margin without increasing our interest rate, so that our factoring company doesn't miss clients
Thanks for great answers, Bach! They are of very helpful.
The only thing that confused me is your EPS formula. I always thought that EPS = E/Number of shares. Maybe you meant ROE? Than everything goes to its place: ROE = E/BV, BV = E/ROE and P/BV = P/E * ROE. And if speaking about the graph did you mean P/BV vs ROE graph? If so it will be the upward sloping line coming from (0,0) point (we're not taking into consideration negative earnings) where ROE is on x axis, and P/BV is on y axis. I'm not sure about stock picking but I think you want to either pick up a stock with good fundamentals (ROE) or undervalued stock. The first choice means the right side of x axis and the second choice - the range near 0 (assuming that the company's ROE will improve in the future). Btw did you make it through that interview?
Thanks for great answers, Bach! They are very helpful.
The only thing that confused me is your EPS formula. I always thought that EPS = E/Number of shares. Maybe you meant ROE? Than everything goes to its place: ROE = E/BV, BV = E/ROE and P/BV = P/E * ROE. And if speaking about the graph did you mean P/BV vs ROE graph? If so it will be the upward sloping line coming from (0,0) point (we're not taking into consideration negative earnings) where ROE is on x axis, and P/BV is on y axis. I'm not sure about stock picking but I think you want to either pick up a stock with good fundamentals (ROE) or undervalued stock. The first choice means the right side of x axis and the second choice - the range near 0 (assuming that the company's ROE will improve in the future). Btw did you make it through that interview?
Oops, double post =/
Cabol, Sorry for the typo confusing you...of course I meant ROE. P/BV vs. ROE graph; yeah, it's an upward sloping (slope equal to P/E) line, with ROE on x axis and P/BV on y axis. Again, you followed the right path: (1) For a given P/E, the sloping line will divide the quadrant into 2 different regions; region A (P/BV>P/E), and region B (P/BV lower than P/E); (2) For a given ROE you'll have stocks with same returns, but different P/BV; a smart investor, at constant ROE, will pick up stocks with P/BV as low as possible. Conclusion: you'll pick up stocks from the region B (it is convenient to buy all the stocks with P/BV lower than P/E) and in particular those stocks with the highest ROE (right side of x axis, as you wrote).
Yes, these were actual questions they asked me during a 2nd round interview.
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