Hey guys,
I think I have a pretty good idea of what investment banking is (IBD, I mean). However, in the informational interviews that I've been holding with bankers from different firms, a distinction has been popping up again and again. I'll give an example:
Speaking on the phone with an analyst from Rothschild, the analyst said that Rothschild was a financial advisory firm, and not a traditional investment bank. He also said that, in comparison to a traditional investment bank, they don't have a "balance sheet."
What exactly do they mean when they say they don't have a balance sheet? Why would you need a balance sheet for IBD? I'm guessing that it has to do with the other components of an investment bank (AM, S&T, possibly PWM)?
Thanks for any advice!
balance sheet = ability to bear risk for the client. the bank buys the securities from the company aka the 'investment' and puts them on their balance sheet aka the 'bank' as opposed to just 'advising' on the issue, which is obvi a way more profitable business and leads to fewer shenanigans. for example look at the flopbook ipo. in the first couple days morgan stanley had to bid for like 144 million shares way higher than the average price in order to prop up the issue price. they can get away with that nonsense because they have a balance sheet and your boy at rothschild would have no part of such a thing. you may also hear it referred to as underwriting but you can say that in the context of commercial banking too
Balance sheet = ability to provide a full "suite" of banking products for your clients (debt offerings, equity offerings, S&T, hedging, etc.)
Ah, I see, thanks, guys, I didn't consider that. Why do some of these smaller firms not maintain a balance sheet, then? They just don't want to mess around with it?
Ah, I see, thanks, guys, I didn't consider that. Why do some of these smaller firms not maintain a balance sheet, then? They just don't want to mess around with it?
Basically, yes. If you look, these firms are for the most part smaller than traditional banks' IB arm. They don't take on the same amount of risk in lending to clients as bigger "balance sheet" firms do. That way, if a downturn hits, they aren't exposed to risky assets like "balance sheet" firms.
Good way to think about it:
Balance Sheet: all the BBs, SunTrust, RBS, RBC, BB&T, PNC, BMO, Macquarie, etc.
Advisory (although some of these shops do have PE/AM arms): Greenhill, Lazard, Moelis, Centerview, Perella Weinberg, Evercore, Houlihan Lokey, Jefferies, Rothschild, Piper Jaffray, Raymond James, Baird, Sagent, Blair, Stephens, etc.
they want to remain a pure advisory firm. Rothschild until a couple years ago changed their "IB" services to Financial Advisory from Investment Banking. Which makes a lot more sense.
Lazard, Rothschild, Evercore, Greenhill, etc. are independent advsiors (without "balance sheets") to reduce the risk of going belly up during the bad times (they do not risk having "toxic assets" on their balance sheets)..
The independent advisors do not lend any money to corporations (which means they do not take the risk that the corporations will not pay them back), whereas the full-service investment banks DO lend money for capital raising, acquisitions, etc.
The independent advisors also do not have prop trading arms that trade stocks, bonds, and other instruments in the market with the firms OWN money.. they only do so for clients WITH clients' money (i.e. asset management)
Thanks for all the advice, folks. Everything makes a lot more sense now!
Surprised no-one has mentioned this, but banks with no balance sheet can also pitch that their incentives are fully aligned with their client; whereas lending banks can appear to have conflicts of interest.
For example: BB bank X advises company A on the sell-side and provides the loan to company B on the buy-side. Or company A is distressed and has outstanding loans with BB X; therefor company A works with BB X even though another bank might be better suited to make the sale.
Loans and advisory can be a symbiotic relationship, but loans can also be used to lock a company into the relationship. This is why some firms may choose to hire an independent financial advisory as a check on a lending bank who is leading the engagement.
Researching differences between BB's (Originally Posted: 01/13/2010)
Sorry if this a little a stupid questions, but, I am wondering what you guys have done to get information on the differences between the BB firms. I know that in interviews I will be expected to explain why I choose their firm as opposed to others, and explain the unique qualities of their IBD. Can some of you veterans help me with this, and direct me as to where I can gain insight into the distinguishing characteristics between firms? Thanks a lot guys.
You could go the normal bullshit route I see with college kids and use "culture" in some way but I prefer the balls deep all-in kids who just tell me they love my dealflow and want a piece of the action. They tell me how great it is that the firm's getting so many deals and that it is really on its way up.
That's really all you need to say to most BB's to stroke our ego and if it's not a BB that you can say it to, then fuck that firm you shouldn't be applying there.
For Citi, make sure you emphasize the want to be "global". They're really amped on their international presence. Also (whether it's the case or not) a lot of groups try to go for a boutique feel in a BB environment.
Thanks for the advice guys, I really appreciate it.
But I'm interested to learn the major differences and distinguishing characteristics between the major BB's...especially the difference in banking styles between BofAML, GS, MS, Citi, and JPM. Can someone give me some detailed info or at least direct me as to where to find out?
Overall, investment banking services are a commodity. The days of the relationship banker are essentially over as every BB can get a deal done (see Accidental Banker by J.Knee for more info). The major differences arise between individual groups, specifically the managing directors in the teams and their ability to "make rain". I'd venture to say that besides balance sheet differences, the investment banking operations of BB firms generally have the same banking styles. Again, some differences may arise in specific groups/offices (e.g. from what i've read, Moelis left UBS LA because he wanted to use aggressive funding to do LBOs and this clashed with the conservative nature of the firm as a whole) but overall, the approach is the same aka pitch a lot of transactions and beg/cajole clients if necessary to get a deal done. Sorry if this sounds callous, but I think the experienced guys/girls on this board would agree.
There are no differences in banking styles. I'm telling you man, once you get there, you'll be up to your ears in work. So much so, that you won't even remember the name of the firm you are working for let alone care about the "unique qualities of their IBD".
Being able to understand that (none of that naive shit. You're an analyst, what dealmaking are you talking about? Only the senior guys do dealmaking. You do grunt work) and putting it into a more flowery language is the real skill.
Thanks guys.
Do any of you guys know what BoAML has to offer in terms of what their particular strengths are? What is their strongest attribute/group? Again, there's gotta be, regardless of accuracy or not, a certain perception between differentiating characteristics among the top 5 BB, right?
BAML is great at being almost bankrupt but still being top #5 on league tables, same with Citi
Morgan Stanley and Goldman Sachs are clearly the best shops, with JPM a close third.
BAML Citi UBS Deutsche and Credit Suisse are second tier BB's
You forgot WF and Barcap.
I would say GS and MS and JPM are definitely top, but there is no real difference between the other BB's. I have had friends work at multiple banks and its all about your luck with your group and the people you meet and their personalities. Besides some things like MS supporting a "star culture" and banks like Deutsche being more conservative, there's not a big difference beteween bulge brackets.
The M&A league table that I've most recently seen goes something like this:
MS GS JPM Citi BAML UBS Barclays Credit Suisse Deutsche Bank Lazard
I haven't seen Wells up there?
Of course I'm not in banking anyways so I have no idea how this list would shape out
and you never will
it's top 10 in many areas and above other BB's, but only for us, since i think its not international bank
The screen I was looking at was on Bloomberg, type in the LEAG function, Global M&A Completed for 2009
No Wells Fargo.
Also keep in mind Bank of America's investment bank is Merrill Lynch. Merrill Lynch was never as good at Goldman or Morgan Stanley from what I remember, but much better than the old BofA.
Bigunit you wrote Global M&A. I'm talking about United States. Source is http://online.thomsonreuters.com/DealsIntelligence/
If you look at Thomson Reuters for U.S. M&A, Wells Fargo is 7th in the 3rd quarter and 12th in the 4th quarter, both quarters above banks such as UBS, BX and CS.
It does even better in debt and non-IPO equity rankings being top 8. A recruiter told me they are looking into expanding internationally but as of now they wouldn't have any strong showings in the global rankings which includes Europe and Asia.
Also you can see all their dealflow is exclusively with BB's
Jan 15th 2010: http://www.businessweek.com/ap/financialnews/D9D8F3CG1.htm http://www.tradingmarkets.com/news/stock-alert/slg_sl-green-realty-pric…
Jan 18th 2010: http://pr-usa.net/index.php?option=com_content&task=view&id=314423&Item…
And you are right, banks like Bank of America and Barclays were never bulge bracket until after their acquisitions.
Above poster works at Wells lol
There's a fucking thread on this every single day. Also beating out UBS is nothing to be proud of. However, I would say both wells and ubs are BB's since they play with the big boys (GS, MS, JPM and BAML). A "bulge bracket" means deals in the billions and all these banks have that capacity, especially banks like JPM and BAML with their large balance sheets.
By the way, BAML is 3rd in the league tables.
Thomson Reuters and Dealogic say JPM is third in M&A and #1 in everything else (equity, debt, syndicated loans)
Go fuck yourself JPM is overrated. BAML is where its at.
BAML is a very good bank, don't get me wrong, but JPM has been doing a lot better and will likely continue to do so in the long term. From a perception standpoint, JPM knocks BAML out of the water...most people would much rather say "I work for J.P. Morgan" than "I work for Bank of America".
Well truth be told - on Wall Street perceptions change really fast...I could see BAML either sinking really fast or being top tier depending on how high or low the ML acquisition buoys it.
1st year analysts constantly posting on WSO = good deal flow
wow, yet another thread 1styearbanker has hijacked with "i have an orgasm everytime i hear BAML." dont mean to call you out bro, but this is f***ing lame. you prolly like working there but this is ridiculous
Star culture = a firm that promotes super-star bankers. Felix Rohatyn at Lazard, Frank Quattrone at CS, Ken Moelis at DLJ/UBS, etc.
A star culture is dangerous because the firm/group is only as good as its stars. Once they leave, the group's reputation and dealflow take a tremendous hit.
No I don't work there, only applying, but you can pretty much see from any day's deals that WFS is always up there with the likes of JPM and BAML and getting more deal flow than banks like UBS and Deutsche.
January 20th: http://www.earthtimes.org/articles/show/energy-transfer-equity-announce… http://www.tradingmarkets.com/news/stock-alert/tlp_transmontaigne-partn…
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