Thursday, September 25, 2008

The World before and after September 2008…

That is how we will remember this month. That is not to say the worst is over. That is to say we have seen enough bad news to make September a defining point in the last 80 years - i.e. since the Great Depression. Here is how authoritative voices in the press and blogsphere have reflected on the events of the past few weeks.

New York Times columnist David Brooks explains the history:
…In the 1980s, the old power structures frayed, even on Wall Street. Corporate raiders took on the old business elite. Math geeks created complicated financial instruments that the top executives couldn’t control or understand. (The market for credit-default swaps alone has exploded to $45.5 trillion, up from $900 billion in 2001.)
Year followed year, and the idea of a cohesive financial establishment seemed increasingly like a thing of the past.
No more. Over the past week, Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Tim Geithner of the New York Fed have nearly revived it…

Professor Nouriel Roubini clearly did not fancy USSR too much:
…So now Comrades Bush, Paulson and Bernanke (as originally nicknamed by Willem Buiter) have now turned the USA into the USSRA (the United Socialist State Republic of America). Socialism is indeed alive and well in America ; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion…This biggest bailout and nationalization in human history comes from the most fanatically and ideologically zealot free-market laissez-faire administration in US history. These are the folks who for years spewed the rhetoric of free markets and cutting down government intervention in economic affairs. But they were so fanatically ideological about free markets that they did not realize that financial and other markets without proper rules, supervision and regulation are like a jungle where greed – untempered by fear of loss or of punishment – leads to credit bubbles and asset bubbles and manias and eventual bust and panics…

Larry Elliot at Guardian expresses:
…Ben Bernanke, chairman of the Federal Reserve, and Hank Paulson, the Goldman Sachs tycoon who became US treasury secretary, have done more for socialism in the past seven days than anybody since Marx and Engels…

Willem Buiter at Maverecon reflects:
The end of American capitalism as we knew it… I almost decided to go back to bed, convinced I must be dreaming... From financialisation of the economy to the socialisation of finance. A small step for the lawyers, a huge step for mankind. Who said economics was boring?

Bankers, beware Captain Capitalism:
...I want to kill the bankers.
I don't mean that in a funny, ha ha, way. I don't mean that in a sarcastic way. I mean that in an old school American, wild wild west, you killed my father-prepare-to-die, deadly serious way. I literally want to grab my gun, get a lot of bullets, find some bankers, hunt them down and kill them. I even know the bankers I would hunt down. I know their names and where I can find them. I would do with a smile on my face. I would enjoy the action of it, I would savor it. I would go home and pour myself a well-earned drink and sleep just as soundly as I ever have, if not, probably better. I would not have one pang of guilt.

Monday, September 22, 2008

Interview series 4: Trading & Risk Management graduate recruitment, London - Part I

Here I want to discuss graduate recruitment process for Trading and Risk Management roles at one of the leading fixed income houses. Applicants are expected to pass each step to proceed to the next stage. Initial stage consists of online application, online numerical & verbal reasoning tests and telephone interview. Once successful in these stages, you will be invited to an Assessment Centre which comprises competency based interview, technical interview, written case study followed by a presentation on the same topic as the case study and finally, a trading game.
In this article I will focus on the pre-Assessment Centre stage and competency and technical interviews during the Assessment Centre.

1.Online application
You are given a relatively lengthy application. The areas to fill include your basic details, department you are applying for, education, language skills, computer skills and extra curricular activities. You will also be given an area to edit to answer competency questions such as "Why are you applying to our firm?" and "Why have you chosen your preferred role?".

2.Online tests
Once successful in online application, you will take online numerical and verbal reasoning tests. You can practise SHL's trial tests here. Another way to prepare for these tests is to do GMAT tests. Although GMAT tests are not strictly relevant, they are still helpful to improve your relevant skills.

3. Telephone interview
The idea of a phone interview is to reduce the number of applicants to manageable levels. Hence, if you make through this stage, you will find that subsequent face-to-face interviews repeat some of the questions. The interview can last 30-40mins. The focus of the interview will be on competency based questions around your motivation to join the firm and on how you would respond to a variety of work challenges.

Assessment Centre

3. Competency interview
Competency based interview will focus on your intangible skills and your motivation for your preferred role. You will also be asked questions related to your background. Interview can last from 45mins up to an hour. I will make reference to Trading role, but most of the questions apply to Risk Management roles as well.

Team work
-Can you tell me about the teams you are currently a member? What is your role? When were you last involved?
-Tell me about a time when you made a concerted effort to make a significant contribution to a team. What was your contribution? What challenges did you face?
-Tell me about a time when you are most proud of where you generated a sense of real team spirit amongst a group. What was the situation? What specifically did you do? How did it impact on the team’s performance?

Getting things done
-Tell me about a time when you had more work to do than time to complete it. How did you prioritise?
-Tell me about a time when you worked on something with limited supervision. How did you manage it?

Hunger to learn
-Give me an example of where you set a challenging goal to develop yourself and learn something new.
-Describe a time when you have faced a major setback when trying to achieve a particular goal.

Joint up thinking
-Give me an example of when you thought “outside the box” to develop a new idea?
-How many ping pong balls fit into Boeing 737?
-What are the key issues facing the industry we are in?
-What do you read to stay up to date with key industry trends?

Business specific
-Why do you want to work in Trading? What attracts you to it?
-What products interest you? Do you have preference for a particular product?
-What did you do to find out whether the role suits you?
-What challenges do you think the Trading profession is facing?

4. Technical interview

Given strong technical skills are important in Trading or Risk Management, this interview will focus on your relevant skills and experience. Interview can last from 45mins up to an hour.
-Why are you interested in trading?
-If Fed increases interest rates by 50bps, how will it influence the dollar?
-What skills do you have which would make you suitable for this position?
-What is 13/16?
-Is their any particular product area you are interested in and why?
-Do you have example where you did client facing job?
-Do you know how traders make money?
-Would you consider investment banking role?
-There are 3 cards, 0, 1, 1 written on each of them - all face down. You have £100. If you pull card with 1 written on it, you win the bet. How much would you bet?
-Again these cards, you are betting £10 for two attempts. You lost first time and second time and you are left with £80. How much would you bet for a third time?
-Do you have skills to use MS Excel and VBA?
-What are the main parameters in Black & Scholes?
-Do you have any trading ideas? What would you buy now? Why?

Friday, September 19, 2008

The ballad of the Lehman banker...

In memoriam: The ballad of the Lehman banker, sung to the tune of Don McLean’s American Pie:
Click here for accompanying music.

A long, long time ago,
I can still remember,
How much wealth there was in the Square Mile,
And I knew that if I had my chance,
I could make it in finance,
And maybe I’d have money for a while.

But subprime assets made me shiver,
With every product I’d deliver,
Bad news in the press(es),
Just look at those CDSs.

I can’t remember if I cried,
When my salary was pushed aside,
But something resounded worldwide,
The week the IB died.

So bye, bye, Lehman Brothers and I,
Needed credit to get better but the credit was dry,
Hank Paulson’s Fed had carved up the pie,
Saying, AIG’s too big to die,
AIG is too big to die.

Why’d Fuld wait, put all at stake,
Did he think he’d make more at a later date?
Greedy finance tycoons,
Now Barclay’s buying, let’s be frank,
A pretty cheap investment bank,
Can you hire me, real soon?
Well, I know that it’s a lot to ask,
When Einhorn’s taken us to task,
Using our balance sheet to guise,
Our level 3 assets’ demise.

Now Morgan Stanley’s feeling short,
And BofA’s Merrill’s last resort,
The banking system’s pretty morte,
The week the IB died.

I was saying,
Bye, bye, Lehman Brothers and I,
Needed credit to get better but the credit was dry,
Hank Paulson’s Fed had carved up the pie,
Saying, AIG’s too big to die,
AIG is too big to die.

Now for four years we’d been on the phone,
Selling mezzanine CDOs,
But that’s not how it used to be,
When Dick came in, we just did bonds,
Good thing he helped us right that wrong,
By buying Aurora Loan LLC.

Oh, and while the Fed was looking ‘round,
They thought they’d try and shoot us down,
The market was all broken,
Bank lending was a croakin’,
And while we unwind our trading book,
The head hunters all have a look,
The hedge funds are put on the hook,
The week the IB died.

I was saying,
Bye, bye, Lehman Brothers and I,
Needed credit to get better but the credit was dry,
Hank Paulson’s Fed had carved up the pie,
Saying, AIG’s too big to die,
AIG is too big to die…

Tuesday, September 16, 2008

How bad is it out there?

Lehman Brothers is dead. Merrill Lynch is adopted, even though temporarily. AIG is half in the grave. More seems to be in the pipeline. Just how bad is it out there right now?
Here is a table from Afraid to Trade, that puts S&P500's yesterday performance in the context.

It shows that Monday's performance has been 14th worst since 1950.

Now see below FTSE100's worst daily performances since 1984.

It shows yesterday's performance was 21th worst since 1984.
Not bad in either case bearing in mind the severity of writedowns and systemic importance of some of these failing financial firms. However, a question begs itself whether a single day index performance can be a good indicator of problems in the broader system. Not necessarily. For comparison sake, the market crash on 19 October 1987 was a black swan event and can not be considered in the same context to what we are experiencing now. In addition, despite being excessively leveraged, the markets are now much more flexible compared to even 10 years ago.

Here is an indicator that I think is more reflective of the severity of current crisis - it is a graph of a 3 month US t-bill yield over a historic period:

Today, the yield on the t-bill touched 0.3%, the lowest since January 1941. It just shows the magnitude of anxiety in the world markets and the resulting flow of money into arguably the safest investment.

We have already seen a sequence of events within such a short period of time, unseen since the Great Depression. More seems to be coming.

Sunday, September 14, 2008

Lehman Brothers to file for bankruptcy?!

Unbelievable times... Bear Sterns went under, Freddie Mac and Fannie Mae went it now Lehman's turn?! It is a rhetoric question. The difference between the former two cases is that both Bear Sterns and Freddie and Fannie were bailed out by the US government, whereas the government is refusing to provide guarantee to the potential buyer of Lehman, British bank Barclays which now confirmed to have walked away from the discussions due to refusal. Given the scale of Lehman's liabilities, it is absolutely a critical time to watch how the developments unfold.

What I fear most is the potential impact of Lehman's insolvency. What happens to the creditors of Lehman? Any sizeable bank has, potentially, a multi billion counterparty risk on Lehman. Is this going to lead to a chain effect across the industry? Click here for more.

As I am writing this, I am reading news that Merrill Lynch is in talks with Bank of America to be acquired (See here).
I can't wait when the markets open in the morning...

UPDATE 1: 5.20am - 15 September 2008 London time
Only a few hours after the initial reports that ML was in talks with Bank of America to be acquired, NYT report that Bank of America bought ML for $50bn. If I were a ML shareholder I would have run with the money, but the issue here is that it is an all share purchase and hence shareholders can't lock in to the profit. I think BoA paid too much for ML.
So, what is next? AIG seems have nearly arrived too...

Interview series 3: JP Morgan Asset Management graduate recruitment, London

Back in 2005, I had an application for a graduate program to work within equities investment department at JP Morgan Asset Management . The whole process was expected to involve online application, if successful, online numerical and verbal tests, if successful, Assessment Centre, and if successful, a series of interviews with my immediate colleagues. I reached until the Assessment Centre stage. The Assessment Centre consisted of a group session and two rounds of interviews. Note that current recruitment process might differ compared to 2005 recruitment season.

1.Online application
You are given a relatively lengthy application. The areas to fill include your basic details, department you are applying for, education, language skills, computer skills and extra curricular activities. You will also be given an area to edit, answering competency questions such as "How do your skills and experience make you suitable for a role at JP Morgan?" and "Why you have chosen this department?".

2.Online tests
Once successful on the online application stage, I had to take online numerical and verbal reasoning tests. You can practise SHL's trial tests here.

3.Assessment Centre
The Assessment Centre involved a group exercise lasting 50mins and two 30min interviews. Click here for more on what to expect during assessment centres and how to handle them.

Group exercise
We have been given 4 different topics to choose from, 45mins time to discuss the chosen topic and 5mins to present it by one of the team members.
Chosen topic: Present 3 most important points to include, to the Head of Marketing at Virgin Group, in the brochure about commercialising space flight.

Interview one:
Interviewer: Fixed Income Portfolio Manager
-Tell me about yourself;
-What is the difference between trading and Portfolio Management?
-Why did you do your MSc?
-What did your MSc give you?
-What was your dissertation topic?
-On the buy side it is important to be able to persuade someone; give me an example of when you had to convince someone.
-You have £10m; how would you invest it?
-What makes a great portfolio manager?
-Give me an example of when you had to solve complex problem in different ways.
-How many barbers are there in Uzbekistan (a type of brain teaser)?
-Give me an example of when you failed to achieve something.
-Where do you see yourself in 5 years?
-Do you have questions for me?

Interview two:
Interviewer: Pan European Equity Research , COO
-Tell me about yourself;
-How do you think the group exercise went? What went good and what went wrong?
-How do you think you have performed? What would you do differently?
-How would you motivate someone if you were given a chance?
-If someone tells you that you are not performing well, how would you respond to this?
-Give me example of when you made a mistake.
-Do you have questions for me?

Wednesday, September 10, 2008

Finding your first job in finance during credit crunch

I am not sure how you imagine finance, investment banking in particular, but the face of the industry is changing dramatically and will continue to do so for some time to come. For one thing, the current job market is not in the best of its shape. I think career path for some of the roles in the industry will change greatly too. For example, as a result of huge losses in rogue trading scandals and market crashes, trading roles have already become more stressful as banks monitor traders' limit very closely. Huge losses resulting from the credit crunch will make the trading roles even more stressful. Compensation structure will change too (See here for some background). Probably for worse for you, but reflective of the challenges the industry facing.

One of the best ways to position yourself to land your first job in such climate is to understand current state of the industry, background to the credit crunch, implications of the crisis for the economy and more importantly, its implications for the job you are applying. To stay up to date, I usually read,, and; see the sidebar for the links.

Next, network. Basically, you need to be all out. Talk to your friends, talk to your contacts in the industry, talk to your university alumni, talk to recruitment agents, attend career fairs, use online networking platforms. You will probably not be efficient for the first few times, but overtime you will get better and better at it. Networking can be a powerful source to obtain information about various career paths, roles, and the industry in general. It can also help you make valuable contacts in the industry who, if you impress, can refer you to their employers. For online networking platforms I recommend and

Next, show some flexibility. I can understand an ambitious guy wishing to work in M&A or in trading, but there are many different opportunities around that can get you just there. For example, you can work for an audit firm for 3 years and qualify as an ACA or CPA (or whatever the equivalent) and switch into virtually any commercially analytical role, including M&A. Take some time to research and network to find out about various alternative roles that will position you well in the future to get to where you want. You won’t be judged for mistakes you have done in the first 2-3 years of your career in case you feel things went not so great.

Next, target employers. Once you broadly know the type of roles you want to apply for, you need to target the firms. Finding established graduate programs of investment banks, professional service firms, consultancies, law firms and industrial firms are not difficult (you can see for the UK employers and for the US employers), but don’t underestimate smaller firms which do not have structured graduate programs. There are also firms such as hedge funds, independent asset management or research firms, private equity firms which are by definition small and do not have graduate programs as such. On the web you can find various lists of these firms which you can use to define your target group. Sometimes it can be easier to be offered a position with one of these firms due to a relative lack of information about openings. A proven route to these firms is usually through networking as I described above, cold calling or at least by registering with recruitment agents.

Next, work on your story. Hopefully, having spent some time researching the industry and talking to people, you have some idea about what roles suit your strengths and weaknesses. It is important that well before going to interviews you think about your answers to competency based questions. These are usually ‘why this career path?’, ‘why this role?’, background questions (e.g. which subject did you enjoy at University and why?), team questions (e.g. what role do you take in a team environment?), crisis questions (e.g. how would you deal with an underperforming colleague?), etc.

Next, work on your product knowledge. For example, if you are applying for an M&A or similar roles, make an effort to learn about how investment banks add value to M&A needs of corporates and financial sponsors. If you can explain to your interviewer how the M&A industry is currently faring and how it has been impacted by the current crisis, he will be impressed. You would also need to get to grips with tools the M&A analysts use on a day to day basis, such as DCF valuation, comparable transaction multiples (or “comps”), basic understanding of financial statements, etc. For trading and similar roles, your interviewer will probably focus on your basic understanding of equities, equity valuation, bonds, bond pricing, FX forwards, option pricing and so on. It is common for trading interviews to involve brain teasers such as ‘what is 5/16?’, basic probability questions, etc. Check Willmott forum and for plenty of brain teasers; see the sidebar for the links.

Next, work on your recruitment skills. Depending on the role and the firm you are applying for, you may be tested via interviews (phone, face-to-face, panel), competency tests (numerical, verbal, abstract reasoning, mainly), team exercise, presentation, case study, in-tray exercise, trading game and written exercise. What most candidates find hardest is that there are not many ways of practising these skills other than attending a few assessment centres (i.e. testing days). In the past I have arranged ‘Super Saturdays’ where I would invite 4-5 friends seeking job to practise some of these formats. I am inclined to think that this has worked well as all of my friends who attended one of these days got recruited by top firms.

Last but not least, position yourself for growth markets. As it stands, BRIC (Brazil , Russia , India , and China ) countries still seem to be performing reasonably well, with hiring following suite. If there is any way you can show some language skills or at least interest in these countries, then absolutely flag it in your application/CV/Cover letter/interview.

The areas I described above shouldn't necessarily be addressed in the given order, though it is important that you approach them constructively. Unfortunately, very few universities in the world have the necessary resources and prestige to help you get into the cut throat investment banking world (there is still no guarantee that it will get you there!). Most of us have to work extremely hard to get our feet at the doors of these firms. At the time when I was searching for my first job, I felt like doing another masters degree. The good news is, if you persist, you will succeed!

Tuesday, September 09, 2008

On how NOT to get a job or Impossible is Nothing...

I have copied below the story of Aleksey Vayner's infamous video attachment to his job application to UBS. As one of the commentators put it, he is a "perfect" investment banker! I like Michael Cera's parody of it -you can watch it here:

In October 2006, Yale University student Aleksey Vayner applied for a job with UBS AG. Amused by Vayner's apparent puffery, an unknown member of UBS staff emailed his application materials to other investment banks. They were soon posted on various blogs, then YouTube, from where they became an immense viral Internet phenomenon.

The video opens with a staged interview between Vayner and an offscreen voice(believed to be his own). However, the "interview" ultimately consists of a single question, to which Vayner gives a lengthy, rambling response. Using considerable amounts of business-speak jargon, Vayner praises himself and shares his various insights on success, talent, and overcoming adversity. Interspliced with the interview we see clips of Vayner performing various feats designed to look impressive, including bench pressing, skiing, playing tennis, ballroom dancing, and finally karate-chopping a stack of bricks. The video ends with a dedication, and a fairly lengthy credits sequence.

With his name and image appearing on the "Today" show, in The New York Post and all over the Web site Gawker, Aleksey Vayner may be the most famous investment-banking job applicant in recent memory.

But he says his new celebrity is less blessing than curse.

"This has been an extremely stressful time," Mr. Vayner, a senior at Yale University, told DealBook over steak in a northern New Jersey restaurant Thursday.

It was his first face-to-face meeting with a reporter since an 11-page application and elaborate video clip that he submitted to securities firm UBS showed up on two blogs, and then quickly spread to every corner of the Internet. The clip, staged to look like a job interview spliced with shots of Mr. Vayner's athletic prowess, flooded e-mail inboxes across Wall Street and eventually appeared on the video-sharing site YouTube. And the overwhelming reaction was mocking laughter.

By the way, he is apparently originally from Uzbekistan!

Monday, September 08, 2008

Damn It Feels Good to be Banker...

This is how a bunch of "jackass" bankers release their emotions when they sit opposite a similar bunch in consultancy! If you listen to it carefully, you will see that the guys are essentially going through the difference between the two career paths and a mutual stereotype about each other.

There is also a mutual dislike between bankers and traders. On a banking side, especially advisory, people tend to be more well rounded but usually not technically strong, whereas traders tend to be technically sharp but rather lacking other skills. Back in 2005 when I was applying for graduate roles, a trader asked "what other roles are you considering? Would you consider investment banking (meaning banking side of an investment banking)?". I replied by simply saying I didn't like banking (and I didn't at a time!) to which he cracked up saying he didn't like bankers either!

Sunday, September 07, 2008

Interview series 2: Interview with Cleantech Venture Capital fund, Analyst, London

A while ago I got a phone call from a headhunter to interview for a newly established cleantech venture capital fund in London. The fund has been looking for someone with strong analytical background and 2-3 years work experience. It has been founded by three partners who seemed to be a very good bunch of people, in addition to being extremely accomplished. I was interviewed by two of the partners on different occasions, each lasting about 1 hour.

The first interview was with one of the partners who used to work for 3i in Silicon Valley. The interview was more or less about my background, my commercial experience via family business, my career aspirations and motivation for a career in VC. Given a small team environment, partners were keen to recruit someone who would be a good fit for the team and the overall set up of the firm (as is usually the case!).

The partner explained the role stating it would involve working with everyone in the team on pretty much everything, i.e. general transaction support, valuation and modelling, research and analysis, etc. He explained that the role is a privileged one as I would work with and learn from very senior people. The career advancement would happen in 4 year steps, as the life cycle of a fund was 4 years.

My second interview was with another partner. He seemed quite a resilient guy with great personality who worked for GE for nearly 20 years.

Following a few background questions he asked how much I knew about VC and cleantech. I said, being from developing world with little exposure to cleantech, I see it as a novel area to learn about.

He spoke about current investment they were making that involved new metal making process which could potentially save a lot of energy. He asked how I would approach analysing this investment and my gut feeling about the entry and exit value. I asked about development phase of the business. Following the answer I said exit value would be at lower EBITDA multiple as the business matured.

Tips to survive during VC interviews:
-Pre-requisite - Given VC roles are highly research and analysis driven, you typically need a strong science degree and 2-3 years of analytical experience. VCs especially love strategy consultants!
-Be personal - You can't use a formulaic approach during interviews with VCs, they are not investment banks!
-Be passionate - There is no way you can get a VC job if you are not passionate about it. Be ready to give plenty of examples of this.

Good luck!

Interview series 1: Interview with Goldman Sachs, Equity Research Associate, Moscow

In 2006 around June-July period I was interviewed for an Equity Research Associate role for Goldman Sachs Moscow office. The interviews were conducted in London. At the time GS was beefing up its Moscow office having made several key hires. I was interviewed by some of the team members including the Deputy Head of European Equity Research.

Overall I met 5 people across several industries. I’ll list some of the questions:

-Go through your CV briefly, please.
-You had a lot of entrepreneurial experience, but research is not business! Why do you think you would fit?
-Let’s take an oil refinery company. How is revenue calculated? What would you pay attention in to project revenues for the next year? What might the cost structure constitute of in this case?
-How do you value a company? Why do you need to discount cashflows in DCF?
-You have a Balance Sheet, Income Statement and Cash Flow Statement; which numbers would you look at to get a feel for the company performance?
-Do you have mock portfolio? Which stocks do you hold? Why? You seem to hold all high-tech stocks, why? –I said this was because they are most transparent. The below question followed afterwards:
-Emerging markets stocks are not very transparent; how would you go about receiving more information for your analysis? – I said you needed to be diplomatic and build relationship with companies in question.
-Are you comfortable to live and work in Moscow?Do you have questions for me?

By the way, some of the interviews were in Russian.

Some of the questions I was asked on the following rounds:

-Why Equity Research?
-Do you have preference for the industry?
-Why did you buy Google?
-Do you know about any Russian stock? Why do you think Gazprom trades cheaper to BP?
-What do you think researchers do?
-Why do you think Goldman provides research coverage?
-How do you think researchers can contribute to the bottom line of Goldman?
-How do you think researchers are rewarded? - The last 4 questions were asked to see if you truly understand the career path of a research analyst.
-How would you invest 100 million? Why would you buy Toyota Motors (followed after I said I would buy Toyota’s shares)?
-What is the biggest bank in your country? What is the source of revenue of this bank? - This questions were asked by an Analyst who covers financials stocks in the region.

Tips to survive during GS interviews:
-Be professional - GS is a very professional firm and they will appreciate if you are
-Do your homework - I can't imagine how someone can get a job with GS without being ready for any question or challenge
-Be inquisitive - It shows your interest.....GS is famous for leaving a lot of time for you to ask question
-Show that you are hardworker - People at GS are very hard working; probably more so than other firms.

Good luck!