Investment Banking: Worth the Investment?
An insight into the life of banking
—By Kate Levy
I am sure at some point while at the University of Michigan, you have heard the term “investment banking” as the chatter around this career choice here on campus is constant. Followed by UPenn and NYU, Michigan ranks #3 in the number of U.S. investment banking analysts placed.
Investment banking (IB), renowned for its fast-paced environment and substantial financial rewards, is a multifaceted industry that plays a pivotal role in global finance. From advising on mergers and acquisitions to raising capital for corporations, investment bankers are instrumental in facilitating complex financial transactions that shape the economic landscape.
UMich students seem to know two definite things about IB: there is a high salary out of college and a stressful work environment. In the pursuit of a junior-year summer internship followed by two years of work in the same field, one experiences the harsh realities of a demanding career. This article will explore what this career path entails, why so many college students commit to it, and whether it is truly worth it.
The recruiting process
Many college students that go the IB route decide early on, about the end of freshman year to early sophomore year which is a time when most people don’t even have their major figured out! But one has to start early with this job.
Second semester sophomore year is when recruiting rounds begin for investment banking. Jake Ferraro, a junior who accepted an offer to intern at Perella Weinberg Partners in Summer of 2024, said that between January and March of his sophomore year, he applied to 12 banks.
However, recruiting for investment banking starts long before the applications come out.
The summer before sophomore year, Ferraro studied investment banking guides and for hours on end read big books filled with technicals. Additionally, he had to learn about the different banks in order to be prepared for interviews and know which he would want to work for.
Alexis, a sophomore currently recruiting for IB, further illustrated how competitive this career can be. In addition to studying technicals prior to recruiting, recruits also have to network with professionals. All of her first semester this year, Alexis was reaching out to Michigan alumni working at a bank she liked via LinkedIn. Why is this crucial? Well, during the application process, one’s resume will get lost if it is not sent around the company for people to look at. There are thousands of people applying; recruits need to get noticed somehow.
First semester of sophomore year and sprinkling into the second semester is when the banks come to the University of Michigan for information sessions and networking events. “They are professional, they are serious, and they are the best way for you to leave your mark on the company,” Alexis said. These networking events are sometimes invite only. How does one get this invite? It is imperative to show interest in the bank through networking. This is when the atmosphere at UMich becomes competitive.
In a time period stretching from around a week to 2 months, banks would respond to an online application and email directly for a first round interview, according to Ferraro. The first rounds of these interviews are virtual, usually through HireVue, then they become more traditional interviews, depending on the bank. After a few rounds of interviews online, most banks will fly the recruiter to their headquarters, usually NYC, for a superday. These are the final round interviews at the bank for a full day, which can be difficult considering recruits are sophomores in college. The interviews take place during the school week, and, according to Alexis who is in the Ross School of Business, Ross does not excuse absences. One will fall behind and lose points in class due to the recruitment process.
If a recruit receives an offer from a bank after their superday, they can choose to accept the offer. This offer solidifies their internship the following summer, or the summer of their junior year. With some banks, one can even get a signing bonus. When signing this offer, they are committing to a 10-week internship, working around 80 hours a week. It is a tough summer but justifiable if interns receive a return offer from this bank, which translates into a two-year commitment after their graduation.
Matt, a senior at UMich who had an internship in summer 2023, explained that he would work from 9 am to midnight most days. He would always be on call, and would rarely go home to see his family over this 10-week period. Interns’ weekends are rarely free. It is a hard, competitive, and draining lifestyle which raises the question: is it worth it?
The two-year commitment
After devoting their junior year summer to 10 weeks of harsh work in a competitive atmosphere where everyone is hoping for a return offer, interns wait to see if they get the news that makes their whole summer worth it. The return offer secures a job for the summer following graduation for 2 years as an investment banking analyst.
According to eFinancialCareers, “In poor markets, the proportion of interns who get return offers can be lower than 30%. In good markets, it can be higher than 80%.” Although these statistics differ for every bank, one is still committing to the summer internship and giving it their all when they know there may be a possibility of not getting this return offer.
However, in an interview with “Isabelle” a senior at UMich who interned at the bank Guggenheim and did not receive a return offer, she said that “I still learned so much from this experience. It gave me a wider perspective on this industry which will be helpful for when I re-recruit.”
Life as an investment banking analyst comes with crazy hours, commitments, and job requirements for two years straight. As an analyst, “Your job is to do whatever it takes to support senior bankers in winning and closing deals, even if that means doing ridiculous tasks that have nothing to do with accounting or finance,” according to Mergers and Inquisitions. Additionally, according to the same source, analysts will be working 70-85 hours a week and on call 24/7.
It’s important to keep in mind that most people that sign this two-year commitment to be an analyst do it for the learning opportunities and the exit opportunities IB presents. According to the Growth Equity Interview Guide, the training that investment banking gives an analyst allows for an easier transition into jobs in private equity, growth equity, venture capital, hedge funds, corporate development and strategy, startups, tech companies, and MBA programs. According to my father, Andrew Levy, a 53-year-old working in private equity who completed two years of investment banking after graduating UMich, the type of work an analyst is engaging in is not just finance. They are also learning how to write (sales pitches, CIMs, etc) proficiently at a young age to describe companies well. He proudly said that the “type of work I did I always found fascinating—such as why or whether one company should buy another or raise money. It was very engaging.”
Investment banking information for students
In all of my interviews, every student explained that they came to Michigan knowing they wanted to go into investment banking. But what about students who are uncertain? UMich offers few resources for students considering investment banking. Instead, students learn most of the information from clubs. Past alumni and peers are the key information tellers for this career path, so it is important to strive for clubs early on that pertain to finance or specifically IB.
Tamid, Michigan Investment Banking Club, and Banking at Michigan are a few of the popular clubs that inform students about investment banking as a career path. The information offered in these clubs is what can prepare someone for recruiting. Banking at Michigan offers a free guide for all students that explains the top banks to recruit at, the timeline of recruitment, technicals to know, and much more.
When speaking with Ferraro, a member of Tamid and a past educator for the new members entering the club, it became clear how crucial a club like Tamid is. Past Michigan alumni who have been a part of Tamid since its founding in 2008 and who work/worked at banks are a phenomenal source to have, especially when networking. As a sophomore, Ferraro knew when to apply to banks that were recruiting because upperclassmen who work at these banks send reminders to members of the club.
Additionally, as an educator to new members, Ferraro said the majority of material they would cover had to do with finance and technicals one would need to know for recruitment. More specifically, he said that “we teach them about different finance careers. I am always taking calls with my students tutoring them about what questions could be asked during interviews during recruiting.”
Why this career path?
According to a study conducted by CNS Spectrum and published by Cambridge University, “the possibility of anxiety disorders among investment banking practitioners is high.” When one commits to working in IB, they are agreeing to work in a high stress, highly competitive environment, as stated previously. It is one of the most demanding jobs on the market. A writer for a New York Times article interviewed analysts about their experience, and one said that “The sleep deprivation, the treatment by senior bankers, the mental and physical stress…. I’ve been through foster care and this is arguably worse.”
So why do so many people choose this career? Why are people subjecting themselves to this type of environment when they could be working somewhere more enticing with a friendlier environment, especially with the opportunities UMich presents?
One reason is the pay: according to a CNBC reporter, “top analysts at major firms can expect total compensation approaching $200,000 in their first year out of college.” Furthermore, according to one of the students I interviewed, as a summer intern junior year of college, he will be making $110,000 prorated over 10 weeks plus any bonus junior year summer.
Andrew explained that “as an IB analyst, you are getting the benefit as a trainee in the span of two years when it would normally take 4 or 5 years to learn.” He further discussed how the benefit is long term because one is essentially accelerating their career path right out of college by receiving a “high quality foundation training that you can’t get anywhere else.”
Isabelle interned at Guggenheim summer of 2023, her junior year summer, and did not receive a return offer from this bank for post graduation. This is the reality for some people, and it is a big hit to their mental health. One puts in all of this work and effort, but it wasn’t enough for the people working above them. Isabelle explained how this was a “huge surprise. Every single time I asked for feedback, it was always positive. I was constantly asking for more work too.” However, she did not let this challenge discourage her. In fact, she is re-recruiting for this upcoming summer because “part of working in finance is being able to bounce back from negative outcomes.” From her perspective, and many others, “if you’re interested, and able to handle the stress, do it 100%. There’s always the chance you will not get a return offer, but it’s still worth it. Trust me.”
Feature Photo by Hunters Race on Unsplash