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by Derek Loosvelt | June 23, 2000


Masters of the Universe

Tom Wolfe called them "Masters of the Universe" in The Bonfire of the Vanities; Michael Lewis called them a few unprintable things in Liar's Poker. Who are they? Investment bankers, salespeople and traders. Investment banks aren't like your local branch office with ubiquitous ATMs (those are commercial banks, like Citibank or Bank of America); investment banks work with corporations, governments, institutional investors and extraordinarily wealthy individuals to raise capital and provide investment advice.

The different parts of the investment bank

There are dozens of specialized functions at an investment bank, ranging from private wealth management (essentially, brokers to the rich) to risk managers (those who make sure the bank isn't taking on too much risk). At most major investment banks, the corporate finance and sales and trading functions are among the largest and most important.

The corporate finance department works to raise money for companies and other large organizations looking to expand or acquire new holdings. Generally, companies or organizations will approach a few different banks and then these banks compete for the deal. Teams of analysts, associates, VPs and MDs work to analyze the potential profit and risk for their own bank while creating pitches to entice the client. While good math and Excel skills are essential to being a successful I-banker, those who can buttress their quantitative skills with creativity when building pitch books and PowerPoint presentations tend to catch the eye of their superiors.

Sales and trading is a different story. An investment banking trading floor is chaos. There's usually a lot of swearing, yelling and shouting going on--a pressure cooker of stress. Traders must rely on their market instincts, and salespeople yell for "bids" when the market tumbles. Deciding what to buy or sell, and at what price to buy and sell, is difficult when millions of dollars are at stake.

However, salespeople and traders work much more reasonable hours than research analysts or corporate finance bankers. Rarely does a salesperson or trader venture into the office on a Saturday or Sunday, leaving the trading floor completely void of life on weekends. Any corporate finance analyst who has crossed a trading floor on a Saturday will tell you that the only noises to be heard are the clocks clicking every minute and the whir of the air conditioner.

In corporate finance, undergraduates are generally hired into grueling two-year analyst programs that promise plenty of all-nighters and 90-hour weeks. The first couple of months include extensive training in accounting and Excel modeling--while a basic knowledge of accounting and economics is beneficial when interviewing for an analyst position, ambition and the willingness to learn are essential to succeeding. Long days entail reviewing financial statements of companies, modeling to generate projected numbers, creating pitch books and ultimately making recommendations on potential profits from investments in specific companies. Analysts may also start to determine the fair market value for a company looking to trade its stock publicly. In larger firms, analysts may specialize in a certain industry, like transportation or health care, or a certain market, such as government financing.

After completing the program, "graduating" analysts often leave to attend graduate school or to find another job. Some analysts able to stand the long hours and stress, will stay on for a third year (if it is offered) in order to gain more experience, more money, and a better shot at getting in a top MBA program. Firms have often promoted top analysts to associate positions after their third years. More recently, however, some firms have started to promote top analysts to associate after only two years.

Like analysts, associates in investment banking work virtually all the time, and their stress level can be higher as mistakes are not as easily tolerated. Associates gradually take on more and more client contact and move up to the vice president level in three to four years. After vice president comes director (or senior vice president) and then managing director. Established relationships and networking abilities determine the success of an MD who is often responsible for originating deals within his/her sector.

In sales and trading, the career path is not quite as structured. For example, analysts move more easily to the associate level without an MBA than they do in corporate finance. And associates can climb quickly to the VP and director levels, depending on the firm's need and the talent of the salesperson or trader.

Don't make the mistake of thinking that all investment banks are the same. While it's true that I-banks tend to fulfill the same functions, their cultures can be very divergent. At one major investment bank, employees say it can be "quite a forgiving place in many ways." A trader there explains: "There have been some people, mostly at the middle level, who have lost $30 million in a day. Nobody's happy about it, but it's not the end of the world, they keep them. I've had my losing days myself, and they haven't fired me. Sometimes I've even come to the office hung over." However, other firms are not so easygoing, featuring a "horrendous" bureaucracy which "can sometimes combine with office politics to make life miserable and incomprehensible." "Sometimes, for no apparent reason, you get blamed for things you didn't do, and get assignments you're not supposed to have, and there's no one to complain to--life becomes like a page from a Kafka novel," says one young insider.

Trading is its own world, complete with its own culture. One trader says: "Trading is like warfare. It can get very frantic and then very quiet, and flare again without warning. It's long periods of silence punctuated by fear and terror. That's what makes it stressful." Life off the floor isn't much less stressful, according to I-bankers. One associate says, "You burn out by the time you're 30. Most people last only until they're about 35, then go off and do something else. Some people move into managerial roles within the firm or at another firm, and some will just leave the business entirely because, frankly, they're tired."

Through-the-roof salaries; Perks like free meals and car service; Power

Back-breaking hours; High stress level

Analytical; Aggressive; Confident; Workaholic; Greedy

Shy; Mellow; Cautious

Average 80 per week

Entry-level undergrads on Wall Street: $55,000 to $65,000 + $40,000 to $90,000 bonus; Entry-level MBAs on Wall Street: $100,000 + $100,000 to $200,000 year-end bonus

Bachelor's degree with coursework in economics and accounting; MBA or JD for certain positions


Filed Under: Finance