Money, Hours, Models, Bottles: Investment Banking in New York, California, and Everywhere In Between
“Are you guys even in the office past 8 PM? Whenever I call no one’s there.”
“New York is hella lame, people are so much better out here.”
“If you say ‘hella’ again I’m going to make you pay for the bottles next time – and maybe the models too.”
“Fine, I’ll do some research and see what I can send over. NY is still overhyped, though.”
No, it’s not a short story or a new TV show about bankers – it’s a banker from NYC and one from San Francisco talking to each other.
And you read that headline correctly: today you’ll learn how banking differs in different regions of the US rather than going off on adventures to distant lands.
As one reader pointed out a while back, “Hearing about all these different countries is great, but what about how banking is different on the east coast vs. west coast of the US and everywhere in between?”
The Most Common – and Wrong – Arguments
Many people claim that the pay and hours differ significantly and that New York is more “hardcore” than other regions.
That makes sense intuitively: New York is the biggest financial center and the biggest deals tend to happen there.
But in practice, these differences are greatly exaggerated – pay is standardized at the junior levels in finance and bonuses depend more on your bank and group rather than the city you’re in.
At the senior levels, geographic differences become more important because certain offices have better deal flow and clients, and senior bankers’ bonuses depend 100% on performance.
New York bankers like to argue that they work way more than people in other regions, but there are no scientifically controlled surveys to support these claims.
Yes, maybe the hours are somewhat worse since more deals happen there – but we’re talking a difference of 85 hours per week vs. 90 hours per week: you still won’t have a life.
So the more substantial differences have nothing to do with pay or hours, but rather the industries covered, the cost of living, and the exit opportunities.
And yes, I’ll address the ever-popular models/bottles, networking, and a few other points as well.
This is the main difference – banks in the top 5 cities for finance in the US focus on a different industry:
- NYC: Diversified
- Chicago: Industrials
- Houston: Oil & Gas
- San Francisco: Technology / Healthcare
- Los Angeles: Gaming & Lodging / Media
There is no “best” because it depends on what you want to do in the future and how certain you are of your career.
Some of these fields are more specialized than others; something like oil & gas requires more specific knowledge than tech or healthcare since energy companies play by different rules and require different valuation methodologies.
So if you’re already interested in a specific industry, it may be a good idea to start out in the region that focuses on that industry – but if you have no idea yet, New York is the safest bet.
Just as actors get typecast, you will get more and more pigeonholed as you move up the ladder, so you need to consider these options carefully.
One friend worked on a telecom deal at a small VC firm, then got placed into the telecom group at a boutique bank, and was then placed into the telecom group at a bulge bracket bank.
Effectively, he became “the telecom guy” all because of one small deal he worked on ages ago.
And it’s even worse once you move beyond banking: good luck interviewing for that hedge fund that wants people with European telecom merger arbitrage experience if you don’t have any.
But What About Deal Flow?
“But,” you rightly point out, “There’s a difference between deal flow, hours, and industries covered – even if you’re working a lot, you might just be building pitch books all day. And what if your industry isn’t ‘hot’ at the moment?”
I don’t disagree with you there, but it’s almost impossible to determine deal flow of specific offices without talking to real people.
So if you’re such an overachiever that you’re going to pick your bank and group based on deal flow and exit opportunities, go talk to people at the different offices you’re considering and see what they say – but keep a critical eye open because they’re likely to oversell you on everything.
And no, I’m not going to rank cities and groups by deal flow here since that changes quite frequently and since you’re likely an obsessive-compulsive person already if you’re reading this.
Cost of Living
In ancient times, New York was the most expensive city in terms of real estate, taxes, food, and so on.
Now, however, San Francisco is actually more expensive, or at least as expensive, due to the tech boom and the number of high-paid startup employees there (as of 2015).
So you are not likely to save much money during the year in either place; it’s also a bad idea to live in New Jersey or another location outside the main city to save money, since you might go insane in what little free time you have.
The “cost of living” ranking looks something like this:
- NYC ~= SF > LA > Chicago > Houston
You will save the most money working in Houston because Texas has no state income tax, rent is ridiculously cheap, bottles are less pricey, and even the models are less demanding and will give your wallet less of a workout.
Cost of living shouldn’t be your top concern, but you should be aware of it.
Finance people are notorious for making millions of dollars and then blowing it all on luxury spending – so pay attention if you want to retire on more than $50K in that savings account you forgot about.
One other note: driving will be required in most of these places, especially in a city like LA where there is no public viable transportation.
So if you hate driving and owning a car, your best bet is New York.
NOTE: Ride-sharing services such as Uber and Lyft are actually changing this dynamic.
If you live relatively close to the office, you might be able to take one of those to and from work every day and gain some peace of mind in the process.
The main problem with exit opportunities is that it’s hard to interview when you’re far away.
You need to take time off work by using questionable excuses, hope people don’t notice your repeated absences, and then visit the firm enough times to seal the deal.
Since New York to SF or LA is a 5-6 hour trek, it’s not easy to hop from banking on one coast to the buy-side on the other coast. Pretty much all the analysts I knew in California stayed there, and pretty much all the ones in New York stayed on the east coast.
So you’re more likely to stay in your first region unless you can pull off in-person trips or interview entirely via video conference (unlikely for traditional exit opportunities).
Again, people like to argue that New York has “better” exit opportunities, but plenty of analysts on the west coast and elsewhere get into mega-funds as well; it’s just that they work at local offices rather than in NYC.
One legitimate difference is that there are more exit opportunities in New York just because it’s the biggest financial center.
And you also run into the pigeonholing problem if you start out in another region: go to Houston and you’ll more than likely recruit only for energy-focused PE firms and hedge funds.
But aside from those differences, the actual quality of exit opportunities doesn’t differ as much as you might expect.
Networking opportunities are another more significant difference, and one that people overlook all the time.
Since NYC is much bigger than the other regions, you’ll simply meet more people there and you’ll be better equipped to network your way into other roles.
Just as with other financial centers like Hong Kong and London, sometimes half the people you meet in NYC will be in finance (the other half will be “aspiring” artists or models, which is great for you as a financier).
How much does the quality of networking really matter?
It depends how certain you are of your “career path” – if you’re interested in doing tech banking and then doing venture capital in California, you’re better off starting in SF and networking with tech and VC groups there.
But if you have no industry preference, you’ll gain more options by starting out in New York.
How to Satisfy the Models
Ah, now to the fun part.
The main difference is that the New York models tend to be higher-maintenance, more expensive, and more demanding; LA comes close since everyone is required to get plastic surgery, but you’ll still spend more overall in NYC.
But flashing around wads of cash also doesn’t impress as much in New York because $200K is barely middle class – not enough to satisfy models who are expecting a new bag every day.
In all seriousness, you really will spend a lot more money going out in New York if you actually enjoy it.
LA and SF can also be expensive, while Chicago and Houston are more reasonable. Some also argue that people in the South and Midwest are “friendlier” but I don’t want to get into a debate over that one.
I’m not qualified to comment on the quality of men in each place, other than to say that SF is probably the worst place to find hot guys unless you’re into tech guys with a ton of money from startups.
(Yes, a female friend recently asked if there were a lot of tall, muscular blonde guys in SF and I started laughing.)
“Aha,” you say, “But even if the pay and hours are not much different, surely they must ask completely different interview questions in each region, right?”
Sorry to disappoint, but no, not really.
No one sits down and says, “Well, in Chicago we should ask this specific set of questions but in Houston it will be completely different.”
Once again, the main difference comes down to the industry focus: you don’t need to be an expert on the industry of focus in each city, but you should know something about recent deals and any industry-specific valuation methodologies.
It’s not really “easier” or “harder” to get into finance in different cities – there are fewer spots outside of New York, but there’s also less competition.
Yes, there are banks in places besides NYC, Chicago, Houston, SF, and LA – but the offices tend to be much smaller and they don’t always recruit on-campus.
Other cities with a presence in finance include Boston (similar to SF due to the industry focus), Washington, DC (aerospace/defense), Atlanta (lots of wealth management), Miami (healthcare, Latin America), Dallas (got equities?) and maybe a few others.
I can’t recommend starting out in these places if you have the option to go to one of the 5 major centers listed above.
Maybe if you’re interested in only a very specific industry, like aerospace and defense, then DC makes sense – but you’ll be at a disadvantage in terms of deal flow and exit opportunities.
A lot of boutiques are also based in other regions, so you should jump at the opportunity if you have nothing lined up in a bigger city – but otherwise, stick to the top 5 above.
Outside of IB: Sales & Trading, Hedge Funds, and More
You run into the same differences in other fields like private equity, sales & trading, hedge funds, and asset management: a different industry focus and more geographically limited exit opportunities.
Some cities also tend to be stronger in certain fields.
For example, Chicago is great for prop trading and the SF Bay Area is the spot to be for venture capital.
One downside to any type of markets-based role such as trading or hedge funds is that you have to wake up very early if you’re on the west coast because you work New York market hours.
If you’re fine waking up at 4 AM, getting off work at 5 PM, and sleeping at 9 PM every night, you might be OK; if you’re not a morning person, though, you may want to stay away.
So, Where Should You Work?
If you have absolutely no idea what you want to do and don’t mind spending more money, New York is your best option – there’s more networking, more opportunities, bigger deals, and you don’t even have to drive.
But if you have a more specific goal such as going into VC, joining a tech startup, or working in the oil & gas industry, you could make a good argument for starting out in a different city.
There may be slight differences in pay, hours, and how much you save in your first year (with bigger differences on that last one), but those don’t matter much in the long-term.
To figure out which office has the best deal flow, network with bankers and ask directly – that information changes quickly and you’re always better off going straight to the source.
And whatever else happens, make sure you don’t end up doing equities in Dallas.
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How to Dominate Your Industry-Specific Interviews: Real Estate, Energy, FIG, and More
You’ve applied to over 100 banks, networked with 230 bankers, and have been pounding the pavement since August.
And now you’ve lined up 10 first round interviews, most of which are for the M&A and generalist pools.
But then you notice that you’re also set to interview with a mysterious FIG (Financial Institutions Group) banker, followed by 2 oil & gas bankers from the Houston office.
And who knows, maybe you’ll land a real estate, mining, airlines, or healthcare interview to make things more fun as well.
So how will it be different? And how can you get up to speed on all the accounting and valuation differences, recent deals, and everything else if you only have a few days – or a few hours – to prepare?
Everyone lumps investment bankers together, but that’s not really how banks operate.
Banks have product groups that focus on specific deal types – M&A, Leveraged Finance, Equity Capital Markets, and so on – and then industry groups that do all sorts of deals – but all within a specific industry, such as technology, industrials, healthcare, financial institutions, energy, real estate, and so on.
At a bank, you might interview specifically for one of the product groups, or you might interview for one of the industry groups – or you might just interview for a “generalist” position, be placed in the generalist pool, and then select your group later on.
Most investment banking interview guides focus on standard questions that you might get in any group.
But there are important differences when you interview with specific industry groups – so let’s get started with the festivities.
Most of the Time…
Interviews are not dramatically different – if you’re interviewing with a FIG banker, he’s not going to say, “Since this is FIG I want you to build a detailed model and valuation for Citi right now – you have 30 minutes.”
You still need to know the standard “fit” and technical questions, and you will still get questions on those.
Industry-specific interviews require you to shift your answers rather than come up with completely new ones.
How to Shift Your Answers
Focus on these 4 questions (or categories of questions, as in the last case):
- Why This Group?
- Tell Me About the Industry
- Tell Me About a Recent Deal in This Industry
- Industry-Specific Technical Questions
The first 3 are not terribly difficult as long as you’re prepared – the technical questions can be more problematic, but there are ways to get up to speed quickly.
Why This Group?
Answer this one by linking it to something in your background: a school project, an internship, someone you met while networking, family, friends, and so on.
Let’s say that all your experience has been as an engineer in the technology industry and there’s no obvious reason why you’d want to work in an oil & gas group.
But maybe you have a distant relative who is in the business, or maybe one of your friends started working at a big energy company recently – you can take something small like that, spin it, and turn it into a “I had always been interested in tech, and still am, but recently I started talking to [Person Name], who made me really interested in energy…” story.
If you don’t have something specific in your background, you could always talk about industry news or recent deal activity making you more interested.
Once you’ve established this spark, give 1-2 solid reasons why you want to work in the group after someone or something made you interested.
Going back to the energy example, you could talk about how it affects not only everyone and every economy in the world, but also geopolitics. You could also talk about being interested in promising but controversial technologies like hydraulic fracturing and how quickly the industry is changing due to rising energy demand in emerging markets.
They don’t expect you to be the next T. Boone Pickens – they just want to hear something intelligent from you.
Do not attempt to BS something on the spot here – and don’t say something silly like, “I’m interested… because… it’s so interesting!” (yes, I’ve heard that one before)
Tell Me About the Industry
It’s easy to go “off the rails” and ramble with this type of question.
Use the following structure to describe an industry:
1. Give an estimate of the total market size if you can get it, and say whether it’s growing, mature, or declining. Also mention a dominant recent trend.
Example for FIG: “Financial services are the biggest industry on the S&P 500, so it’s a huge market in the US – it is relatively mature, though there are pockets of growth in some areas such as risk management. The major issue in the industry, especially post-financial crisis, is regulation and how capital requirements for banks will change in the future.”
2. Next, sum up the major players and the sub-industries in 1-2 sentences. Most industries have a few global, diversified companies that do everything and then have smaller companies that focus on more specific segments.
Example for FIG: “It’s split into segments such as commercial banking, insurance, investment banks, wealth management, and investment firms. A couple huge banks, such as BNP Paribas, RBS, Barclays, Deutsche Bank, and JP Morgan, operate in all these segments, while there are also more specialized firms like Goldman Sachs that may focus on just one or only a few of these segments.”
3. Close with a recent trend or recent news in the industry. This shows that you’ve been keeping up with deal activity and reading the WSJ, DealBook, and other news sources.
Example for FIG: “Recently as banks have been recovering from the financial crisis, everyone is thinking about new regulation and the adoption of Basel III – that will have a big impact on banks’ capital structures, how they do business, and how they issue dividends.”
Bankers don’t expect you to know everything, but they do expect you to have done some research – otherwise you won’t seem interested and they’ll give the offer to someone else.
Where Do You Find This Information?
Now I’m going to save you 10 hours of time spent frantically searching online by sharing these resources:
- PricewaterhouseCoopers M&A Industry Insights
- PricewaterhouseCoopers Industry Research
- Deloitte Industry Research
Yes, you read that correctly: Big 4 firms like PwC and Deloitte regularly publish industry and M&A research for free.
Some of the reports on those sites are too specific to be helpful – the “Outlook” or “Overview” ones for entire industries are the best.
But that’s the best way to get this information quickly assuming that you don’t have access to Capital IQ, Factset, or other tools that bankers have.
If you can’t find what you’re looking for there, Google searches for [Industry Name] + M&A or + “Market Size” also work, but take longer.
You can also look in industry-specific publications like the Oil & Gas Journal – but they’re more useful for researching deals rather than industry trends.
Tell Me About a Recent Deal
M&A deals are the best ones to discuss and the easiest to find information on, so here’s the structure you should use:
- Name the buyer, seller, purchase price, and multiples.
- Give background information – what does the buyer do? What does the seller do? How much revenue and EBITDA do they have (or other metric if those are not relevant, e.g. total assets for a bank)?
- Explain how the deal came together if it’s public knowledge, and why both parties were motivated to get it done.
- Conclude by summarizing what Wall Street thinks about the deal, and how the industry will be affected in the future.
Let’s say you’re looking for information on the Intel – McAfee deal for a technology group interview. Do a Google search for “wsj intel mcafee deal profile” and you get the deal profile page as the first result.
Most of the information is right there: Intel, the huge semiconductor company, was the buyer, McAfee, a security software company, was the seller. It was an all-cash deal worth $7.68 billion, with an EBITDA multiple of 17x and revenue multiple of 3x (rounding multiples is less controversial than rounding your GPA).
This one’s not a great example because the profile doesn’t list anything besides the numbers – but if you do a few searches you can find other articles on how most investors were scratching their heads at the deal – there were no obvious synergies and it came as a surprise to everyone.
The official rationale was so that Intel could target more of the mobile chip market and get into network security, but few others thought it made sense.
Going forward, more companies might start to focus on security for mobile devices and solutions that protect everything from desktops to laptops and mobile devices to web-based applications.
But What About…
If you’re having trouble finding recent deals, look in the M&A reports from Big 4 firms I linked to above; simple Google searches for “[Industry Name] biggest M&A deals” can also give you names at the very least.
If the WSJ and searching online don’t give you good results, you could take another approach and find equity research instead.
Yes, you can find this research without working at a bank: just sign up for a TD Ameritrade account and you can get free Credit Suisse reports on most large companies.
Other brokerage accounts can work as well – Scottrade, for example, also offers free research.
So if you can’t find analysis of a deal in the WSJ, find equity research on the buyer or seller just after the deal was announced and look up the multiples, numbers, and rationale there.
If you can’t find relevant metrics, just get the purchase price for the deal and get the financial metrics yourself by looking at the acquired company’s annual report on their investor relations site.
You’ll find conflicting reports on technical questions for specific industry groups: some interviewees claim that they’re uncommon, while others (especially in Canadian mining groups) claim that interviews can be extremely technical.
So there is no universal rule – the only generalizations that apply are:
- It’s good to be familiar with the basics and the high-level view of how companies in the industry are different.
- Some industries are more different than others. Financial institutions (banks and insurance firms) are by far the most different compared to normal companies; oil, gas, and mining are also different but less so than financial institutions, and REITs are also different but less so than banks.
Technology, consumer, and retail are the most “normal” industries because they have straightforward business models; others like healthcare, industrials, and utilities are not quite “standard” but are also far less different than the 3 groups above.
Here’s a quick run-down of what you should know for the “most different” industries:
- Banks / FIG: Understand how they’re different (balance sheet-centric, loan portfolio drives everything, traditional metrics like EBITDA are meaningless because Interest is Revenue for a bank); also know how valuation differs (P / E and P / BV multiples and the Dividend Discount Model) and why regulation and regulatory capital are important.
- Oil & Gas / Mining: Understand how they’re different (balance sheet-centric, energy/mineral production drives everything, can’t control prices or revenue); also know how valuation differs (Production and Reserves multiples and the NAV model).
- Real Estate / REITs: Understand how modeling individual properties is different from REITs; know the key metrics and multiples like FFO and AFFO and key lingo such as NOI and cap rates and how the business model works.
I can’t list every single industry here because I just don’t know enough personally – but most other industries have much smaller differences, such as slightly different metrics and multiples and revenue or expense projections.
For example, an Internet company might project revenue based on unique visitors and conversion rates rather than # of products sold to customers; a key metric might be EV / Unique Visitors, especially if it’s unprofitable.
Resources for Technical Question Prep
Everything useful I’ve found is listed below:
- Banks / FIG: Damodaran – Valuing Financial Services Firms, Updated Version, Bank Balance Sheet Overview – Bionic Turtle
- Natural Resources: Oil & Gas Company Valuations – HFBE (This is fantastic), Damodaran – Valuing Commodity and Cyclical Companies
- Real Estate: Definitions of Key Terms, REIT Overview, FFO and AFFO
- Airlines: Financial Models
- Company Models in Different Industries (Banks, Energy, Industrials, Insurance, Retail)
And then there are good old books, but you probably don’t have time for that if it’s 3 AM right now and your interview is at 9 tomorrow.
Models & Models (and Interview Guides)
If you want to learn these concepts in more depth, you can also check out the Breaking Into Wall Street Bank & Financial Institution Modeling course (based on JP Morgan), the Oil & Gas Modeling course (based on the $41B Exxon Mobil – XTO deal), and the Real Estate & REIT Modeling course (based on AvalonBay, a multi-family REIT).
These are not introductory-level courses. If you cannot build a 3-statement LBO model easily, stay away because these are both more complex than even the Advanced Modeling course.
And before you ask, if you’re in Canada or Australia, mining is 95% the same as oil & gas and lessons specifically on mining will be added in the future.
That’s how industry-specific interviews are different, the key questions and concepts to focus on, and how to do the research necessary to answer the new questions you might get.
If you have any other good resources for these groups and these types of interviews, post a comment below and I’ll add it.
And if you actually made it to the end of this one, congrats – hopefully you don’t have too many questions, but ask away if you do.
Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews