Below are links to 5 common investment banking interview that most prospective analysts screw up during the interview, most of the questions are about investment in usa.  I have interviewed hundreds of exceptional candidates.  The average candidate I interview looks like this:  top 25 university, 3.5+ GPA, finance or accounting classes, strong extra-curricular activity, member of a finance or investment club.  Does that remind you of yourself?  If so, then you need to check on the following Q&A to review the weak and strong answers because 80% of the people I interview do not answer these questions the way they should.

1. Where did the DOW close yesterday?

Weak Answer:

I am really not sure. I didn’t check to read the Wall Street Journal this morning because I was racing to this interview. I think about 9,000?

Strong Answer:

9,829 [of course, this was as of the date this post was written]

Commentary:

The point is that you need to know where the Dow Jones Industrial Average stands. This is a straightforward question designed to test how attentive you are to the markets. If you miss this answer, the interviewer will likely consider you a “pretender”, meaning that you don’t have a very strong interest in the market; you are just showing up for the interview. Although you don’t need to nail the exact number, the number you give should be within a range that the DOW has traded within the last 3 days. There is no excuse for not reading the Wall Street Journal the day of (or a least the day before) the interview.

If you really want to knock the ball out of the park, you should know where the S&P 500, NASDAQ, Russell 1000, FTSE, Nikkei, Hang Seng and Dax also closed.

2. Tell me a stock you like and why?

Weak Answer:

I really like Apple. Steve Jobs may be the best CEO in America. Even while he was sick, Apple did great. They have the best consumer electronic products out there. Their computers are great. The I-Phone is in a class by itself. They have iTunes. I know that they will probably start to play in the net book or e-book market soon as well. I just think the company has tremendous growth potential.

Strong Answer:

I really like Apple. Steve Jobs may be the best CEO in America. Even while he was sick, Apple did great. They have the best consumer electronic products out there. Their computers are great. The I-Phone is in a class by itself. They have iTunes.

I also believe that the market has not given them credit for areas of tremendous growth. Today the company trades at XX times trailing earnings, which is on the high side of its peer group, but that reflects the fact that the company is relatively underleveraged versus its peers.  Even though I believe the stock is fairly valued based upon the company’s current mix of products, I think the market is disregarding their ability to play in the net book or e-book market. The Kindle is contributing $xx million to Amazon’s operating cash flow. If Apple could achieve 50% of that, and I think they can do significantly more, that would mean $y billion in additional market cap at their current multiples. That means the stock should see  xx% growth simply from the e-book market without even considering net books.

Commentary:

Too often when candidates are asked this question, their answer is limited to a qualitative analysis of the company. These qualitative aspects are important. If you read any equity research report, you will find there is significant time spent talking about industry and company trends; however, whether or not you like a company’s products / services versus whether you would buy the stock are two completely different things. If everyone in the world thinks the stock is great, then it might be fairly valued or over-valued. I like Google, but would I buy Google at $800 per share? Absolutely not. You buy stocks because you expect them to go up. Don’t focus on the details of the analysis I wrote above. That was simply and example. The point is that when answering this question, you need to apply some fundamental financial / technical analysis. At a minimum you need to address the P/E ratio and where it stands relative to its peer group. You should also think about price/growth, EBITDA/enterprise value, leverage ratios, etc.

3. Describe the underwriting process?

Weak Answer:

Underwriting is when an investment bank helps companies raise money by issuing securities on behalf of their clients.

Strong Answer:

Underwriting is the process by which investment bankers raise capital from investors on behalf of governments and corporations through issuing securities. It generally works like this. A group of banks underwrite the transaction. One of the banks is typically the lead manager. This group, which they call “the syndicate”, assumes the risk of distributing the securities. They sell the securities to clients like: mutual funds, pension funds, and sometimes hedge funds. In some cases they will distribute the securities to individuals through their retail arm. This is usually not a risky proposition, but during the credit crisis last year, a lot of banks got into trouble because they underwrote debt securities and couldn’t find anyone to sell it to.

Commentary:

Technically, the weak answer is correct. However, as a candidate, you need to do more than give a correct answer. You need to demonstrate that you have a strong understanding of the concept that you have been asked about. The underwriting process is a fundamental concept of investment banking. There are many similar concepts: valuation, trading a security, executing a sell-side transaction, etc. The point is that when asked about a basic concept like this. You need to nail it. “Nailing it” means being able to go “3-Levels Deep”. Level 1 is defining the concept correctly. Both the weak and strong examples do this. Level 2 is being able to define terms that are used in your definition of the concept. In the strong answer, you can see that the response provides detail on terms like  “syndicate” and the purchasers of securities. Level 3 involves applying the original concept in a broader context. You can see in the strong answer that the response relates “underwriting” to issues that were faced during the credit crisis. That was not part of the question, but it demonstrates a strong understanding of the subject matter.

4. Why do you want to go into investment banking?

Weak Answer:

I am interested in working on Wall Street as an investment banking analyst. Lots of my former teammates on the swim team have gone into the finance and investment banking world. I think that I possess a lot of  similar qualities that would make me a good investment banker. I am driven, hard working and not afraid to put in the necessary time commitments. I have worked long hours in school while juggling swimming and academics and I feel confident that I will excel in this industry. I constantly like to be challenged and I like the deadline driven environment of investment banking.

Strong Answer:

I am interested in an opportunity as an investment banking analyst because I think I am well suited for the fast-paced and analytical environment.   I understand that investment bankers might be required to put in twice the hours of those in other professions.

I believe that my academic and athletic experience at ABC University has provided me with the appropriate skills that will help me hit the ground running in an investment banking career. I have gained the necessary analytical and quantitative skills as a public policy major and econ minor, with relevant courses including Financial Statement Analysis, Econometrics, and Economics.  My time management skills have been put to test as a varsity swimmer, an activity requiring 30+ hours per week, in addition to my extremely competitive major.

I always had an interest in finance. I am a member of the finance club and actively trade a small portfolio of stocks with $2,500 my parents gave me for Christmas. My school does not offer finance classes, but I took a corporate finance course at a neighboring college. I also attended a workshop held at JP Morgan where I participated in trading simulations and a case study of an initial public offering.

Commentary:

Don’t get side-tracked trying to evaluate whether or not this person is a good candidate. The point is how the two answers differ. In the weak answer, the candidate says all of the right things, but provides very little detail. The strong answer gives actual detail of how the person has demonstrated their interest and competence. As a rule, if you can substitute the name of another person for your own in your answer to the question, then you did not personalize your story sufficiently. For instance, communicating that you are a good fit for this position because you are “team oriented, a hard worker and have strong leadership abilities” is not good enough. I could substitute the names of numerous people into that slot. Try it yourself.   It is not enough to simply use adjectives. You must provide real life examples of those traits that are specific to your personal experience.

5. Why do you want to work at our bank?

Weak Answer

I want to work for XYZ Bank because you are one of the premier banks in the industry. I know through a number of my friends that you offer an extensive training program.  I know that I will learn a lot from working here. In addition, I know that each bank has its own personality and culture. I have been to many XYZ Bank networking events and I feel that my personality is perfectly suited for the culture. I know that investment banking hours can be long and thus it is critical that you enjoy the people that you work with. From what I have seen, the environment at XYZ Bank will be extremely enjoyable.

Strong Answer

XYZ Bank is certainly one of the most prestigious names in investment banking. But more than the name, XYZ Bank is consistently profitable and near the top of investment banking league tables. I know that the firm has particular strengths in financial services, energy, and health care. This would play to my strengths as well because of my interest in energy. I wrote my junior research paper on “Energy for Sustainable Development” and attended and presented at the United Nations Commission on Sustainable Development last April.

It is also important to me that XYZ Bank has a strong global business. I know that you were ranked first in global equity offerings in 2008 and the first half of 2009. I also saw that XYZ Bank was lead manager on the ABC Steel and XXX Media deals, which were two of the largest global M&A transactions completed this year.

From my experience meeting XYZ Bank employees at various networking events, I can tell that I would thrive in the XYZ Bank environment. It seems that there is a genuine effort to ensure employee well-being.  For example, I know that managers are reviewed by their subordinates – this help to create a unique team approach that I would be delighted to be a part of.

Commentary

Of the hundreds of times I have asked this question, I would say that I get the weak answer 80% of the time. Maybe more. Candidates consider this a throw away question. In fact, it is a easy opportunity to differentiate yourself from the pool. The first thing you need to do to answer this question properly is RESEARCH (check out this piece on properly researching a company). I don’t know why candidates do not properly research the company before the interview. If you don’t know what Investment Banking League Tables are, then look it up now!

In the second paragraph, the candidate refers to league table data to illustrate the firms strength in certain products. The candidate also demonstrates that he is aware of current financial news by highlighting transactions that the bank is involved in. You can also see how the strong answer ties the strengths of the company to the candidates own knowledge of energy markets. In this way the candidate is not only telling the interviewer why he/she wants to work at the bank, but also why the bank should hire him/ her.gottamentor