banking interview questions and how to answer them

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The ‘why banking’ questions

Banking is notoriously hard work. If you’re an entry-level candidate, recruiters will therefore want to ensure that you know what you’re letting yourself in for. When you’re answering ‘why banking’ questions, you need to be original and specific. ‘Avoid stating the generic’ says Mergers and Inquisitions. It helps to reference bankers you’ve spoken to (especially if they work for the firm you’re interviewing with) and the extent to which they inspired you. Talk about your passion for the industry. For example, explaining why you think banking is more rewarding than consulting.

When you’re interviewing for a role in M&A in particular, you need to show that you’re “super-committed,” says Derek Walker, an independent careers consultant and a former director of campus recruitment at Barclays and of staffing for the investment bank at Merrill Lynch (before it was combined with BofA). “Corporate finance interviews don’t want to hear that you’re seeing their role as a means to something else,” adds Walker. “If you go into corporate finance, you’re going to have to work really, really hard and if you’re not absolutely passionate about it you’re not going to be willing to work long hours.” 

  1. I can see you’re entrepreneurial, but you want to work in banking. Why is that?
  2. What attracts you to a career in banking?
  3. What kind of lifestyle do you expect to have in banking?
  4. Why have you chosen banking over consulting?
  5. Do you know what you’re letting yourself in for?
  6. What would you be doing if you weren’t in finance?
  7. Do you know about the investment banking lifestyle? Why don’t you have a problem with it?

The ‘why this bank’ questions

Don’t just regurgitate easy to find information in the public realm. Do make sure you do in-depth research – recruitment advisors suggest talking to existing employees so that you can use specific information about what it’s like to work for that firm.  

“Unfortunately, people don’t always bother doing the most basic research on the company,” says the head of recruitment at one international bank. “What’s really needed here is something that explains why you think the bank you’re applying for is different to and better than the rest.”  You’ll need to research every bank you’re interviewing with, he says. Your answers need to be specific: you need to find something that makes the bank stand out and to go with that. In the case of Nomura, for example, you might say you want to work for a bank with strong Asian connections so that you have exposure to the Asian market.

  1. What are some of the most significant deals our bank has completed in the last 12 months?
  2. What is our current stock price?
  3. What do you think this bank’s biggest regulatory threats are at the moment?
  4. What do you see as the strengths and weaknesses of this business/division?
  5. What differentiates our firm?
  6. Who’s our major competitor? How do we measure up? What are the risks and opportunities we face?
  7. Tell me everything you know about our business model.
  8. Which area of our business is strongest?
  9. Who’s our CEO?
  10. What’s the most important thing affecting this bank now?

The ‘why this job’ questions

Rather than focusing on why you want the job in question, here you need to focus on what you can bring to it. What, specifically, have you done in the past that will suit you to performing well in this job in the future? Having said that, you need a detailed understanding of the requirements of the job in order to respond aptly. 

  1. What do you think this position requires, and how well do you match those requirements?
  2. Why should we hire you?
  3. What do you think this job entails?

The brainteasers

Answering brainteaser questions is about method and attitude, says Mark Hatz, an ex-Goldman Sachs and Perella Weinberg associate who now offers advice on preparing for investment banking interviews. Banks want to hear your thought processes and to see that you’re flexible enough to attempt a solution. This is particularly the case for question 20 – where there is no hard answer. 

  1. How many pigs are there in China?
  2. A snail climbs a 10 foot pole. It climbs three feet every day and sleeps at night. While sleeping, it slides down by one foot. When does it reach the top?

You might think the snail climbs a net of two feet a day and so reaches the top of the 10 foot pole at the end of five days. This is wrong. On the morning of day five, the snail starts out at the eight foot mark after sliding down from the nine foot mark overnight. It reaches the top of the pole two thirds of the way through the fifth day and then stops, because there’s nowhere else to go. 

  1. You have eight red socks and 11 blue socks in a drawer. They are identical but for the colour. You must select your socks in the dark. How many socks, at a minimum, must you take out of your sock drawer before you have a matching pair?

The answer is three. Two socks can be different, but the third sock must always match one of the first two.

  1. A lily pad doubles in size every minute, it takes one hour for the lily pad to cover an entire pond. How long did it take for the lily pad to cover only a quarter of the pond?

The answer is 58 minutes. 

  1. How do you find the heaviest ball from a collection of eight balls with the fewest number of weighing sessions?

The answer is two weighings.

  1. We have a cup of water and you drink a half of it. I drink the half of what’s left. Then you drink the half of that. The process continues until the water has gone. How much more water do you drink than me?

The current market knowledge questions 

Current market knowledge can’t be prescriptive – by definition it changes all the time. Make sure you know current key market metrics and have opinions about market trends and a selection of investment ideas. 

  1. What is the Dow Jones Industrial Average/FTSE as of today’s opening bell?
  2. What is the Bank of England base rate/Fed funds rate as of this morning?
  3. What’s the different between prop trading and market-making? 30. Why would you or would you not invest in Apple?
  4. How will Donald Trump’s policies affect the stock market and M&A climate?
  5. Where are the 1-year, 5-year, and 10- year Treasury yields?
  6. Would you invest in UK real estate now?”
  7. What do you think is going to happen with interest rates over the next six months?
  8. What has the market been doing? Why? What do you think it will do in the coming 12 months?
  9. Tell me about some stocks you follow. Why should I buy them? What’s their story?
  10. What does the yield curve look like now?
  11. What major factors drive M&A? What are the major factors driving M&A in your sector? How do you see them evolving in the next year?
  12. Where is the market (for bonds/equities/FX) going?
  13. How would you hedge against Brexit?
  14. Where do you see the euro in 2020?
  15. Where do you think the global economy is headed?
  16. What’s happening to the oil market? How will this impact other markets?
  17. What happens when the Fed really starts increasing interest rates?
  18. I’ve been in a coma for nine months and just woke up. Tell me what’s happening to the global economy.
  19. The ECB stops quantitative easing. What happens to the markets for equities, rates and credit and why?
  20. Is quantitative easing connected to the oil price? How?

The past experience questions

Before you step into a finance interview, you need to know your CV inside out. Make sure you can answer detailed questions about any and every aspect (your choice of university and university course, your experiences as an intern, how you added value in a previous role) of your CV. Be prepared to use the S.T.A.R. technique to frame responses to questions about your past. You’ll need some examples of situations you were in, tasks you were asked to perform, actions you took and results you achieved. 

  1. Walk me through a deal you did in the past six months.
  2. Walk me through your CV/resume without looking at it.
  3. Why did you leave your last position?
  4. What have been your failures and what have you learned from them?
  5. What are your proudest accomplishments?

The technical investment banking questions

If you’re interviewing for a junior job in IBD, Matan Feldman at Wall Street Prep says technical knowledge is becoming increasingly important. This is echoed by other finance interview preparation professionals: banks want people who know the basics, even if you haven’t worked in finance (or studied finance) previously.  

  1. Define Beta

Beta tells you how much the price of a given security moves relative to movements in the overall market. A Beta of 1 means that if the market moves, the stock moves in unison with the market. A Beta < 1 means that if the market moves a certain amount, the stock will move less than that amount. A Beta >1 means that if the market moves a certain amount, the stock will move more than that amount.

  1. Define CAPMCAPM is the capital asset pricing model, and it is a model designed to find the expected return on an investment and therefore the appropriate discount rate for a company’s cash flows. It provides the required rate of return given the riskiness of the asset. 
  2. What’s WACC and how do you calculate it?

WACC is the weighted average cost of capital. To calculate it, you need to multiply the cost of each capital component (common stock, preferred stock, bonds and any other long-term debt) by its proportional weight and take sum of the results. WACC shows the average rate of return a company needs to compensate all its different investors. 56. What is accretion and dilution?

Accretion is asset growth through addition or expansion. Accretion can occur through a company’s internal development or by way of mergers and acquisitions. Dilution is a reduction in earnings per share of stock that occurs when additional shares are issued or the stock changes into convertible securities.

  1. If two companies are trading at the same trailing P/E multiple, are they also trading at the same trailing EV/EBITDA multiple?
  2. Walk me through a DCF…

A DCF proposes that the value of a productive asset equals the present value of its cash flows. You’ll also need to talk about relative valuation multiples, in which you value a company similar to its peers based upon measures like enterprise value/revenue, enterprise value/EBITDA, and the price/earningsratio.

  1. Walk me through a DCF backwards
  2. What are the different methods of valuation and what are their pros and cons?

The three methods are DCF, public comparables (comparing other publicly traded companies) vs. transaction comparables (similar companies that have been involved in previous transactions). Each has its advantages: a DCF shows the maximum a company is worth – not just the value the markets assign to it. The transaction comparables take into account the synergies that can be expected to flow from a deal. For more information, see this tutorial from NYU Stern.