Investment Banking interview “fit” questions

This blog has one purpose: to help you answer the most important “fit” and technical questions in investment banking interviews. We will tell you what’s important and what you need to say – nothing more and nothing less.

What follows is a list of investment banking interview questions and answers, divided into different types of “fit” questions (personal, team / leadership, “why banking,” etc.), technical questions (accounting, valuation, DCF, merger models and LBO models, and brain teasers), and other topics (restructuring, distressed M&A, and discussing transactions).

Analytical / Attention to Detail Questions & Suggested Answers

Analytical and quantitative questions are more common if you’re a Liberal Arts major or if you haven’t had finance, engineering or math experience.

So if you haven’t majored in something quantitative or your work experience is all journalism-related, you’ll want to prepare a few examples of your analytical abilities.

Even if you have had finance or analytical experience, you’re still likely to be asked about your analytical skills – they want to test your communication abilities and make sure you can express abstract concepts clearly.

Example: 

1. I see you’ve done mostly journalism and research internships before. Can you discuss your quantitative skills?

You should respond by discussing specific times when you had to analyze numbers and/or use logic. Good examples might include: your personal portfolio, any math/science classes you’ve taken, any type of budgeting process you’ve been through, any type of research you’ve done that involved numbers.

2. In your last internship, you analyzed portfolios and recommended investments to clients. Can you walk me through your thought process for analyzing the returns of a client portfolio?

The key is to break everything down into steps and be very specific about what you did. So you might say that “Step 1” was getting a list of when they bought each investment and how much they invested / how many shares they acquired; “Step 2” was finding a list of when they sold each investment, and what they sold them for; and “Step 3” was aggregating this data over the years in-between for each investment to calculate the compound return.

3. You’ve been working as a lawyer for the past 3 years – what initiative have you taken on your own to learn more about finance?

You should either present a list of self-study courses or certifications such as the CFA that you’ve obtained, or speak about your own work studying independently from textbooks, self-study courses and other sources. Be conservative with how much you claim to know – re-iterate that you’re “not an expert” but that you have taken the initiative to learn something on your own.

“Career Changer” Questions & Suggested Answers

You probably weren’t thinking about being an investment banker since age 5.

But if you’ve been in an unrelated industry for awhile, you need to be well-prepared for “Career Change” questions.

A variant of “Why banking?” questions, “Career Changer Questions” ask why you’re trying to switch industries, why you picked an unrelated major and have now changed your mind, or even why you’re making a move within finance.

It’s best to point to a specific anecdote or someone who sparked your initial interest in finance – assuming you have a story or person in mind.

But even if you don’t, there are “generic” responses that can work well.

1. You’ve had tons of engineering experience and you’ve worked at many tech companies. Why do you want to be an investment banker now?

Talk about how you dislike the limited advancement opportunities and how your work didn’t affect the world at large – only what that specific company was doing. You want to do finance because you like the business aspect of technology more than the technology aspect of technology and because you want to make an impact with your work and become an investor or advisor one day.

2. You’ve done Big 4 accounting for the past year – why would you want a job that’s a lot more stressful with twice the hours?

Because your accounting work was boring and mundane, and because there were limited advancement opportunities. Finance is faster-paced and you’ve realized that after speaking with a lot of friends and doing your own research that it’s just more suited to your personality.

Commitment Questions & Suggested Answers

“Commitment Questions” are tricky to answer, because the tendency is to come across either as too unrealistic or too uncertain.

If you’re interviewing for an Analyst position, you don’t want to say you’re 100% certain you’ll be a banker for life – but you should say it’s what you’re most interested in doing, and that you do have plans to stay in finance or business.

Common questions on this topic include where else you’re interviewing, why you’ve switched careers in the past and testing the old “Why banking?” question again in slightly different forms, just to make absolutely certain you’re committed.

Where else are you interviewing? Is it just banking? Consulting? Other companies?

Just banking. You’re not interested in consulting / other options and don’t want to waste recruiters’ time.

You need to say this even if you’re so uncertain that you’re deciding between opening a zebra ranch, going on a spiritual journey to Nepal, going back to McKinsey or starting a laundromat with your roommate’s uncle.

Before you entered business school, I see you switched jobs about once a year. How do I know that you’re here to stay for the long-term?

Although you switched jobs pre-MBA, it’s quite common to move when better opportunity arises. However, you’ve done a lot of research, spoken with friends, alumni and other connections and are certain banking is for you after doing your own due diligence. You’ve actually looked into other career options and nothing is as attractive to you as banking.

 Recently some Analysts and Associates have left “early” and jumped to hedge funds or private equity. If the opportunity comes up, why would you stay here instead?

You looked into investing but realized you don’t like the nature of the work – there’s too much due diligence and “looking at deals” rather than taking action and actually doing deals. As a result, after all your research speaking with alumni and other connections, you’re set on banking.

Tell me about a time when you failed to honor a commitment.

The key with this type of question is to bring up a “failure” briefly and then to spend most of your time talking about what you’ve learned from it and how you’ve improved rather than dwelling on the failure itself.

If I gave you an offer right now on the spot would you take it?

“Yes, show me the dotted line and I’d sign it right now.” Even if this is a lie, you still have to say it in an interview or you won’t get an offer.

Let’s say that we were to give you an offer – how long would you need to decide whether or not to accept it?

“Show it to me and I’ll sign and accept it right now.” Some people think this is “unethical” if you’re really not certain, but keep in mind that until you’ve signed something in writing you can do whatever you want.

 Are you mostly interviewing at larger banks like us? What kinds of options within banking are you considering?

Mostly larger banks, but you have received some interest from other places so you’re looking at a couple options. If you can mention specific names, that makes your answer even better.

If you’re interviewing in a group like M&A or Healthcare, talk about how you’re mostly speaking with similar groups to show you’re serious about that one area.

Culture Questions & Suggested Answers

A Managing Director once told me that he had never heard a good answer for the “Why our firm?” question in an interview – but that doesn’t mean you can’t try.

Most banks have very similar cultures – people are nice but competitive and driven, and there’s the expectation that you can do endless amounts of work for the firm. And that’s why focusing on people and anecdotes works much better than giving generic answers.

1. You spent this last summer working at Morgan Stanley’s investment banking division. It seems like you’d be crazy not to go back – why would you want to work for a smaller firm in our M&A group?

You’re most likely to get this one if you didn’t get a return offer – let’s be honest, who really goes from Morgan Stanley to a boutique? It’s a tough sell, but you’ll have to emphasize how you like the smaller environment where you get more responsibility and work more closely with clients. The banker probably won’t believe you, but it’s better than outright admitting you didn’t get an offer.

If the topic does arise, just say your lack of offer was because they were not hiring, because the group did poorly or because of the general economic climate.

2. Since you worked at Bank of America this past year, you probably have the chance to go to a lot of different large banks – why are you interested in us specifically?

There’s rarely a “great” way to answer this question, so I would recommend either referencing someone you’ve spoken with at the bank and what they’ve told you OR if you don’t have any kind of experience like that, you can just give the usual generic reasons given for each bank. This question often reflects a lazy interviewer more than anything else – the real reason you’re interviewing with any bank is because they’ve given you an interview!

Strengths / Weaknesses Questions & Suggested Answers

You’re not likely to get the standard “Tell me your strengths and weaknesses” question in investment banking interviews – the more plausible variant is “Tell me the feedback you received in your most recent internship / job.”

The most common mistake? Not actually giving strengths and weaknesses. This might sound crazy, but I’ve conducted many interviews and have seen this one countless times.

You need to focus on the qualities bankers look for when listing your strengths, and give a brief example to back up what you say if you mention something like “attention to detail” or “hard-working.”

When giving weaknesses, make sure you list a real – but not critical – weakness. Don’t say your weakness is that you “work too hard” but also don’t say that your weakness is your “inability to get work done on time.” Something like “being too critical of others” or “getting lost in the details” works better.

Team / Leadership Questions & Suggested Answers

Teamwork and Leadership Questions are not as common as you might expect in banking interviews – many of these will come through when you discuss your work experience.

However, you could still get these questions – especially if you haven’t had much team/group experience. Before going into interviews, you should review everything you’ve done in school and at work and pick some team projects that would be good to discuss.

1. Can you talk about a team project or some kind of group activity you’ve worked on before?

Ideally, you will talk about something that was a success rather than a failure. You should use the following 3-point structure for these questions:

1. State upfront what the problem was – Maximizing returns? Attracting more donors for your nonprofit? Winning more customers?
   
2. Talk about the team you worked in, who did what, and what your role was. Did you manage people or delegate tasks? Those are best, but if you were a “foot soldier” that can also work as long as you worked long hours, were attentive to detail and/or came through in the end to save the team in some way.
   
3. State the results – Did your brand awareness go up? Did you get more funding? More members for your organization?

Understanding Banking & Suggested Answers

Are you sure you understand investment banking? Are you really sure? Most people going through the interview process – whether students, professionals, or MBAs – have no idea what they’re getting into.

The “Understanding Banking” questions are designed to separate the wheat from the chaff – to

1. You’ve never worked in finance before. How much do you know about what bankers actually do?

You should acknowledge that although you haven’t worked in the field before, you’ve done a lot of research on your own and have spoken with many friends in the industry.

Based on that, you know that bankers advise companies on transactions – buying and selling other companies, and raising capital. They are “agents” that connect a company with the appropriate buyer, seller, or investor.

The day-to-day work involves creating presentations, financial analysis and marketing materials such as Executive Summaries.

2. Let’s say I’m working on an IPO for a client. Can you describe briefly what I would do?

First, you meet with the client and gather basic information – such as their financial details, an industry overview, and who their customers are.

Next, you meet with other bankers and the lawyers to draft the S-1 registration statement – which describes the company’s business and markets it to investors. 

3. How much do you know about the lifestyle in this industry? Do you know how many hours you’re going to work each week?

Say that you’ve done your homework and you understand it’s going to be an 80-100 hour per week job. It helps if you can reference specific times when you worked that much and how you dealt with it, whether it was in a summer internship or a previous job you’ve held.

4. I see you were an English major in college, and had time to participate in a lot of different activities. Can you talk about a time when you had to work long hours and make sacrifices?

This is similar to many of the other questions we’ve been over – once again, emphasize that you not only worked long hours, but also did it over several weeks or several months.

One point that makes this question different: because of the way it was framed, you probably want to discuss something outside extracurricular activities.

5. What’s in a pitch book?

• • • It depends on the type of deal the bank is pitching for, but the most common structure is?
    • Bank “credentials” (similar deals they’ve done to “prove” their expertise).
    • Summary of a company’s options (“strategic alternatives” in banker-speak).
    • Valuation and appropriate financial models (for example, if you’re pitching for an IPO you might show where the IPO proceeds would go). 
    • Potential acquisition targets (buy-side M&A deal) or potential buyers (sell-side M&A deal). This is not applicable for equity/debt deals.
      
    • Summary and key recommendations.
      

6. Walk me through the process of a typical buy-side M&A deal.
   Spend a lot of time up front doing research on dozens or hundreds of potential acquisition targets, and go through multiple cycles of selection and filtering with the company you’re representing.

• • • •  Narrow down the list based on their feedback and decide which ones to approach.
        Conduct meetings and gauge the receptivity of each potential seller.
      • As discussions with the most likely seller become more serious, conduct more in-depth due diligence and figure out your offer price.
      • Negotiate the price and key terms of the Purchase Agreement and then announce the transaction.
        

7. How are Equity Capital Markets (ECM) and Debt Capital Markets (DCM) different from M&A or industry groups?

ECM and DCM are both more “markets-based” than M&A. In M&A your job is to execute sell-side and buy-side transactions, whereas in ECM/DCM most of your tasks are related to staying on top of the market, following current trends, and making recommendations to industry and product groups for clients and pitch books.

In ECM/DCM you go more in-depth on certain parts of the deal process, but you don’t get as broad a view as you might in other groups.

8. What’s the difference between DCM and Leveraged Finance?

They’re similar but Leveraged Finance is more “modeling-intensive” and does more of the deal execution with industry and M&A groups on LBOs and high-yield debt financings. DCM, by contrast, is more closely tied to the markets and also focuses more on investment-grade debt.

But there’s always overlap and some banks have just 1 of these groups, some have both, and some divide it differently altogether.

9. Explain what a divestiture is.

It’s when a company (public or private) decides to sell off a specific division rather than sell the entire company. The process is very similar to the sell-side M&A process above, but it tends to be “messier” because you’re dealing with a part of one company rather than the whole thing.

Creating a “standalone operating model” for the particular division they’re selling is extremely important, and the transaction structure and valuation are more complex than they would be for a “plain-vanilla” M&A deal.

10. Imagine you want to draft a 1-slide company profile for an investor. What would you put there?

“Put the name of the company in the header, then divide the slide into 4 equal parts. The top-left is for the business description, headquarters, and key executives. Put a stock chart and the key historical and projected financial metrics and multiples on the top right. The bottom left can have descriptions of products and services, and the bottom right should have key geographies with a color-coded map to make it look pretty.”

11. Let’s say you’re hired as the financial advisor for a company. What value could you add for them if they ask you about their suggested growth / M&A strategy?

At a high-level, first you’d want to see what their expansion goals are and how they can best achieve them – whether it’s by partnering with another company, expanding with a merger or acquisition, or expanding organically with new products.

As the investment banker, you could provide value by making introductions to potential M&A targets and partners, and then advising on the best negotiation strategy, what companies would be most receptive, what type of price to expect, and how to manage the entire process.