Wednesday, July 16, 2008

Current and Future M&A Analysis

The more you can learn and the more you know about today's current market, the better you can tailor your answers to show you are interested in and actually follow the markets. Everyday you should be reading the Wall Street Journal and I also recommend following the New York Times Deal Book. This afternoon they published a short piece entitled "How to Fix M&A: Part 1". I think this article gives a good analysis of the situations related to our current market conditions. I also think it provides some interesting ideas about the future of strategic M&A and private equity deals. In your quest to land your dream job as an investment banking analyst you are going to have stiff competition this recruiting season, as banks continue to limit their analyst and associate hires.

Begin to think about how you are going to differentiate yourself from other candidates this year when you interview. What is going to separate you from the pack?? In my opinion, I think that in addition to showing you know the basics, a great differentiator is a candidate that can talk about current market issues and 'headline' deals in their responses. Keep reading, learning, and following the markets. Find websites and blogs you like and add them to your Bookmark Toolbar to remind you to read them everyday! Be sharp and know your stuff so you can separate yourself and land the job!

Tuesday, July 15, 2008

AskMen.com

It's always important to look good for your job interviews, but for many people it can be difficult to know exactly what to wear to look your best. I have found a great site (mainly for men, but women feel free to check it out as well) called AskMen.com. They have a lot of fashion tips for interviews and everyday living. It wouldn't be a bad thing to check out their fashion section now and again to stay on top of your game. I have included the link below:


Part of the benefits of the banking lifestyle is spending your money on the latest and greatest. This site also keeps you up-to-date on the newest fashion trends, gadgets, cars, etc... Essentially everything you need to keep up the banking life style. Check it out and I hope you enjoy!

Also, don't forget to check out my previous post on Business Etiquette and Fashion by following this link:

Thursday, July 10, 2008

Pathways to NYC 2008

Only a limited number of spots available for this great opportunity to learn more about investment banking and other exciting careers in NYC! Check it out and sign up before all the spots are taken!

Read this document on Scribd: pathways08

Wednesday, July 9, 2008

The Debate Over FAS-157

As you are continuing to learn more about investment banking and the hot issues in the market, here is a great one to help keep you in the know: the debate between Steven Schwarzman (CEO of Blackstone Group) and Jamie Dimon (head of JPMorgan). Check out this link to NY Times Deal Book to read more about this debate.

For your reference, here is the official summary taken direct from the FASB website. After reading this summary, you should read the article in NY Times Deal Book and figure out what Steven Schwarzman's argument is versus the argument Jamie Dimon is presenting. This will give you an interesting conversation piece when interviewing and meeting with bankers while you continue to network in preparation for your full-time interviews this fall.

Summary of Statement No. 157

Fair Value Measurements

Summary

This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice.

Reason for Issuing This Statement

Prior to this Statement, there were different definitions of fair value and limited guidance for applying those definitions in GAAP. Moreover, that guidance was dispersed among the many accounting pronouncements that require fair value measurements. Differences in that guidance created inconsistencies that added to the complexity in applying GAAP. In developing this Statement, the Board considered the need for increased consistency and comparability in fair value measurements and for expanded disclosures about fair value measurements.

Differences between This Statement and Current Practice

The changes to current practice resulting from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.

The definition of fair value retains the exchange price notion in earlier definitions of fair value. This Statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the asset or owes the liability. Therefore, the definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price).

This Statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, this Statement establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The notion of unobservable inputs is intended to allow for situations in which there is little, if any, market activity for the asset or liability at the measurement date. In those situations, the reporting entity need not undertake all possible efforts to obtain information about market participant assumptions. However, the reporting entity must not ignore information about market participant assumptions that is reasonably available without undue cost and effort.

This Statement clarifies that market participant assumptions include assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. A fair value measurement should include an adjustment for risk if market participants would include one in pricing the related asset or liability, even if the adjustment is difficult to determine. Therefore, a measurement (for example, a “mark-to-model” measurement) that does not include an adjustment for risk would not represent a fair value measurement if market participants would include one in pricing the related asset or liability.

This Statement clarifies that market participant assumptions also include assumptions about the effect of a restriction on the sale or use of an asset. A fair value measurement for a restricted asset should consider the effect of the restriction if market participants would consider the effect of the restriction in pricing the asset. That guidance applies for stock with restrictions on sale that terminate within one year that is measured at fair value under FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities, and No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations.

This Statement clarifies that a fair value measurement for a liability reflects its nonperformance risk (the risk that the obligation will not be fulfilled). Because nonperformance risk includes the reporting entity’s credit risk, the reporting entity should consider the effect of its credit risk (credit standing) on the fair value of the liability in all periods in which the liability is measured at fair value under other accounting pronouncements, including FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.

This Statement affirms the requirement of other FASB Statements that the fair value of a position in a financial instrument (including a block) that trades in an active market should be measured as the product of the quoted price for the individual instrument times the quantity held (within Level 1 of the fair value hierarchy). The quoted price should not be adjusted because of the size of the position relative to trading volume (blockage factor). This Statement extends that requirement to broker-dealers and investment companies within the scope of the AICPA Audit and Accounting Guides for those industries.

This Statement expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. The disclosures focus on the inputs used to measure fair value and for recurring fair value measurements using significant unobservable inputs (within Level 3 of the fair value hierarchy), the effect of the measurements on earnings (or changes in net assets) for the period. This Statement encourages entities to combine the fair value information disclosed under this Statement with the fair value information disclosed under other accounting pronouncements, including FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, where practicable.

The guidance in this Statement applies for derivatives and other financial instruments measured at fair value under Statement 133 at initial recognition and in all subsequent periods. Therefore, this Statement nullifies the guidance in footnote 3 of EITF Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities.” This Statement also amends Statement 133 to remove the similar guidance to that in Issue 02-3, which was added by FASB Statement No. 155, Accounting for Certain Hybrid Financial Instruments.

How the Conclusions in This Statement Relate to the FASB’s Conceptual Framework

The framework for measuring fair value considers the concepts in FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information. Concepts Statement 2 emphasizes that providing comparable information enables users of financial statements to identify similarities in and differences between two sets of economic events.

The definition of fair value considers the concepts relating to assets and liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements, in the context of market participants. A fair value measurement reflects current market participant assumptions about the future inflows associated with an asset (future economic benefits) and the future outflows associated with a liability (future sacrifices of economic benefits).

This Statement incorporates aspects of the guidance in FASB Concepts Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements, as clarified and/or reconsidered in this Statement. This Statement does not revise Concepts Statement 7. The Board will consider the need to revise Concepts Statement 7 in its conceptual framework project.

The expanded disclosures about the use of fair value to measure assets and liabilities should provide users of financial statements (present and potential investors, creditors, and others) with information that is useful in making investment, credit, and similar decisions—the first objective of financial reporting in FASB Concepts Statement No. 1, Objectives of Financial Reporting by Business Enterprises.

How the Changes in This Statement Improve Financial Reporting

A single definition of fair value, together with a framework for measuring fair value, should result in increased consistency and comparability in fair value measurements.

The expanded disclosures about the use of fair value to measure assets and liabilities should provide users of financial statements with better information about the extent to which fair value is used to measure recognized assets and liabilities, the inputs used to develop the measurements, and the effect of certain of the measurements on earnings (or changes in net assets) for the period.

The amendments made by this Statement advance the Board’s initiatives to simplify and codify the accounting literature, eliminating differences that have added to the complexity in GAAP.

Costs and Benefits of Applying This Statement

The framework for measuring fair value builds on current practice and requirements. However, some entities will need to make systems and other changes to comply with the requirements of this Statement. Some entities also might incur incremental costs in applying the requirements of this Statement. However, the benefits from increased consistency and comparability in fair value measurements and expanded disclosures about those measurements should be ongoing.

The Effective Date of This Statement

This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year.

The provisions of this Statement should be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied, except as follows. The provisions of this Statement should be applied retrospectively to the following financial instruments as of the beginning of the fiscal year in which this Statement is initially applied (a limited form of retrospective application):

  1. A position in a financial instrument that trades in an active market held by a broker-dealer or investment company within the scope of the AICPA Audit and Accounting Guides for those industries that was measured at fair value using a blockage factor prior to initial application of this Statement

  2. A financial instrument that was measured at fair value at initial recognition under Statement 133 using the transaction price in accordance with the guidance in footnote 3 of Issue 02-3 prior to initial application of this Statement

  3. A hybrid financial instrument that was measured at fair value at initial recognition under Statement 133 using the transaction price in accordance with the guidance in Statement 133 (added by Statement 155) prior to initial application of this Statement.

The transition adjustment, measured as the difference between the carrying amounts and the fair values of those financial instruments at the date this Statement is initially applied, should be recognized as a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for the fiscal year in which this Statement is initially applied.

Source: http://www.fasb.org/st/summary/stsum157.shtml

Tuesday, July 8, 2008

Paying to Learn Modeling

Recently, I took a poll and asked, "Do you think that paying to learn financial modeling through a service like Training The Street or Wall Street Prep will help you get a job in investment banking?"

The results are shown below

Definitely 12 (19%)
Not Sure 29(46%)
No Way 23(34%)

The majority of voters (46%) are unsure whether or not paying to learn modeling is helpful, so I thought I would provide some insight to help all of you fence sitters. If you talk to bankers at a bulge bracket bank you are going to find that many of these individuals did not major in finance or accounting and when they got into banking did not know how to model very well, if at all. Banks are looking for a diverse set of people from all different backgrounds. Thus they have created training programs to teach you how to model or rather give you an introduction to modeling during your first one to two months.

Thus here are my main points. First, you don't need to have a deep understanding of modeling to get a job in banking and secondly, the bank is going to train you starting day one on the job. What you do need is a basic idea of modeling and be able to explain what you know in an interview. In this blog I have given you all the tools you need to get through the interview.

These services are not a must have or a must know type of training you have to buy. It will not guarantee you a job and isn't that what this is all about at this point in the game?? If you want to learn more then go ahead and try them out, but I know from personal experience that you do not need to go through their training to get a job in investment banking.

Keep reading my blog and make sure that you are prepared to answer the basic questions of:
  • Tell me about yourself / Walk me through your resume
  • Why banking?
  • Why our bank?
  • How do you value a company?
This blog has all of the tools you need to get prepared for your interviews so you can land the job. Save yourself some money, read my blog, and let the bank pay for the training.