Investment Banking Summer Internships 2016 Changes

“Wait, what? Summer recruiting? But this summer isn’t even over yet!”

Yup, exactly.

Banks like to recruit earlier and earlier each year, so I felt we had to cover trends in summer internship recruiting.

If you’re recruiting for internships, this obviously affects you, but even if you’re not, these trends tell you where the finance industry is heading (hint: nowhere good).

Here’s what’s changed, how it affects you, how to prepare differently, and why banks have decided to change their tactics:

The Main Changes: Accelerated Recruiting… Everywhere?

First and foremost, banks are starting the recruiting process earlier than ever before.

A long time ago, summer internship interviews began in December, continued through January, and then wrapped up in February.

That still happens at some banks and some schools, but many banks now run “accelerated” processes for summer interns with significantly earlier deadlines.

First-round interviews and Superdays now take place in October and wrap up by November, if not even earlier than that.

Here are a few examples of banks and schools with earlier deadlines that have beenpublicly disclosed:

Note that these are just the deadlines: Applications open far in advance (Goldman’s applications opened on July 1st this year for summer internships the next year).

In theory, you can apply any time before the deadline.

In reality, you should apply as soon as possible because so many spots get filled early on.

These changes have pushed up almost everything else, including SEO and diversity recruiting.

But the timing is confusing because school-specific deadlines and processes also exist.

For example, at least one bulge-bracket bank was still conducting Superday interviews in late January/early February of this year, mostly for students at target schools.

But then other banks had Superdays for summer internships in November, awarded offers around then, and didn’t do much recruiting after that.

But What About Interviews Themselves?

I’m not sure that much about interview questions has changed.

Yes, the technical rigor has increased, but that isn’t a recent development: expectations have been rising for the past ~10 years.

Case studies have also become more common, but that’s a longer-term trend as well.

One difference is that previous internships no longer impress as much as they used to; they’re more of a “requirement” than anything else.

As a result, bankers sometimes focus more on “interesting” items that make you different from all the other candidates.

Think: a study-abroad experience in Qatar, your tango-dancing competitions, or your fishing expeditions in Iceland.

Another difference is that banks seem to be looking for students with more of a “long-term commitment” to the field, i.e. they don’t want people who will just leave for PE in 1-2 years.

So even if you are planning to leave as soon as possible, you need to sound more committed in your story.

Banks “Embrace Diversity” and Broaden Their Applicant Pool… Maybe?

I didn’t think much else would change this year, but then Goldman Sachs announced plans to skip traditional first-round interviews on campus and ask candidates for pre-recorded video interviews instead.

GS claims this change will let them “eliminate bias” in the hiring process, hire a more diverse workforce, and go beyond the traditional target schools.

Some banks are also trying to attract a broader set of candidates with “Junior Analyst” programs, such as the one offered by JP Morgan.

These aren’t technically summer internships, but they are related because you get a1-year contract for a “trial period” to see if you can handle the work.

Your base salary is slightly less than what Analysts earn (e.g., $80K vs. $85-95K), and your bonus is also discounted.

The application process is still competitive, with multiple phone interviews, Superdays, and a matching process where you rank your top three groups.

But it’s targeted more at “non-traditional candidates.”

Caveats, Exceptions, and Fine Print

These changes haven’t happened everywhere in the world.

For example, the timing has always been different in EMEA, and that seems to have continued this year (example for Evercore – internship applications open on September 26th and close on November 18th).

Similarly, the candidate pool in EMEA has always been broader, so banks may not feel the need to expand it even further.

And since off-cycle recruiting has always been more of an option there, a “Junior Analyst” program won’t make as big of a difference.

I doubt that boutique banks will implement everything above: it’s too much work, and they don’t have the resources to manage everything.

Why Are Banks Changing So Much?

So now to the fun part: Why are banks making all these changes?

The bulge brackets spin it by saying it’s about “diversity” and “attracting people who are committed to the firm for the long haul” (just read some of the quotes here).

I do not buy that reasoning at all.

For one thing, it makes no sense: even with video interviews, there’s still human bias because other people are watching and judging the interviews.

In fact, pre-recorded video interviews might be even more biased because less time will be spent on each interview.

Super-early deadlines also seem to increase human bias because bankers have less time to interview people and less work experience to go on.

Finally, I don’t think banks seriously expect to find “more committed candidates” with any of these changes.

People leave for private equity, hedge funds, and other exit opportunities becausethe work is more interesting and offers higher pay.

Banks cannot compete in either of those areas because of the nature of their business (client service) and because of regulations like Basel III, Dodd-Frank, and CRD IV, all of which limit compensation.

So I think these changes are due to the following points instead:

  1. The pressure to cut costs and spend less time and money on recruiting.
  2. Desperation/paranoia over losing students to other companies and industries.

Got Cost Cuts?

This graph shows large U.S. banks’ Return on Equity from 1995 to 2015:


(Source: Statista).

Return on Equity (ROE), defined as Net Income / Average Equity, is the key metric for determining banks’ “efficiency” and their valuations.

If a bank’s ROE equals its Cost of Equity, it “should” trade at a Price to Book Value (P/BV) multiple of around 1x (I’m simplifying; see the full explanation in this video).

If a bank’s ROE is below its Cost of Equity, its P/BV will be less than 1x, which is why banks like Citi and BoAML currently trade at P/BV multiples of around 0.5x.

If a bank wants a higher multiple and therefore a higher share price, it has to improve its Return on Equity.

In this environment, the easiest way to do that is by cutting costs, which will boost a bank’s Net Income and therefore increase its ROE.

I couldn’t find exact numbers on how much banks spend on recruiting, but I saw estimates as high as $100,000 per final hire (Source: The Recruiting Guide to Investment Banking).

And that book is quite old, so costs have likely risen significantly since then.

If a bank like Goldman Sachs hires between 5,000 and 10,000 candidates per year, that’s $500 million – $1 billion per year spent on recruiting.

Not all candidates cost $100,000 to recruit, so that estimate may be on the high side.

However, total recruiting costs of at least $100 – $200 million per year seem plausible for a bank with nearly 40,000 employees.

Goldman’s Net Income in its most recent 12 months was $5.1 billion, so the firm could make a significant impact on its Net Income, ROE, and share price by reducing its recruiting costs.

Not sending revenue-generating senior bankers to school campuses accomplishes this, but so do the early deadlines.

It’s much easier to move from full-time recruiting right into summer recruiting than it is to shut down the process for a few months and then start it up all over again.

Grabbing students early on also reduces costs because bankers don’t have to spend as much time persuading candidates to accept offers or wooing them away from competitors.

Got Desperation and Paranoia?

Finally, finance jobs have lost much of their luster over the years.

It’s tough to make an argument for working 80 hours per week in investment banking when you could go to Google and get much better hours, better perks, and a nice work environment where people don’t want to kill you.

Maybe you’ll be paid less, but entry-level engineers at the big tech companies could might now earn around $150K / year (or more) if you include stock and bonuses.

You won’t progress up the pay scale as quickly as you will in finance, but you may not even stick around long enough in banking to see those gains.

Banks can’t improve compensation or the quality of the work by a whole lot, so they’re trying to lock in students earlier on.

So How Should You Prepare Differently?

Ironically, these changes don’t affect the past summer internship recruiting advice on this site in a huge way.

I would summarize the main differences as follows:

Change #1: Start Early… and Then Start Even Earlier

You need to be far more vigilant in checking deadlines since the entire process starts a few months earlier than it did in the past.

It’s less feasible to conduct weekend trips with early deadlines, so you may have to do more networking via the phone and email.

But you’ve always had to start long in advance of the “official” recruiting season, particularly if you’re at a non-target school, and that hasn’t changed.

Change #2: Your Story Has to Be More Concise, More Interesting, and More Committed

I’m going to write a separate article on how to tell your story differently, but here’s the short version:

  1. It has to be more concise – we recommend a 100-150-word outline for an actual length of 200-300 words (1-2 minutes at normal speed).
  1. If you’re an undergraduate or recent graduate, you really need something interesting in the first parts of your story (The Beginning and the Spark).
  1. You should indicate more of a commitment to certain deal types or industries in the last part of your story. Saying, “I’m not sure what I’ll be doing 20 years in the future” is not a great conclusion.

For the second point, you can use one of the strategies outlined in this article to spin something insignificant into sounding bigger than it was.

On the third point, even a vague commitment is better than leaving your plans open-ended:

“And I’m here today because I want to combine what I’ve learned in strategy consulting with what you do in banking, and advise companies on their expansion plans, M&A transactions, and financing strategies.”

That’s not exactly “memorable,” but at least it doesn’t sound like you’ll leave for another industry right away.

Change #3: Don’t Focus on Last-Minute Recruiting; Focus on Lateral and Off-Cycle Recruiting

Finally, we’ve published many stories of “last-minute recruiting success” over the years.

With early deadlines, it will become much harder to go through a mammoth cold-calling or cold-emailing effort and win internships against all odds.

So if you do get a late start, it might just be easier to work in another field first and then move into banking as a lateral hire.

After all, banks might be able to offer “protected weekends,” faster promotions, and better perks.

But they can’t stop team members from quitting in the middle of the year when they realize the job is not for them.

And that’s where many of the opportunities will lie – especially if you missed the recruiting train the first time around.