Top 3 BNP Paribas Wealth Management Interview Questions

We’ve talked before many times about the benefits of starting your career in wealth management at an investment bank: it’ll provide more defined training, more early career stability, significant upward mobility, and expose you to a more diverse set of clients and the bespoke offerings that are tailored toward them.

BNP Paribas is not only one of the largest investment banks in Europe but is poised to grow their wealth management business significantly in the coming years. First, because it’s a core objective of Bonnafe who has steered BNP Paribas into being the most profitable European bank in recent years. Second, because the recent Credit Suisse turmoil, that led to its merger with UBS, will likely see HNW and UNHW clients look to form new wealth management relationships outside the UBS / Credit Suisse orbit.

BNP Paribas Wealth Management Interview Questions

Just as in any wealth management interview, you’re going to get a wide assortment of questions. But, as we’ve also talked about before, you should anticipate that the caliber of questions you get within an investment bank (i.e., GS, MS, JPM, etc.) to be a notch above smaller shops.

In particular, you’ll get slightly more nuanced market-based questions, like those we’ll cover below, along with traditional behavioral questions surrounding how you’d deal with thorny client issues, how you would communicate problems to senior colleagues, etc.

1. Given the significant rally in equities this year, does that mean a recession is unlikely?
2. Is a yield curve inversion a reliable recessionary indicator?
3. What’s the strongest signal right now that a recession isn’t likely in the near-term?

Given the significant rally in equities this year, does that mean a recession is unlikely?

The first half of the year was defined by equity indices across the world showing a surprising bounce back. And no index better exemplifies this than the NASDAQ, which had the worst first half of the year on record in 2022 but has staged the best first half of the year on record in 2023.

It’s always a bit of a fool’s errand to try to distill index movements to just a few factors, but there’s no doubt that the economy showing surprising resilience, the Fed being (near) the end of its rate hike cycle, and the sudden surge of interest in artificial intelligence have been the primary factors behind the strong performance we’ve witnessed to start the year.

This last point is easy enough to see, as the primary contributors to both S&P 500 and NASDAQ gains this year have been a small group of mega-cap tech companies who are likely best poised to capitalize on the rise of AI (assuming, of course, it materializes). This has led to many articles wondering if the low market breadth we’re seeing is a sign of a very large bull market rally, as opposed to a true bull market starting anew.

As Deutsche Bank illustrates below, equities tend to trade relatively flat in the year leading up to a recession and only begin to notably decline in the few months before a recession actually begins. Therefore, equities don’t tend to signal a recession is in the offing until it (likely) becomes obvious to the vast majority of people that one will be occurring.

Given the depth of decline in equities last year, in conjunction with the rally we’ve had this year, we haven’t exactly had equities trading flat. However, this is partly because of how much fluctuation there’s been in tech. When you take an equal-weight measure of the S&P 500 (one that doesn’t over-index the mega-cap tech stocks) then you get something that looks much more like the historical average level of flatness in the year prior to a recession.

So, to answer the question, the rally we’ve seen doesn’t disprove that a recession could occur when you look at historical parallels. All else being equal, strong equity markets are reflecting stronger (or stronger than anticipated) economic strength. But the reality is that this current rally is being driven almost entirely by just a few tech names and equity markets generally tend to stay overly optimistic about the economy, and earnings, until it becomes consensus that a recession is imminent.

Is a yield curve inversion a reliable recessionary indicator?

Perhaps the most hotly discussed, and occasionally dismissed, topic when it comes to recession probabilities is the yield curve inversion (especially 2s10s). Historically, the yield curve inverting (i.e., the two-year yield being above the ten-year yield) for a prolonged period coincides with a recession (although, as Deutsche Bank points out, the magnitude of the inversion doesn’t signal the depth of the recession that’ll occur).

However, there are an increasing number of people who think this time is different; that the yield curve is inverted this time around for idiosyncratic reasons. And this could very well be the case: the Fed has rapidly raised rates to cool inflation and, if the Fed can engineer a soft landing, you’d expect both Fed Funds and the two-year to drift back down creating a flat yield curve. This has few historic parallels, but we’ve also haven’t seen a rapid rate hike cycle precipitated by a pandemic that caused a switching in consumer spending and also came along with an unprecedented level of fiscal policy support directly to consumers.

As Deutsche Bank points out, the flattening of the yield curve that has occurred over the past year is nearly unprecedented, and typically you’ll see the yield curve steepen back out as the Fed reaches its terminal rate (pauses) and recession fears take hold thereby sending the two-year yield lower. We’ve yet to see that. Instead, we’ve seen the two-year yield steadily march higher.

Given all of this, one way you can read the yield curve today is that it’s signaling that a recession is likely in the future but the tell-tale sign that one is approaching soon (the yield curve steepening) hasn’t begun yet.

So it doesn’t appear that a recession, at least by this measure, is immediately around the corner. In fact, with recent economic data there’s now a roughly even divide between those anticipating a recession and those anticipating a so-called soft landing – whereas just a few months ago the consensus view was that a recession was likely in the next year. It’s always hard to say “this time is different” but an increasing number are saying exactly that.

What’s the strongest signal right now that a recession isn’t likely in the near-term?

There’s no doubt that the strongest signal that a recession isn’t likely in the near-term is the shocking resilience of the labor market. It remains remarkably tight, with the unemployment rate ticking down today along with wage growth staying sticky.

However, as Deutsche Bank notes, unemployment doesn’t tend to grow gradually into a recession but rather comes after it has started. And it appears that many companies have been hoarding labor (i.e., keeping people employed, even if under normal circumstances they’d lay them off, due to a fear that they’ll have trouble hiring anyone if demand picks up again).

There’s no getting around the fact that the labor market hasn’t just not been sluggish, it’s been hot: with a participation rate among prime age workers (25-54) above pre-pandemic levels, the unemployment rate near cycle lows, and wage inflation running between 4.5% and 6.0% depending on the measure you prefer to look at.

Today, July 7, non-farm payrolls came in below expectations at 209,000 but the unemployment rate ticked down from 3.7% to 3.6%. The reality is that with a participation rate above pre-pandemic levels, these job numbers are still above levels consistent with keeping unemployment static (never mind causing it to increase).

This has led the market to nearly fully price in the Fed raising rates again at their upcoming meeting by 25bps, as their rationale for pausing at the last meeting was to ensure that any incoming data from May or June didn’t show sudden softness. Put another way, they have no excuse not to hike again based on their own logic.

While it’s true that labor market weakness tends to materialize after a recession, the labor market tends to show some level softness leading into a recession. But there’s no sign of meaningful softness in the labor market; from wage gains to the still high quit rate, the labor market is showing remarkable resilience.

Conclusion 

BNP Paribas offers a phenomenal platform to begin your wealth management career. Not only because of the emphasis they’ve placed on growing their wealth management business in recent years, but also because of how well positioned they are among European banks.

In any wealth management interview, you’ll need to be prepared for a relatively wide assortment of questions. So be sure to look at the other wealth management interview questions that I’ve written about.

Given how rapidly evolving markets are today, it’s impossible for me to keep my answers to these questions entirely up-to-date. However, in this post I’ve tried to illustrate the ideal template that your answers should follow: they should take two-to-three minutes to deliver, discuss a few data points, and discuss both sides of the argument whenever possible.

So hopefully this post makes it easier for you to craft your own answers in the future with some data that you can draw from the Financial Times, Bloomberg, etc. But, of course, if you happen to be interviewing at BNP this month then you can use my exact answers as your own template!