Introduction to Investment Banking
This is an outline of Investment Banking for Dummies. In simple words, an Investment bank is an institution that helps other corporates and businesses with various business related activities. It acts as a financial intermediary, performing a variety of functions like underwriting, mergers, and acquisitions, Fund Raising, Initial Public Offering, corporate reorganizations, restructuring, acting as a financial adviser for institutional clients, etc.
Who is an Investment Banker?
- An Investment banker advises his clients on high-level issues of financial organization. Their major functions include managing the issuance of bonds, recommending and executing strategies for mergers and acquisitions, and handling the selling of a company’s stock to the public.
- Their work involves lots of financial analysis and requires a strong background.
- Also personal and strategic skills are vital to an investment banker because he serves as a strategist for his clients. He helps them develop their financial plans as well as implement them.
- At the global level, investment bankers act as critical figures in the shaping of the American and world economies.
- They help in managing mergers of multibillion-dollar corporations.
- Investment bankers work for long hours. Work weeks of 70 hours or more are common.
- But barring all the pros and cons the work is extremely interesting for those who work passionately for an investment bank.
- Investment bankers in the office, spend their time developing strategies to pitch to clients, preparing financial analyses and documents, or working with the sales forces of their banks in selling bonds and stocks.
Investment Banking Functions
- Raising Capital & Security Underwriting – Investment Banks act as middlemen between a company that wants to issue new securities and the buying public. So basically it helps a company that is in need of capital or funds, by issuing securities.
- Mergers & Acquisitions – Investment bank helps in facilitating M&A deals between various firms. Thus an Investment Bank advises buyers and sellers on valuations, negotiation, pricing, and structuring as well as procedures and implementations.
- Sales & Trading – Investment Banks help in matching up buyers and sellers as well as buying and selling securities out of their own account to facilitate the trading of securities.
- Equity Research – The research department of an investment bank comes up with various research reports on the industries or other companies and helps its clients with investment decisions
Investment Bank Organizational Structure
Investment banks are split into three main offices- front office, middle office, and back office.
Front Office – The revenue for an Investment Bank is generated by the front office. It consists of three primary divisions: investment banking, sales & trading, and research. Sales and trading department involves Buying and selling products. The research department comes up with various research reports on the firms or industries.
Middle Office – The main function of the middle office is to ensure that the investment bank doesn’t engage in activities that can be detrimental to the bank’s health. It includes functions like risk management, financial control, corporate treasury, corporate strategy, and compliance. The point of contact between the front office and the middle office comes during the function of capital raising to ensure that the company is not taking on too much risk in underwriting certain securities.
Back Office – Back office basically provides supporting activities like operations and technology to the front office so that it can do the jobs needed to make money for the investment bank.
Investment Banking Career Road
The Journey in an Investment Bank is not easy. The career of an investment banker progresses along a fairly standard path. Investment banking positions from junior to senior are:
- Vice President
- Managing Director
The role of an Investment banker varies depending on the level of experience. Junior bankers, like analysts or associates, spend a lot of time preparing financial modeling, working on company research, presentations, and deal execution. But on the other hand senior bankers such as the directors or the managing directors, spend more time in building client relations, giving strategic advice, and winning new business opportunities for their bank.
Skills Required for an Investment Banking Job
- Global outlook
- Sales skills
- Communication Skills
- Ability to Work at any hours
Bottom-line is that the task you perform is heavy on excel and Power point Presentation. Obviously knowledge of Financial Modeling is a must. So focus on these tangible skills for entering into this industry.
Education Qualification for Investment Bankers
Entering the investment banking field requires a high level of education and skill. A minimum bachelor’s degree in fields like finance, accounting, economics, or a related field is expected by Employers. The analyst position at an entry level involves on-the-job training, and it may last from two to three years. Those with advanced degrees generally join as an associate and are in line for promotion to the vice president position.
Here we have seen the complete structure of Investment Banking for Dummies. You may also look at high-level investment banking training that focuses on Excel based Financial Modeling, Pitch Book Preparation, and Corporate Finance concepts which makes it relatively easier to answer technical questions in Investment Banking Interviews.
This is a guide to Investment Banking for Dummies. Here we discuss the introduction, who is an investor banker, and the various Investment Banking Functions. You may also look at the following articles to learn more –