Updated October 7, 2023
Introduction to Investment Banking
It is an outline of Investment Banking for Dummies. Simply put, an Investment bank is an institution that helps other corporations and businesses with various business-related activities. It acts as a financial intermediary, performing multiple functions like underwriting, mergers, acquisitions, fundraising, Initial Public Offering, corporate reorganizations, restructuring, 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 primary 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 is a client strategist. He helps them develop their financial plans as well as implement them.
- At the global level, investment bankers act as critical figures in shaping 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 typical.
- But barring all the pros and cons, the work is exciting 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 companies that want to issue new securities and the buying public. So, it helps a company that needs capital or funds by issuing securities.
- Mergers & Acquisitions – Investment bank helps facilitate M&A deals between various firms. Thus, an Investment Bank advises buyers and sellers on valuations, negotiation, pricing, structuring, procedures, and implementations.
- Sales & Trading – Investment Banks help match buyers and sellers and buy and sell securities from their accounts to facilitate trading.
- 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 break down into three main offices- front office, middle office, and back office.
Front Office – The front office generates revenue for an Investment Bank. It has three primary divisions: investment banking, sales & trading, and research. The sales and trading department involves buying and selling products. The research department produces various research reports on the firms or industries.
Middle Office – The primary 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 risk management, financial control, corporate treasury, corporate strategy, and compliance. The point of contact between the front and middle offices comes during capital raising to ensure the company is not taking on too much risk in underwriting specific securities.
Back Office – The back office provides supporting activities like operations and technology to the front office to do the jobs needed to make money for the investment bank.
Investment Banking Career Road
The Journey in an Investment Bank takes work. 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 much time preparing financial modeling, working on company research, presentations, and deal execution. On the other hand, senior bankers, such as the directors or the managing directors, spend more time 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
The bottom-line is that the task you perform is heavy on Excel and PowerPoint presentations. 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. In addition, employers expect a minimum bachelor’s degree in finance, accounting, economics, or a related field. The analyst position at an entry level involves on-the-job training, which may last two to three years. However, 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 can also look at high-level investment banking training focusing on Excel-based financial modeling, pitch book preparation, and corporate finance concepts, making it easier to answer technical questions in investment banking interviews.
This article is a guide to Investment Banking for Dummies. Here, we discuss the introduction, who is an investment banker, and the various Investment Banking Functions. You may also look at the following articles to learn more –