Investment Banking for Dummies – eduCBA brings you investment banking for dummies. Here we will make you understand what an investment bank is, and how it works. Let’s start our investment banking for dummies session with all the basics of an investment bank.
Investment Banking institution:-
In simple words an Investment bank is an institution which helps other corporates and businesses for various business related activities. It acts as a financial intermediary, performing variety of functions like underwriting, mergers and acquisitions, Fund Raising, Initial public Offering, corporate reorganizations and 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 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 in.
- 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.
- Bu 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 the bonds and stocks.
Investment Banking for Dummies – Note
Investment bankers are basically financial brokers who work on commission and help companies raise funds, identify merger targets
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 who is in need of capital or funds, by issuing securities.
- Mergers & Acquisitions – Investment bank helps in facilitating the M&A deals between various firms. Thus an Investment Banks advises buyers and sellers on valuations, negotiation, pricing and structuring as well as procedures and implementations.
- Sales & Trading – Investment Banks helps in matching up buyers and sellers as well as buys and sells 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 Banking for Dummies
Lot of money is on the table as salaries and bonuses if you are working for an Investment bank 🙂
Investment Bank Organizational Structure
Investment banks are split up 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 industry.
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 for Dummies
Students primarily vouch for Front Office roles. This is where loads of money enters the pocket (though hair loss and divorce is very common 🙂 )
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 an 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.
Investment Banking for Dummies
Primarily till the associate level experience, you would be creating only infrastructure (populating company historical), preparing pitch book and very limited client interaction. The real game starts at Vice President and above.
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 of bachelor’s degree in fields like finance, accounting, economics or a related field is expected by the 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 for the vice president position.
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.
Here are some articles that will help you to get more detail about the Investment Banking so just go through the link.