Investment banking is a branch of banking specializing in assisting people and corporations in raising funds and providing financial advice. They act as a link between security companies and shareholders, as well as assisting new businesses in going public. They either buy all accessible shares at a price determined by their specialists and resell them to the general public, or they sell stock on account of the issuer and receive a commission on each share sold.
Investment banking is one of the most complicated financial systems on the planet. They are used for a variety of purposes and corporate concerns. They offer a variety of financial services, including proprietary trading (where they trade securities for their own accounts), mergers and acquisitions advisory (where they assist companies in M&As), leveraged finance (where they lend money to companies to buy assets and settle acquisitions), revamping (where they improve a company’s structure to make it more effective and help it make the most profit), and new issues (where these banks issue new securities).
Let’s look at how an investment bank makes money by advising acquisitions. Consider the case of firm ABC purchasing XYZ. ABC is unsure how much firm XYZ is actually worth and what the long-term income, cost, and other advantages will be. In this situation, the investment bank will conduct due diligence to establish the company’s value, close the purchase by assisting ABC in the preparation of relevant documents and advise it on the best time to close the deal. To assist XYZ, the investment bank works on the purchase side, while other investment banks may act on the sell-side. The larger the deal, the more the commission earned by the bank.
1. What Does an Investment Banker Do?
Investment bankers are well-known for playing a key part in the initial public offers (IPOs) of emerging companies seeking to go public. That is, however, only one example of their work duties. Investment bankers are essentially financial counselors to businesses and, in certain situations, governments. They assist their clients in raising funds. This could entail issuing shares, floating a bond, negotiating the purchase of a competitor, or arranging the sales of the business itself. A huge corporation that wants to develop a factory is unlikely to have the funds to do it. It may elect to issue a bond in order to raise funds for the project. The cost of the bond will be covered by the extra production that the new facility will create. A government may also be required to fund the development of an airport, a roadway, or any other major municipal project. It can execute the work now and return the bond with future tax revenues if it issues a bond. An investment banker may be hired in either situation to help with the financing. The investment banker would arrange the bond issuance, price it suitably, finish the SEC documents required to offer the bonds, and ultimately assist in the marketing of the bonds to buyers.
2. How to Become an Investment Banker?
For entry-level work at an investment bank, a bachelor’s degree in finance or economics is usually required. Accounting and business are two more popular educational paths. While liberal arts majors can acquire employment on Wall Street, if you want to work in investment banking, sticking to the traditional subjects of study that are most closely connected with your professional goals will give you a better chance. Investment banks hire from the world’s leading institutions and universities.
In the United States, aspiring investment bankers are frequently recruited from Ivy League universities. The London School of Economics is consistently the top pick in the United Kingdom, with University College London, the University of Cambridge, the University of Oxford, and the University of Warwick rounding out the top five. Remember that investment banking is a worldwide industry, with massive money center banks in New York, London, Hong Kong, and Tokyo employing many of the world’s greatest investment bankers.
Is it possible to attain your ambitions by attending a less prominent institution? Sure, but picking the proper institution, like choosing the appropriate subject of study, will help you tip the chances in your favor. Investment banks recruit from well-known colleges; therefore, enrolling in one of these schools is a matter of putting yourself in a position where you have the best chance of getting recognized. Your grades are very significant when it comes to drawing attention. Graduating at the top of your class will help you attract the attention of hiring managers in college.
3. Skills Required to Be an Investment Banker
Imagine meeting a corporate tycoon as an investment banker. The tycoon begins to consider the possibility of selling tractors in India, a country about which he knows little. A smart investment banker should be able to appraise the industry, the market, and the company idea swiftly, starting with an assessment of the number of farmers and acreage in India, as well as an educated judgment of the prospective market for tractors there. In investment banking, new company ideas, deals, products, and possibilities come from all directions. Candidates should be able to recognize and investigate them. That necessitates a quick mind.
Ability to Analyze
Highly demanding clients frequently need investment bankers to offer extensive analysis of business endeavors and investment plans. To convey the business plans and risk-return tradeoffs, as well as to back it up with facts and statistics when disputed, analytical expertise is essential, in addition to solid number crunching and quantitative talents.
Persuasion and convincing are two of the most important professional skills in investment banking. It takes excellent all-round communication and presentation abilities to sell an idea. Making good spreadsheets, papers, and slideshows are among them.
Skills for Entrepreneurship
Investment banking plays an important role in mergers and acquisitions, corporate restructuring plans, initial public offerings, and the capitalization of new businesses.
A requirement of the position is the ability to spot business prospects in new and unique locations. It could entail sponsoring a group of enthusiasts to help start a company from the ground up or seeing growth potential in an established company.
Skills in Networking
Investment bankers must be able to engage with people from a variety of businesses and cultures. Candidates must be able to deal with unexpected scenarios and maintain positive client relationships.
Capabilities in Management and Leadership
Junior analysts are common among investment bankers, and candidates are evaluated based on their long-term prospects. They are given complete responsibility for a marketing opportunity in short to medium term, followed by the allocation of an entire province or business line. They may rise through the ranks to become vice presidents and above, overseeing business units.
Even in entry-level positions, candidates must assume responsibility, form teams, seek help from numerous internal departments, and form relationships with external vendors and partners.
4. Types of Investment Banking jobs
- Mergers and Acquisitions (M&A) Bankers specialize in offering strategic assistance to corporations that are planning to merge with a competitor or purchase a smaller company. Financial Modeling is the most basic and sound competence that these bankers require, and it is on this that they base their recommendations or advice. As their careers grow, very ambitious individuals who are capable of working exceptionally long hours and have excellent people skills likely to earn a seven-figure wage. Do you have the necessary abilities? You could even become a legend by closing some of the most significant agreements.
2. Underwriting: An Investment Banker’s traditional duty has been to aid firms and governments in raising capital, which is handled by the underwriting department. This department’s bankers specialize in debt or equity, and they may also specialize by industry. These bankers must be able to communicate with their clients in order to evaluate their capital requirements, as well as work closely with traders and securities salespeople to assess the market environment and the price that any asset may command. When working on a deal, underwriters, like most other investment bank professionals, may find themselves working long hours.
3. Private Equity: Private equity jobs are the hottest and most coveted occupations in finance right now. This obsession is fueled by the huge salary and bonuses given to senior members of the firm. While these positions can be found inside an investment bank, there are many renowned venture capital firms, such as Blackstone, KKR, and TPG, to which one would need an excellent reputation in investment banking or, if you’re a newbie, a more than outstanding academic record, with a top tier university helping.
4. Venture Capital Investing: While private equity firms engage in well-established businesses, venture capital firms focus on new or startup businesses in a variety of industries that are particularly fast-paced and growing (e.g., Biotechnology, green technology, e-commerce, etc.). Despite the fact that many of these businesses fail, the profits from the few successes surpass the losses from the numerous failures. The ability to recognize the right possibilities at the right moment is the most important skill for anyone working in venture capital.
5. Is Investment Banking a Good Career Option for You?
Of course, yes! Investment Banking is a wonderful career option in today’s scenario. If you are sure that you have the skills required for the career and you are passionate enough, there is no limit to the success you can achieve in investment banking. So, if you are planning a career in the same, go for it!