Investment Banking: Industry Overview and Careers in Investment Banking

Is it true that investment bankers are the masters of the universe? Probably not. Is this one of the preferred choices for talented business and finance graduates? It most certainly is. Investment banks are notorious for their highly competitive working environment and long working hours for junior employees. Nevertheless, they continue to be seen as one of the prime destinations for talented business and finance graduates given the excitement of working on large deals and the high pay scale that comes with this job. What is investment banking? Investment banking operations tend to be more sophisticated than traditional deposit-taking, credit-giving, retail banking services. Investment banks work closely with corporate clients, pension funds, financial sponsors, and governments to structure and execute some of the largest transactions that we see in the news. At first, investment bankers operated as agents for companies and institutions that require debt or equity financing. They were able to connect these entities with investors, thus enabling them to raise equity or debt. Several decades later, when many companies were tempted to grow in size by acquiring some of their peers, investment bankers started offering M&A advisory services. Nowadays, they are structured in a much more sophisticated way and engage in a lot of different businesses. The four main areas of operations are capital markets, M&A, sales and trading, and asset management. Let's try to provide a simple description of each of these areas, which will help us understand what it is that investment bankers actually do. People working in capital markets assist corporate and institutional clients in raising debt or equity capital. For example, an initial public offering of a company, an IPO, consists of selling a significant portion of the company to a wide range of investors. Investment bankers guide the company throughout the entire process, present its business to investors, and study their interest in the stock in order to determine the company's value. Mergers and Acquisitions, or M&A, is the most requested group in investment banking. A lot of graduates are fascinated by the possibility of working on multi-billion transactions that involve company A acquiring company B. As you can imagine, there is a lot of work that needs to be done in terms of valuation, targeting, negotiations, and structuring. Sales and trading go hand in hand, although we are talking about two very different positions. This is the arm that is responsible for buying and selling of securities, stocks, bonds, derivatives, etc. An investment bank could do that on its own account or as a broker for one of its clients. Salespeople are responsible for building a bridge between the clients of the firm and its trading staff. It is the trader's job to bring buyers and sellers together so that a transaction can occur. For this service, traders are paid a commission. Most investment banks offer asset management services to their clients. In the first extract of this series, we talked about the asset management field, so please take a look if you haven't already. Leading Firms The vast majority of the names in the industry are well-established institutions that have solid traditions and access to an extensive network of large investors. Historically, investment banking and retail banking activities were not allowed under the same roof. Such division was repealed in 1999, and since then, most of the large financial conglomerates have been offering both types of service. Examples of leading global conglomerates are HSBC, JP Morgan, BNP Paribas, Mitsubishi UFJ, Barclays, and so on. It is also true that some of the investment banking powerhouses preferred to continue their operations as pure investment banks without offering any type of retail banking services. Goldman Sachs, Morgan Stanley, and Lazard are an example of entities that chose the pure investment banking model. What is it like to work in investment banking? Let's start by describing the hours, shall we? First of all, we need to distinguish asset management and sales and trading jobs from the rest, as these tend to have lighter working hours, 11-12 hours on average. As you can imagine, it's already different from a 9-5 job. However, these do not even compare with the horrific hours that an M&A banker will have to endure when he or she is in deal mode. It is not rare to hear stories of people working for 2 or 3 days straight. Is your interest lower than it was in the beginning? Good, that means your self-preservation instincts work. However, despite the slight drawback of working time, there are a ton of positive aspects to being employed in investment banking. Solid paychecks are probably at the top of the list. As an entry-level analyst, you can be paid as much as $60,000 to $70,000 plus a bonus in the region of $40,000 to $60,000, and these are just entry-level figures. Another positive is that investment banking is a great school. You will be able to learn a lot in a very short time frame. Moreover, you will meet dynamic and driven individuals, which will be a great networking opportunity. If this video did not scare you away, you can visit our website, 365careers.com, where you will find very useful information that will help you prepare for your applications.