360 Degrees of Investment Banking : Demystified Article

Investment banking is a service which act as a financial intermediary primarily specialized in selling securities and underwriting the initial public offerings (IPO) shares to raise capital. This is not offering any commercial banking services (does not receive deposits and giving loans) to mass people. Nobody can open accounts here for doing general banking transactions. Investment banking  is otherwise known as merchant banking.

What do investment banks do?

An Investment bank functions as a financial intermediary between share issuing companies and investors. It raises funds for a company to run. It also works when Mergers and Acquisitions happen in between companies. Investment banking is not a generalized but a specialized banking function, for corporations.

The major functions or activities of investment banks

Unlike traditional banking system, Investment Banks do the following activities for their clients. Primarily they focus on IPO and M&A activities but not limited to the following list of services.

  1. Initial Public Offerings (IPO)/ Underwriting
  2. Private Placements of Shares
  3. Equity Research
  4. Mergers and Acquisitions (M&A)
  5. Financial Advisory Services
  6. Fairness Opinions or business valuation
  7. Structured Financing Activities/ Venture Capital
  8. Risk Management
  9. Asset Management
  10. Divestitures
  11. Merchant Banking services
  12. Other Advisory services

Types of Investment Banking Jobs

At the immediate top of this block, I have mentioned 12 types of investment banking jobs from underwriting to advisory services. If anybody feels interested, can start a career in any one or multiple banking segments. The first activity is the most popular and common.

How do investment banks make money in IPO?

Investment banks perform underwriting services for capital raising. For instance, a bank might buy shares in an IPO, market the same to the investors and then sell them out for profit. Some investment banking pioneers charge a flat fee or agreed commission for the underwriting services. Commission may be on total trading of shares over a specified selling amount or otherwise.

The difference between investment bank and commercial bank

The principal difference between an investment bank and a commercial bank is that while an investment bank generally deals with issuing and trading of securities for companies, commercial banks accepts deposits and granting loans to individuals or companies.

Which banks are called investment banks?

An investment bank does not accepts deposits or granting credits to individuals or companies but performs as a financial intermediary do raise capital. There are hundreds of such banks in the world which include the the following but not limited to the list:

  • JPMorgan Chase.
  • Goldman Sachs.
  • BofA Securities.
  • Morgan Stanley.
  • Citigroup.
  • Bank of America Merrill Lynch
  • Credit Suisse.
  • Barclays Investment Bank.
  • Deutsche Bank
  • Citibank
  • Lazard
  • UBS
  • RBC Capital Markets

How much does an investment banker make a year?

According to the statistics, an Investment Banker’s Salary ranges between $70K to $350K per annum including bonuses. An Analyst makes $70K to  $150k in the first year where an Associate makes around $150K to $350K per year. Sometimes, persons get even $15K to $20K as signing bonus and $25 to $35 an hour at entry level. From company to company this amount may vary.

How to become an investment banker?

The educational qualification cannot be a barrier to any career. However, a bachelor’s degree is the minimum educational qualification required to start as an investment banker. Entry-level analyst positions are normally open to all bachelor’s degree holders in commerce. To get promoted to the senior level, master’s degree is not mandatory but expected. At present, CPA, CFA, CA, CMA, MBA degree holders work as investment bankers.

How many hours a week does an investment banker work?

Investment Banking is a hard core or stressful job. Its depends on various circumstances but in Europe banks expect a minimum of 70 hours during slow times and up to 100 hours per week at during busy times. That means, in an average around 14 to 18 hours work is required to carry out the job.

Is investment banking a good career?

If you ask me the this question I would say both Yes and No! If you have ambition to be an investment banker then who am I to stop you?  You might have a solid dream to earn over $100K a year then it is, Yes! But remember that investment banking is not just a high-paying but high-stakes and high-pressure job. 14 to 18 hours per day or around 100 hours per week is not that simple matter for a normal life. If you can’t bind your life in this frame then I would say, No!. However, this discussion might help you assess if investment banking is a suitable career for you.

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