Careers in Investment Banking

Merger & Acquisitions, Asset Management, Raising Capital

Let’s start with a disclaimer – you may have exceptional analytical skills, feed off finance, and crunch numbers and analyse data faster than the speed of light. But, be warned, you might still not make the cut as an investment banker.

So what do those Wall Street hotshots have that you don’t?

Apart from oodles of talent, those Wall Street prima donnas have a certain type of personality that is suited to this high-octane career. You either have it or you don’t.

So, deconstructed, here’s what the glamorous world of an investment banker really looks like: he or she has guts of steel, an insatiable appetite for risk, never plugs out of work, has a willingness to spend 12 hours a day or more hunched behind a computer screen, has a fetish for spreadsheets, a tolerance for abnormally high levels of stress, and foregoes anything that even remotely resembles a personal life.

Yes, being an investment banker can get pretty insane. So what exactly does this career involve? You are blessed with financial acumen but should you have ‘investment banking’ on your checklist?

 

Job Description: What Does An Investment Banker Do?

An investment banker works for a financial institution that provides a clutch of complex financial services and transactions sought by institutional or corporate clients such as companies, pension funds, governments and hedge funds.

Many large banks have an investment banking division, which is another employment avenue for the lowly analyst hoping to become a high-profile investment banker one day.

There are a few broad specialisations in investment banking and among the many hats you will wear are underwriting equity and debt offerings; helping companies draw up and execute financial strategies; analysing their financial needs such as structuring balance sheets and looking at funding initiatives; working with their sales and trading divisions to determine valuations for new offerings; and the holy grail of investment banking – working on mergers and acquisitions.

 

Raising Financial Capital

When companies need to raise capital to expand and grow, they turn to securities, that is, equity and debt financing. This means raising money from the stock market or selling debt instruments such as corporate bonds, bills or notes. To do this, they hire an investment bank.

The investment bank will first calculate what the company is worth with a view to determining the price at which its client’s shares will list on the stock exchange via an Initial Public Offering or IPO.

An investment bank does all the legwork required to float an IPO, including preparing technical prospectuses and making sure its client is compliant with all the regulatory and legal requirements.

As you can imagine, an investment bank takes a hefty fee for rendering these services but it may also underwrite stock or bond issues. In other words, it accepts liability and guarantees payment to large buyers of the new stock or bonds.

These buyers are usually institutional investors such as mutual funds or pension funds that purchase these stocks or bonds before they hit the market. The investment bank thus acts as a middleman and earns a large profit in return.

Mergers & Acquisitions

Definitely one of the most glamourous hats that an investment banker can wear, M&A can be as satisfying as it is nerve-wracking. This sub-set of investment banking deals with the acquisition and sale of companies and assets.

Companies or large corporations acquire other companies as part of their growth process. On an even larger scale, mergers & acquisitions help individual industries consolidate as large players gobble up smaller ones. Alternatively, some smaller ones grow and restructure before becoming one of the big fish that once threatened to buy them out!

An investment banker working in M&A would typically need to be able to value its client’s business, identify target companies that its client might want to acquire, meet with the target company, carry out due diligence to assess the target company’s financial health, negotiate with the target company and, if the deal goes through, execute a mountain of complex paperwork.

Asset Management

The third broad type of service offered by an investment bank is retail brokerage and asset management. Here, you would interact directly with the bank’s customers and sell financial products to them, such as stocks, bonds and those designed by the investment bank itself.

Since customers could include small businesses and super-wealthy individuals or foundations and endowments, this is where investment banking overlaps with wealth management.

 

Career Path in Investment Banking

Here’s what your growth opportunities look like – financial analyst, associate and senior bankers who include professionals of the order of vice-president, director and managing director.

Financial analysts are typically fresh undergraduates, wet behind the ears, who would have to keep their nose to the grind for at least three years before being promoted as associate.

An analyst performs a range of tasks such as preparing PowerPoint presentations, doing analytical and research work, and administrative work. Associates are either financial analysts who waited it out and earned their stripes or MBA students fresh out of college.

Analysts and associates work closely, with the latter closely monitoring the work of the former. And then there are the rainmakers – the senior bankers.

 

Salaries in Investment Banking

Investment banking offers the most lucrative salaries in the finance sector. Junior staff in front-office investment banking, such as sales, trading, research and M&A, draw as much as $195,000 a year, while associates can reel in a cool $270,000.

At the far end of the pay scale, vice-presidents can wave a paycheck that sports a cool $460,000, while directors or executive directors can snap up as much as $700,000 a year.

 

Outlook for Investment Banking

The sub-prime crisis in the US that triggered a crash across global economies was a defining event for the investment banking industry. This wasn’t the only sector impacted by the crisis but it was at the very epicentre.

In fact, it was the quasi-banking role played by finance institutions such as hedge funds, private equity firms and brokerages that were partly to blame for the colossal crash.

Post the catastrophe, finance institutions have been governed by much stronger regulatory measures, which means tighter controls but much less leeway. But take heart. Investment banking has not lost its sheen. It probably never will.