Investment Banking | A Career Option in Finance | Thasneem Banu

In this blog, we will understand one of the major career options in Finance which is “Investment Banking”.

Wouldn’t be great to know the origin of any concept, theory or profession?

Let’s start with the interesting History of Investment Banking.

History: 

• Investment banking emerged as a concept in the early 19th century.
• The emergence of the American Civil War made financier Jay Cooke start the first investment bank to fund the US war efforts.
• The US government became the first client and started issuing bonds through investment banks to interested investors.
• The funds raised help the authorities fund their fundamental requirements and pay off investors with a share of the profit earned once the projects were accomplished.
• The bonds served as an IOU ("I Owe You" is a document that acknowledges the existence of a debt), a payback promises in writing. Per this, the investment banks bought the bonds and sold the same to investors for profits. The banks continue doing the same even today)

What is Investment Banking?

• Investment banking is the division of Financial Services that works to raise money for individual investors, large corporations, and Governments.
• It acts as intermediary between investors (who have money to invest) and corporations (who require capital to grow and run their businesses).

 

Role of Investment Bank

✓Underwriting

✓Sale of securities

✓Facilitating Merger& Acquisition

✓New issue or IPO

✓Equity research

✓Restructuring 

✓Asset management 

✓Capital raising 

Categories of Investment Banking:

They are commonly classified into following categories:

• Bulge Bracket Banks
• Middle Market Banks
• Elite Boutique Investment Banks
• Regional Boutique Investment Banks

 

Bulge bracket banks

• They operate around the world and offer investment and advisory services efficiently.
• The deals for these types of banks should be of huge amounts in the range of over $1 billion or even greater. 
• They work on the largest deals and have the widest brand name recognition.

E.g., JP Morgan, Goldman Sachs, Morgan Stanley, Citi group, Barclays Capital, Bank of America Merrill Lynch

Middle-market banks

• Focus on small emerging businesses to get financial advice and assistance.
• These types of banks are categorized as those banks that deal in transactions the size of $500 Million to $1 Billion.
• They usually target clients who are too big for the Relational boutique type or too small for the Bulge Bracket type.
• Mediocre-sized businesses are the main client of these banks.

E.g., Jefferies, Macquarie and RBC Capital Markets

Elite Boutique investment bank

• These banks don’t have the constraints of location, one will be able to find these types of banks all over the locations whether a posh one or a local one, hence they have more exposure than Bulge Bracket Banks.

E.g., Lazar LLC, Moelis & Company, and Evercore Group LLC 

Regional Boutique investment bank

• Regional Boutique Banks are those that are dealing in smaller transaction sizes. 
• Deals that they carry forward are usually less than the size of $10 million.
• These types of banks are not specialized for any specific product or in any specific sector. They will be working on different projects and different clients from different sectors but in smaller cities that have quite local companies or organizations.

Now, you may wonder who are the clients for Investment banks.

They are,

• Government 
• Institutions
• Corporations

 

So far everything seems interesting right? A Question will arise in your mind as to what are all the skillset required to pursue your career in Investment Banking. Well, we are going to look into the same below.

Skills:

• Financial modelling
• Business valuation
• Pitch book and presentation
• Transaction Document 
• Relationship management
• Negotiation

 

Qualifications:

Investment banking requires degree in finance, economics, accounting, business administration, or a related field. Preferred qualifications for Investment Banking are CFA, CA and MBA (Finance)

Final Thoughts

This is just a basic piece information for anyone who wondered what Investment Banking is and answers some of the General questions that arise in people’s mind.

I hope this snippet serves the same.

Thanks for reading!

References:

1. www.investopedia.com
2. https://corporatefinanceinstitute.com
3. angelone.in

4. intellipaat.com