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Investment Banking: What It Is, What Investment Bankers Do

What exactly is Investment Banking?

Given the high reputation and lucrative salary, investment banking is a lure for many people interested in a Wall Street career. Investment bankers are well-known for playing an essential part in the launch of initial public offerings (IPOs) by emerging firms seeking to go public. However, this is only one example of their work tasks.

Investment Banking: What It Is, What Investment Bankers Do

Investment bankers provide financial advice to companies and governments in various situations. They help their clients raise finances. They provide assistance in issuing shares, issuing bonds, negotiating the acquisition of a competitor, or arranging the sale of the company. Investment bankers perform well when the capital markets are performing well. More funds and activity result in more profitable projects for investment bankers and their customers.

What is the role of Investment Bankers?

Investment bankers are involved in various financial operations carried out by businesses and governments. The key types of deals in which they are interested are summarised below:

Obtaining Financing

When a large firm wants to build a plant, it usually needs additional money and may elect to issue a bond to fund the project. The bond will be repaid with the additional output generated by the new plant. Likewise, a government may be compelled to support the development of an airport, a road, or any other big municipal project. So, if the bond is issued, it becomes easy to collect funds, finish the work and repay the bond with future tax receipts.

In such a situation, an investment banker may be hired to help with the funding. The investment banker would create the bond issuance, effectively price it, complete the SEC documentation required to issue the bonds, and eventually aid in marketing the bonds to buyers.

Equity Funding

The most cost-effective way for firms to fund their growth and expansion is to sell bonds or shares. The investment banker helps to organize share sales as well as equity financing.

Assume a fledgling firm seeks to obtain funds for expansion through an initial public offering or IPO. In that situation, an investment banker may be hired to draught a prospectus for potential investors describing the conditions of the offering and the related risks.

The offering must be managed by promoting to investors, explaining to the media, and gaining Securities and Exchange Commission (SEC) approval. Setting up the attractive offering's cost is also crucial. If the share price is too high, people might be unwilling to purchase them, and the IPO could fail. The investment banker takes the lead throughout the entire process.


Investment bankers typically underwrite projects for their clients when arranging capital markets financing. This implies taking up most of the method's risk by acquiring stock directly from issuers and then offering to sell them to the general public or institutional buyers. And here, Investment bankers simply make money by selling shares at a premium to their customers. The difference between the buy and markup prices is the underwriting spread.

A lead investment banker often works with a syndicate of investment bankers to underwrite an issuance, distributing the risk among various parties. In such circumstances, the investment banker may act as a middleman and publicize the transaction without taking on underwriting risk. Investment bankers may sell securities and earn a commission based on the number of securities traded in this situation.

Arrangements for Private Placements

Only some companies wish to go public. Investment bankers can also assist customers that choose to raise capital through private placements rather than public offerings on the stock or bond markets. In such cases, the investment banker is expected to have the necessary relationship and credibility to complete the deal.

For example, a corporation may sell its bond offering to a single institutional investor, such as an insurance company or a pension fund. Because no SEC registration is necessary, this may be a quicker and easier way to receive cash. Because the government believes institutional investors to be more intelligent than ordinary investors, private placements are subject to fewer rules.

Dealing with Mergers and Acquisitions

In most cases, acquiring or merging with another firm involves a lengthy preparation and negotiation process. Investment bankers usually advise greatly on this procedure, especially when evaluating a fair price for the deal.

Mergers and acquisitions may be drawn-out battles, with investment bankers assessing a barrage of bids and counter-offers.

What are the essential skills for investment bankers?

An investment banker must have specific skills or talents to be successful in this highly competitive industry. Here is a list of the top qualities that investment bankers must have to thrive in their careers:

  • Thinking Critically

Understanding analytics, mathematics, finance, and economics is only the beginning. One must comprehend all his functions and how his colleagues' efforts and other elements contribute to the overall aim. Investment bankers must be intellectually curious to tackle complicated challenges and provide novel solutions.

  • Self-Discipline

Long hours, effort, and self-discipline are required for success in investment banking. One must be able to execute successfully under high pressure and scrutiny. One may be a naturally disciplined person, but if not, this talent may be cultivated accordingly. Set objectives, then work to accomplish them. Finish a tough assignment. One must learn a strategy and then try the best as part of a team when possible. Investment bankers must obey norms and procedures, but they are also challenged to discover novel answers and approaches to problems. One may consider taking entrepreneurship classes in any reputed college to hone those skills.

  • Cultural Awareness

Cultural competency, or broad-mindedness, assists an investment banker in understanding diverse cultures and communities, which is required while working with and for foreign firms. Knowledge and expertise and the ability to communicate in more than one language are highly valued in the field of investment banking. So, one must consider acquiring a second language or engaging in a study-abroad program while in college.

  • Relationship Development

This interpersonal ability is seen as a great asset by investment bankers. It is a combination of social and relationship-building abilities, the capacity to deal with challenging clients in stressful situations, the ability to retain a positive attitude, and the ability to form and nurture client relationships.

How does one become an Investment Banker?

A bachelor's degree in finance is often required to begin this career. Nonetheless, there are various options for expanding and improving your employment skills. The stages below explain the standard path that many investment bankers pursue:

Requirement of Bachelor's Degree in Finance or a Similar Subject

First, obtain a bachelor's degree from an authorized institution or university with a major in finance. Accounting, economics, mathematics, analytics, corporate finance, business administration, and data analytics are essential subjects for aspiring investment bankers to study. Investment banking, regardless of degree, will demand excellent quantitative and analytical abilities as well as a solid grasp of economics and how it influences corporate finance. Internships during your bachelor's programme may also help you get professional experience and improve your networking in the financial area.

Consider Pursuing a Graduate Degree or an MBA

Many investment bankers earn a master's degree in a financial subject, such as business administration, corporate finance, or a related economic field. While you can start as a financial analyst in an investment bank, many companies prefer associate bankers and those in mid-level positions to have a graduate degree. One must investigate which graduate schools have a reasonable employment rate for their graduates. Also, make use of the existing internships and networking opportunities. A lesser-known programme often grants a Master of Business Administration or an advanced math degree. Still, it may be less attractive to prospective employers.

Become a Member of FINRA and Acquire Certification

As an investment banker, one needs to register with the Financial Industry Regulatory Authority (FINRA) as a representative of their specific bank. One must clear up a specific exam based on expertise to be eligible for registration. Optional qualifications include the Chartered Financial Analyst (CFA) designation, which requires completing the CFA programme and passing a test.

Participate in On-the-Job Training

Before commencing employment in an entry-level position, you will generally start as an analyst and complete an employer-sponsored training programme. Depending on the financial firm, this training will often cover accounting concepts, markets, risk, financial analysis, statement analysis, and financial modelling. On-the-job training should also assist you in improving your negotiating, presentation, and communication skills. Furthermore, many firms provide ongoing education to entry-level investment bankers as well, which helps them develop their careers.

Develop Your Career

Once someone begins working as an investment banker, he can advance his career in various ways. For example, suppose someone enters the industry with a bachelor's degree in finance. In that case, the organization should help him continue his education, earn certifications, or receive training throughout his initial few years on the job. One can progress into higher-level positions as one gets more corporate finance and investment banking expertise. An entry-level investment banker, for example, can advance to managerial roles like vice president or director, where they will supervise analysts and colleagues.

What were the difficulties encountered in this profession?

After the financial crisis of 2007-2008, Wall Street and many similar bigwigs were condemned around the world. Because of the involvement of these rulers of the universe in the crisis, the financial industry has been subjected to increased scrutiny and regulation. The situation erupted when investment firm Lehman Brothers declared bankruptcy in September 2008 and revealed Wall Street's underbelly. Although the glamour of being a substantial financial sector hotshot has been somewhat tarnished, Wall Street positions continue to appeal to top graduates. However, the investment banking industry was significantly blamed for the crisis.

Demographics of Investment Banking

According to data compiled by the United States House Committee on Financial Services, around 17% of board members of the investment banking sector are identified as minorities, compared to 40% of the general population in the United States. Women account for around 29% of the population, while men account for 50%. However, none of them has a chief diversity officer reporting directly to the CEO.

White individuals hold 81% of senior executive editor posts, while racial and ethnic minorities hold 19%. Also, about 71% of senior executive positions are held by men. Since the industry is aware of the issue, many banks have diversity initiatives to actively attract potential women and minorities to the profession.

What do investment bankers get paid?

Raw recruits anticipate a six-figure salary. Mid-career investment bankers who excel might earn tens of millions per year. There are at least 100 respectable investment banks in the world. Global behemoths like Deutsche Bank, Barclays, Credit Suisse, and UBS are the corporation that many aspiring investment bankers want to work for.

What are the many types of investment banking?

The categories are distinguished by scale or speciality rather than function. A regional boutique bank may specialize in one area, such as mergers & acquisitions. Only the most important clients are accepted by an exclusive boutique bank. The bulge bracket banks include the Big Four and all of their direct competitors, and they dominate the Fortune 500's financial activity.

The Bottom Line

Investment banking attracts many people interested in Wall Street jobs because of Wall Street's excellent reputation and attractive income. However, in terms of work, they usually assist their clients in generating funds to process various operations and expand their company. They are financial consulting middlemen who assist firms and governments in raising funds for multiple purposes. While this activity keeps capitalism running smoothly, the investment banking business has come under fire, mainly because it is involved in many aspects of the capital-raising process.

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