What is Investment Banking?

Investment banking is a special segment of investment banks who provide financial services to different companies and acts as an intermediary in large and complex financial transactions. An investment bank is usually involved when a start-up company prepares for its launch of an initial public offering (IPO) and also when a corporation merges with a competitor to optimize their benefits and minimize business risks. 

It also serves governments, corporations, and institutions by providing underwriting for capital raising and mergers and acquisitions for M&A advisory services. Apart from its preliminary roles, it also serves as a broker or financial adviser for large institutional clients. These banks help in business deals when a company wishes to buy or sell a business by assisting them in preparing necessary documents and advising them on the appropriate timing of the deal.

What Do Investment Bankers Do?

Investment bankers provide a wide range of services ranging from underwriting, M&A, sales and trading, equity research, asset management, financial advisory, etc. They tend to play a role in financial activities undertaken by companies and governments.

Let’s take a look at them in detail:

  • Underwriting: This process enables companies to raise capital through selling stocks or bonds to investors, on behalf of corporations. The most used form of underwriting is issuing of initial public offers (IPO) to raise capital through the general public. 

 

  • Sales & Trading: Sales and trading groups in investment banking act as agents for clients and the banks can help them match with buyers and sellers of securities in the secondary market.

 

  • Mergers & Acquisitions: Investment banks help to estimate the value of a potential acquisition and assists in structuring and facilitating the acquisition to make the deal go as smoothly as possible. 

 

  • Asset Management: Investment banks help businesses to manage investments for a wide range of investors for both individuals and institutions. 

 

  • Equity Research: If companies require insight and detailed research for the equity market, investment banks do so by helping them make investment decisions and trading of stocks. 

 

  • Financial Advisors: An investment bank as a financial advisor may provide strategic advice on a variety of financial matters by understanding their clients' objective and the industry itself. 

 

 

How Does Investment Banking Work?

But the big question is how do these investment banks really work? Truth be told, investment banking really does require a lot of skills, financial modeling and valuation. They work towards building various financial models and valuation methods to optimize their clients’ demands in a strategic manner.

Here’s how they do it:

  • Financial Modelling: Making the best use of resources around them, they try to bring out the best financial models which includes building 3-statement models, discounted cash flow (DCF) models, LBO models, and various other types of models. 

 

  • Business Valuation: A lot of research goes into evaluating the position of a business against its competitors. They use various business valuation methods like comparable company analysis, precedent transactions, DCF analysis, etc. 

 

  • Relationship Management: In order to ensure smooth communication between the institutions, investment bankers help to maintain a good relationship between the clients so that they are satisfied with their deals. 

 

  • Pitches and Presentations: Helping their clients get burden off their shoulders, they build prospective pitch-books and presentations to pitch to the clients and become a part of new businesses.  

 

(Source: Modinomics)


Careers in Investment Banking

Looking for a career in investment banking? It may be challenging but sufficient knowledge and practice can help you land a good job. If you do get into investment banking, you can expect a job as an analyst, associate, vice-president, or even the director if you have enough success and experience. 

The world’s best investment banks to work in are Goldman Sachs & Co., Morgan Stanley, J.P. Morgan, Evercore, etc. You may start from the bottom, but you can make your way to the top with hard-work, commitment and experience. Keep hustling! 

Click here to learn more or refer to the sources below.

Sources:

https://corporatefinanceinstitute.com/resources/careers/jobs/what-do-investment-bankers-do/

https://www.investopedia.com/terms/i/investmentbank.asp

https://economictimes.indiatimes.com/definition/investment-banking#:~:text=Definition: Investment banking is a,new firms to go public.