How do banks make investment decisions

How Investment Banks Make Money

An investment bank, which includes the likes of Bank of America, JPMorgan Chase, and Goldman Sachs, finances or facilitates trades and investment on a large scale for institutional clients. But that is an overly simplistic view of how investment banks make money. There are, in fact, several facets to what they do.

Key Takeaways

Brokerage and Underwriting Services

Like traditional intermediaries, large investment banks connect buyers and sellers in different markets. For this service, they charge a commission on trades. The trades range from simple stock trades for smaller investors to large trading blocks for big financial institutions.

Investment banks also perform underwriting services when companies need to raise capital. For example, a bank might buy stock in an initial public offering (IPO), and then market the shares to investors. There is a risk that the bank will be unable to sell the shares for a higher price, so the investment bank might lose money on the IPO. To combat this risk, some investment banks charge a flat fee for the underwriting process.

Mergers and Acquisitions

Investment banks charge fees to act as advisors for spinoffs and mergers and acquisitions (M&A). In a spinoff, the target company sells a piece of its operation to improve efficiency or to inject cash flow. On the other hand, acquisitions occur whenever one company buys another company. Mergers take place when two companies combine to form one entity. These are often complicated deals and require a lot of legal and financial help, especially for companies unfamiliar with the process.

Creating Collateralized Products

Investment banks might take lots of smaller loans, such as mortgages, and then package those into one security. The concept is somewhat similar to a bond mutual fund, except the collateralized instrument is a collection of smaller debt obligations rather than corporate and government bonds. Investment banks must purchase the loans to package and sell them, so they try to profit by buying cheap and selling at higher prices on the market.

Proprietary Trading

With proprietary trading, the investment bank deploys its own capital into the financial markets. Traders that risk the firm’s capital are typically compensated based on performance, with successful ones earning large bonuses and unsuccessful traders losing their jobs. Proprietary trading has been much less prevalent since new regulations were imposed after the 2007-2008 financial crisis.

Dark Pools

Suppose an institutional investor wants to sell millions of shares, a size that’s large enough to impact markets right away. Other investors in the market might see the big order and this opens the opportunity for an aggressive trader with high-speed technology to front-run the sale in an attempt to profit from the coming move. Investment banks established dark pools to attract institutional sellers to secretive and anonymous markets to prevent front-running. The bank charges a fee for the service.

Swaps

Investment bankers sometimes make money with swaps. Swaps create profit opportunities through a complicated form of arbitrage, where the investment bank brokers a deal between two parties that are trading their respective cash flows. The most common swaps occur whenever two parties realize they might mutually benefit from a change in a benchmark, such as interest rates or exchange rates.

Market Making

Investment banks often have market making operations that are designed to generate revenue from providing liquidity in stocks or other markets. A market maker shows a quote (buy price and sale price) and earns a small difference between the two prices, also known as the bid-ask spread.

Investment Research

Major investment banks can also sell direct research to financial specialists. Money managers often purchase research from large institutions, such as JPMorgan Chase and Goldman Sachs, to make better investment decisions.

Asset Management

In other cases, investment banks directly serve as asset managers to large clients. The bank might have internal fund departments, including internal hedge funds, which often come with attractive fee structures. Asset management can be quite lucrative because the client portfolios are large.

Lastly, investment banks sometimes partner with or create venture capital or private equity funds to raise money and invest in private assets. The idea is to buy a promising target company, often with a lot of leverage, and then resell or take the company public after it becomes more valuable.

The Bottom Line

In a capitalist economy, investment bankers play a role in helping their clients raise capital to finance various activities and grow their businesses. They are financial advisory intermediaries who help price capital and allocate it to various uses.

While this activity helps smooth the wheels of capitalism, the role of investment bankers has come under scrutiny because there is some criticism that they are paid too much in relation to the services they provide.

How do investment banks make their money?

Investment banks are quite different from commercial banks we are used to, and not everyone understands what investment banking is and how exactly investment banks make money for investors.

Source – gfycat.com

Today we’re going to get to the bottom of this topic. So, stay tuned!

What is an investment bank?

Unlike traditional entities, investment banks do not provide loans and mortgages to clients or take their money on deposits.

They mainly focus on investment-related and asset management activities.

Statista.com

While high-street financial institutions generate income on interests and fees paid by clientele, investment bankers make a fortune on the trade on stock markets, financial advisory, and mergers and acquisitions.

In turn, full-service merchant entities and subsidiaries of large entities providing the same services are not the same things.

Such names as JPMorgan Chase&Co., Credit Suisse, Morgan Stanley, and Barclays Investment Bank are in the list of the best bulge bracket intermediaries.

JPMorgan Chase&Co

Bulge bracket institutions are well-known for the amount and scope of the deals made, the network of branches, and the number of staff.

Alongside the international players, there are narrowly-focused boutique institutions providing services in a small area and banks from the middle-market.

Allen & Company

If you look up “middle-market investment bank, you will come across such brands as Lazard, Brown Gibbons Lang & Co., and Lincoln International.

Unlike financial giants, these brokers deliver a complete range of investment services but on a smaller scale.

Lincoln International

What do investment banks do?

Investment bankers offer peculiar kinds of services that set them apart from the rest of the entities. So, how do investment banks earn money?

Advisory and consulting

Financial intermediation and consultancy go hand in hand.

Large financiers deal with both corporate clients and high net worth individuals (HNWIs).

The first category of clients needs pro support in the IPO (initial public offering of stock) preparation, financial strategy and tactics development, and their realisation.

The high net worth individuals look for experts in business opportunities, savings and expenditures management, taxation and insurance.

Underwriting

The main task of investment banks is to serve as underwriters.

Underwriting includes assessing the risks each applicant or party takes when giving or receiving a loan, signing insurance contracts, or buying and selling securities.

The primary focus of bulge brackets and boutiques is securities underwriting that precedes the IPO procedure.

Middlemen purchase capital issued by a firm that triggered the IPO process and then sell securities to the public.

Alongside conducting underwriting for companies, financial agents offer such services for non-financial organisations.

Asset and wealth management

It is another thing that differentiates full-service investment banks from retail entities.

Large investment banks take care of corporate assets and manage private funds.

They closely collaborate with other financial go-betweens (hedge and mutual funds and trusts).

As a part of investment portfolio development, banks pick securities, tools, and choose financial opportunities that match corporate and individual goals best.

Also, asset and wealth managers run CDD and AML checks to give vetted options to the client.

Mergers & Acquisitions

Full-service investment brokers actively take part in M&As deals.

As a rule, lots of companies decide on business optimisation through M&A to gain a bigger market share.

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In this regard, top management seeks professional help from banks to take an informative decision.

Banks estimate the business value of both parties, suggest an M&A model, conduct market research, select the best options for buyers and sellers, raise funds needed for a project.

Where do investment banks put their money into?

Now when you’re aware of some fundamentals of investment banking, let’s move to the investment mechanism.

“How do investment banks make money? and “Why can investment banks make SO MUCH money?

To get the answer to the first question, let’s look at the operating model of financial entities.

Banks serve as middlemen between business owners or institutions and investors.

They have to facilitate the movement of funds from business angels and fundraisers through the IPO and follow-on patterns or with the help of debt financing.

The revenue streams for bulge bracket, boutique, and middle-market intermediaries vary.

They can be grouped broadly into:

1.Commissions – a fee for consulting services, finding backers, fundraising, securities trading, M&A. The charge for consulting depends on the scope and peculiarities of an enterprise or can be based on the transaction value.

2.Dividends and interests – rewards generated by equity investments made and loans provided. This type of income consists of periodic payments from credits and a recurred revenue from venture capital deals.

3. Other gains – benefits reaped from investing and trade.

How much money do investment banks make?

As a rule, banks collect fees on deals in the form of a percentage from their values.

Investment bankers do earn tons of money as the successful deals they usually close are at the rate of millions and billions of dollars.

Even if a middleman’s percentage from the deal is 1%, it’s crazy money.

Despite being very lucrative, merchant banking requires sufficient efforts, high qualification, and loads of hard work.

Statista.com

Why do we need investment banks?

The mission of investment banking for the economy and business is difficult to exaggerate.

Even though investment bankers are often criticised for large commissions charged for their intermediation, their functions are vital.

They contribute to economic growth in two ways.

Regulating interests

Just like high-street banks, merchant entities are in charge of establishing the price for money and balancing consumption.

The higher investment rates are, the more risks they present for backers and fundraisers.

Hence, in the times when interest rates increase, backers tend to save more for future consumption.

And, vice versa, low rates encourage investors and business owners to invest more.

By setting prime interest rates, banks regulate the consumptive behaviour of companies and households.

Providing funds and business opportunities

Without outside intermediation, a company that wants to go public just can’t do it.

By organising the security issuing, making “bought deals, and bringing businesses and angels together, banks raise funds needed for new projects and innovations.

As a result, business niches prosper and thrive, industries develop, and the global market grows at an extraordinary pace.

Who do investment banks deal with?

The core audience of “financial brokers are enterprises of all types and industries, governments and municipalities, hedge and pension funds, high-net-worth individuals.

Statista.com

Crowdfunding vs investment banking

Despite all its beauty, attracting capital via investment banking may be complicated for startups and small firms.

Crowdfunding, in this regard, may be more effective and efficient.

Historically, crowdfunded platforms appeared as an alternative to angel investing for those groups of fundraisers who can’t get seed capital.

Statista.com

Both methods have positive and negative things which make each a perfect fit for a particular kind of borrowers.

Benefits of investment banking

Advantages of crowdfunding

Hurdles of investment banking

Limitations of crowdfunding

Our crowdfunding projects

By providing FinTech development services to crowdfunding companies, we’ve gained solid knowledge of how the whole industry works.

While investment banks get their money from high-profile companies and individuals, crowdfunding platform owners deal with smaller clients.

Among the projects we’ve had a hand in, there’re websites for crowdfunding real estate and educational organisations.

CapitalRise

Capital Rise is a crowdfunding intermediary that offers prime property investment opportunities for professional and everyday investors.

By doing their due diligence, the company proposes only the best solutions in the residential, commercial, and other types of properties.

CapitalRise operates under FCA supervision and deals mainly with property developers and backers from the UK.

The most significant advantage of CapitalRise is that they allow investing with small amounts of money, £1,000 at minimum, at the same time promising 8% – 12% of return rates.

By focusing on small and medium-sized investments, CapitalRise brings excellent opportunities to startups and mid-enterprises.

Debt and equity instruments are what CapitalRise raise funds with.

Shojin

We’re really proud that Shojin is one of our clients.

The team has been on the market for more than 10 years, enhancing their expertise and broadening the pool of investors and borrowers.

Being a co-investor of any property development project, Shojin shares all the risks with other capitalists.

Just as investment banks raise capital on administrative fees, Shojin earns 2% of investor funds charged on a project.

Shojin has products to any liking:

Homegrown

The last but not the least among our crowdfunding real estate projects is Homegrown.

Homegrown deals with mature property developers by providing them with additional resources needed for their future development.

Sophisticated and non-accredited investors can pour cash into institutional and mixed-use real estate projects.

Since the company suggests starting with only £500, anyone with the average salary can quickly build a well-diversified professional portfolio.

The investment strategy is something that sets Homegrown apart from the rest – the team handpicks only the best development projects which meet specific investment criteria.

A typical investment term at the platform is 18-36 months, with 13.4% of annual return rates.

Invest My School

It’s a great startup collecting money for educational establishments, schools and colleges, who strive to renovate their facilities and improve the quality of services.

Unlike the way investment bankers make money, the platform gets income on a 3% marketing fee charged on all the business proposals.

Everyone who decided to gather capital via the Invest My school website can choose between a p2p loan, donation, or a mixed type.

To top it off, launching a project at Invest My school will cost you nothing.

Conclusion

We hope that we’ve managed to shed some light on how investment banks make money from trading and other activities.

Merchant banking is of critical importance for finance, business prosperity, and economic expansion.

High-skill support and bespoke solutions provided by bankers to companies, help the latter to address financial problems and formulate effective strategies.

Full-service banks do business with various industries and clients of all calibre.

However, startups and small-size enterprises may find it challenging to raise funds using financial brokers.

A right way out for them may be crowdfunding geared towards smaller-scale business concepts.

Thanks for reading our blog! Want to know more about investment banking or crowdfunding? Email us!

Investment Decisions

Investment decisions are the decisions taken in respect of the big capital expenditure projects. Such expenditures may involve investment in plants and machinery, vehicles, etc. A common characteristic of such expenditures is that they involve a stream of cash inflows in the future and an initial cash outflow or a series of outflows.

Financial management is not only concerned with the sourcing of funds, effective utilization of such funds is equally important to successfully achieve the corporate objective of ‘wealth maximization. Effective utilization of funds can be achieved by investing them in productive activities or assets. Such decisions of selecting the right avenue of investment for a relatively longer term are called investment decisions.

Business assets can be broadly classified into two categories, namely short-term or current assets and long-term or fixed assets. Investment decisions are mainly concerned with the latter, i.e., fixed assets, which generally involve big cash flows and big initial capital investment. Investment decisions are also known as capital investment decisions because of the involvement of huge capital requirements.

A steel manufacturer was considering an investment in new plant and machinery, a service-oriented company was thinking of introducing new and improved organization-wide software, and a pharmaceutical company was thinking of buying patents for certain drugs. Such circumstances involve big investment decisions. A wrong decision can make things worse than one can expect at any of these stages. Such decisions are very long-term decisions and involve a huge investment of money, human resource, and other assets. So, it’s not a frequent situation for a business, and the right decision-making is very essential. Else, circumstances can be horrible for all concerned with them.

Now, the question is how to make sure that the decision is correct and rational. In a profit-oriented organization, it is simple to decide on the objective of investing. The decision would be considered appropriate if it is a profitable investment and enhances the wealth of the shareholders. Capital budgeting techniques are utilized to do investment appraisals for such investments.

There are some capital budgeting techniques that assist an entrepreneur in deciding whether to invest in a particular asset or not. The analysis is based on the cash flows generated by using those assets and initial or future outlays required for the acquisition of the asset. Such investment techniques or capital budgeting techniques are broadly divided into two criteria:

Discounting Cash Flow Criteria

Discounting cash flow criteria has three techniques for evaluating an investment.

Non-Discounting Cash Flow Criteria

Non-discounting cash flow criteria have two techniques for the evaluation of investment.

How banks make lending decisions

A guide about the areas banks look at when they’re deciding whether to fund your business.

Will my bank give me a loan?

Watch our video to hear from our finance expert, Yvonne McLaren-Robertson, as she explains how banks make lending decisions.

If you’re trying to decide what type of finance would suit your business, you might think of debt funding. If so, you’ll probably want to know if you would be accepted for debt financing by a bank.

The first thing any bank or lender will do, is work out the suitability of your business for finance. They’ll want to determine if you’ll be able to repay the amount you borrow (the principal) with the interest they charge within a reasonable length of time.

A potential lender will use a wide variety of factors to assess your creditworthiness. The bank will also use a more specific set of factors. There are factors they are required to think about because of law and regulation, while other factors are used as part of their own policies.

A bank’s decision to give you funding will depend on the following areas:

Your profit and cashflow

The bank will want to know that you will be able to repay what you borrow and interest within the agreed timeframe. Therefore you’ll need to provide historical (where this is relevant) and projected financial information that demonstrates profitability and cash generation. This information should support your loan application.

Ensure that your financial forecasts are backed-up predictions (assumptions) supported by your financial information.

The bank is likely to challenge you on how you think your business will grow with the funding they give you.

What security is available?

You’ll need to pledge something as security for the loan, which is known as collateral.

Common forms of security include:

The bank may also ask you to provide a personal guarantee as additional security.

What will the loan be used for?

The bank will want to understand the market conditions that affect your business.

The banks appetite to lend will vary from sector to sector depending on their particular risk policies.

It’s always worth finding out a bank’s particular risk appetite for your sector before approaching them for loan.

If your business would not match their risk appetite you should approach other banks and alternative lenders.

Your personal credit assets

A bank can consider your personal finances using character and your property/assets to secure the loan (collateral).

If you have a poor personal credit history, the bank might think it’s possible your business could have similar problems.

Collateral

If the bank decides that your business doesn’t have adequate collateral to secure the loan, they may want your personal assets as collateral. As a minimum they may ask for a personal guarantee.

It’s worth bearing in mind that if you fall short on only one criteria, your application may still be rejected. Therefore, it’s important that you submit a clear and strong proposal to a bank or alternative lender who will likely look for the same information.

Enterprise Finance Guarantee

Even if you have a valid business proposal, the bank may decide not to support you if there is not enough security available. To support such businesses, the UK Government has introduced a scheme called the Enterprise Finance Guarantee (EFG).

For businesses that have a good model but insufficient security, the Government will provide a guarantee to the bank to cover some of the loan. The bank still makes the decision to lend you money but the Government pays some of the cost if you cannot repay.

If your business’ loan is secured using an EFG you will end up paying a fee to the government on top of interest to the bank.

What Do Investment Bankers Do?

The daily life of an i-Banker

So, What Do Investment Bankers Do?

What do investment bankers do?
Uh…they are bankers who invest… right?
Well, yes, indeed, investment bankers do invest. However, it’s a little more complicated than that…

Investment banking is one of the most prestigious professions on Wall Street. Although it features some of the most coveted and financially rewarding positions in the banking industry, investment banking is also one of the most challenging and difficult career paths, noted for being characterized by long working hours and high levels of stress.

It’s not unusual for investment banking analysts or associates to put in 80 to 100 hours of work a week. (Of course, it’s not quite as horrific as some might lead you to believe – it’s not like investment bankers work 80 to 100 hours every week).

There’s quite a bit of confusion – combined with not much actual information – regarding the field of investment banking. Most people are probably at least familiar with, have at least heard the phrase “investment banking”, but don’t really have a clear idea in their minds of what investment banking entails, other than perhaps the vaguest of notions that investing and banking are somehow involved.

In this article we’re going to demystify investment banking, explaining as plainly and simply as possible just what it is that investment bankers do.

What Do Investment Bankers Do – Stock and Bond Offerings

Before getting into what the individuals in various job positions at an investment bank do, let’s first clarify the financial services that investment banks provide.

Investment banks exist primarily to facilitate capital funding through investment in either corporations or government entities such as municipalities or states. Investment banks work to provide such organizations with financing through activities such as underwriting (which basically just means finding buyers or investors) the issuance of stock or bonds. When you hear that a company is going public and offering stock shares to investors for the first time through an “initial public offering” (IPO), an investment bank is typically the entity handling the IPO.

In managing an IPO, an investment bank is responsible for creating a prospectus that explains the company and the terms of the stock offering, handling all necessary legal and compliance issues with the appropriate financial regulatory body, such as the U.S. Securities and Exchange Commission (SEC), and setting the initial stock price at a level that will hopefully attract sufficient investment to obtain the financing that the company wants or needs.

Determining IPO stock prices can be a tricky business, as the investment bank has to strike a delicate balance in pegging an optimal price that will provide maximum funding for their client company while also attracting a maximum number of investors. Price the stock too high and it may fail to attract sufficient investors; price the stock too low and it may fail to provide a sufficient amount of capital.

When handling bond offerings, investment banks provide client services similar to those for an IPO, and again the key element is pricing which, in the case of bonds, is determined by the interest rate offered. Understanding underwriting is a big part of understanding, “What do investment bankers do?”

What Do Investment Bankers Do – Mergers and Acquisitions

Investment banks also assist clients in transactions such as mergers and acquisitions (M&A) where one company seeks to acquire another or when a company is offered for sale. The company valuations that investment banks produce typically determine what one company is willing to pay for another.

For companies looking to make an acquisition, investment banks advise their client on both the value of the company being acquired and about the most favorable way to structure the offer. Investment banks whose client is a company targeted for acquisition advise their client by determining a reasonable asking price, or value, for the company, and by advising the client on favorable or unfavorable structures of the sale. Acquisitions may be made in deals involving all cash, stock swaps, or a combination of cash and stocks.

Acting in the above-outlined capacities, investment banks basically serve as financial advisors to their clients in relation to capital markets, the markets that provide capital through the sale of equities (stocks) or debt instruments (bonds).

What Do Investment Bankers Do – Jobs and titles in Investment Banking

It’s probably already easy to see that investment banking is not just a single job. Rather, it is a business, within the banking industry, that includes a number of jobs. Looking at job titles will further answer the question of, “what do investment bankers do?”

Admittedly, things can get a bit confusing, since virtually anyone, other than clerical support staff, who works at an investment bank will usually describe themselves as “an investment banker”, regardless of their specific job title.

There are two ways to look at what investment bankers do. One is by their job title, which basically determines what type of tasks they handle. The other is by the division of the investment bank they work in, which determines the types of projects they work on.

1. Analysts and Associates

Analysts and Associates are both considered entry-level positions at an investment bank, with associates occupying a slightly higher rung on the corporate ladder, usually by virtue of possessing an MBA or substantial prior experience in the financial industry.

Analysts are typically recent college graduates or individuals who may have some financial industry work experience, but who are new to investment banking. Analysts can usually work their way up to becoming associates within three or four years, although doing so may require not only gaining work experience but additional education as well. Most investment banks prefer their associates to have an MBA or other graduate degree related to finance.

Analysts and associates generally split the “grunt” work of investment banking – doing basic research and producing endless reports that are typically sent back down by vice presidents or directors for endless revisions. They are also responsible for putting together what are called “pitch books”.

An investment banking pitch book is pretty much what it sounds like; a “book” (i.e., lengthy report or presentation) designed to pitch the bank’s services to new or existing clients. Pitch books are used by directors or managing directors as handy reference guides and visual aids when making sales pitches to clients.

For example, a pitch book for a proposed IPO basically attempts to lay out how the bank will help the company considering the IPO to realize more money than it could ever have imagined possible. To buttress the bank’s argument, a pitch book will often recount how successfully it handled the IPO of a similar company. However, just to cover its bases and avoid unrealistic expectations, the pitch book will also present numerous scenarios of various possible outcomes for the IPO, courtesy of numerous projections run by analysts or associates.

An analyst’s day is typically occupied with doing research and writing reports. Investment banking analysts usually become world-class experts at generating spreadsheets in Excel. They are also often responsible for handling their supervisors’ schedules and fielding phone calls from clients.

Keys to success as an analyst are not complaining, fetching coffee and snack orders properly, always giving your supervisor all the credit, and learning how to stay out of the line of fire when something goes wrong.

Associates are counted on to possess all the skills of analysts and to additionally be able to generate solid discounted cash flow (DCF) valuations of companies, arrange meetings with clients, price new offerings, and produce (with the help of analysts doing all the hard work) weekly newsletters.

Keys to being a successful associate, and hopefully moving on to a vice president or director position as soon as possible, include making sure the analysts don’t screw anything up, being able to successfully cultivate personal relationships with clients, always giving your supervisor all the credit, and the ability to present bad news in a way that makes it sound not quite so bad.

2. Vice Presidents, Directors, and Managing Directors

Vice presidents are middle management personnel at an investment bank, who usually directly supervise the analysts and associates. They have more direct contact with clients than the analysts and associates, who are typically hidden away in the back of the office.

Directors represent the next rung up the ladder. In addition to supervising teams in their area of specialization, they are more actively involved in soliciting clients and handling client relationships. Directors are often responsible for deciding on the structure for a specific capital funding deal, such as whether it will be pursued through an equity or a debt offering.

At the top of the investment banking hierarchy are managing directors. Managing directors are the firm’s principal “salespeople,” tasked primarily with attracting new clients. They also serve as the main contact person for key existing clients. In that capacity, their job is to (A) keep existing clients happy, so as to retain their business, and (B) suggest possible new undertakings to clients, such as an acquisition, that will generate additional revenues for the investment bank.

From the Bottom Rungs to the Top of the Investment Bank Corporate Ladder

To sum things up, as you move up the corporate ladder at an investment bank, you generally move away from having to do the labor-intensive tasks such as research and generating reports, and more toward handling the marketing and people-skills tasks of cultivating relationships with clients.

In addition to work being divided by the basic types of tasks assigned to different job titles within an investment bank, one can also view the work done by investment bankers according to the general area of investment banking that different endeavors fall under. We are now getting closer to understanding “what do investment bankers do?”

Investment Banking Work by Division – Industry Coverage Work

Most investment banks divide their staff into working groups assigned to cover specific industries or market sectors. Each industry coverage group is headed by a managing director overseeing a team of directors, vice presidents, associates, and analysts, whose overall job is to continually be on top of news, trends, and key companies within their assigned industry.

The industry group’s job is to solicit new client business and service existing clients within their assigned sector of the market. Tasks include presenting pitches and ideas to clients, preparing pitch books, writing industry reports, and executing transactions.

Separate individual teams are usually assembled within an industry coverage group to handle specific projects for clients. Alternatively, specific projects may be assigned to teams of managing directors, directors, vice presidents, associates, and analysts within the appropriate divisions of either “corporate finance” or “mergers and acquisitions”.

Corporate Finance Work

Corporate finance work in an investment bank is focused on helping clients obtain necessary capital for either new growth projects or simply to finance ongoing projects or operations.

Corporate finance teams aim to determine the ideal means of obtaining financing, among possibilities that include debt, equity, convertible bonds, preferred stock, and derivatives.

This division of an investment bank handles its usual capital markets work for clients, such as IPOs and bond offerings. Sometimes this division is further broken up into teams that specifically handle different types of bond issues, such as sovereign, convertible, zero-coupon, or municipal bonds.

Equity capital markets (ECM) specialists may work with specialists in other divisions of the investment bank, such as foreign currency or derivatives experts, in order to devise the most efficient means of raising equity capital.

Investment banking skills

When it comes to understanding “what do investment bankers do?”, it’s important to look at the skills required for the job. An investment banker has a wide array of responsibilities, ranging from conducting industry research to tracking financial trends and handling a pile of administrative duties. The exact responsibilities depend on the firm, division, and industry category. Investment bankers should expect to perform the following activities.

1. Research and analysis

Investment bankers spend hours analyzing market reports and databases to get relevant information to aid in decision-making. The research may range from finding and comparing stock performances for several companies to building company profiles for reports. On a given day, they may spend countless hours finding the latest technology in healthcare, the size of oil fields in Nigeria, or studying emerging market economies in Asia.

2. Financial modeling & valuation

An investment banker needs to be an Excel Poweruser, and know his or her way around valuation multiples to predict company performance.

3. Preparing Investment Presentations

4. Administrative Tasks

Apart from the usual responsibilities, investment bankers may be required to organize meetings, make travel arrangements, prepare notes, print documents, edit reports, and send updates to team members. On several occasions, they may find themselves making coffee, booking a restaurant for a group dinner, fixing printers, and running other minor errands. Some investment analysts call themselves “mini-admins” due to the many administrative roles that they perform every day.

Summary of what investment bankers do

Investment banks play a key role in helping companies and government entities obtain capital financing. As financial advisors to their clients, they help to price capital, allocate resources, and manage investments. Although investment banks have been scrutinized and criticized from many different angles in recent years, they are virtually an indispensable element for the smooth, successful operation of a free market economy. Hopefully, this has helped answer the question for you, “What do investment bankers do?”

More Related to: What do Investment Bankers do?

Thank you for reading CFI’s guide to “What do Investment Bankers do?” To learn more about the banking industry, see the following resources:

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