A Former Senior Banker’s Views: What Does an Investment Banker Do?
Investment banks help companies raise capital by offering stocks or bonds, arranging to fund and assuming risk on their behalf. Investment bankers manage IPOs, handle mergers and acquisitions and work with clients worldwide to secure financing.
Investment banking is a career that demands strong attention to detail, analytical skills and self-assurance. It’s a highly competitive industry with high expectations for target performance and long hours.
Corporate Finance
Corporate finance is the process of maximizing the value of a company through short and long-term financial planning. It focuses on proper budgeting, raising capital to meet company needs and objectives with debt or equity, and efficiently managing current assets and liabilities.
Resource acquisition, the first function of corporate finance, involves the generation of funds from both internal and external sources at the lowest possible cost to the corporation. This can include proceeds from the sale of stock, returns from investments, and retained earnings.
The second function of corporate finance is resource allocation, which is the investment of funds to increase shareholder wealth over time. This involves current and fixed assets, such as buildings and machinery.
To maximize the value of a business, corporate finance professionals will often use a combination of both equity and debt to fund their investments. This will help them balance the amount of risk involved in their transactions and how much they would need to pay back their investors.
Acquisitions
Mergers and acquisitions are important financial transactions that happen frequently. Investment bankers are involved in both buy-side and sell-side mergers acquisitions, including raising debt capital for companies interested in purchasing another company and providing advice to these firms on how to complete their transactions.
Merged businesses often enjoy the benefits of reduced employee size, better tax status, higher sales and profits, and improved purchasing power to purchase equipment and raw materials. They can also access new technologies and diversify their products and services.
Some sectors and industries are more prone to M& As, such as utilities, health care, technology, and other rapidly changing fields. Companies in these fields must continually upgrade their equipment and keep up with the latest technology.
Capital Markets
An investment banker works with corporate clients to raise capital through various financial transactions. These may include mergers, acquisitions and private placements.
They also help companies raise money by issuing debt through bonds. These tradable securities can be sold to investors such as high-net-worth individuals and pension funds.
Alternatively, they can help a company raise cash by selling shares in its stock. This specialised area requires knowledge of the securities market and how to underwrite stocks and bonds.
Entry-level positions in this field require a four-year bachelor’s degree in finance. Those with additional education, such as an MBA, have an advantage over those without. Gaining experience in this industry is possible by applying for a summer internship program.
Investment Banking Operations
Investment banking operations involve creating corporate securities, facilitating mergers and acquisitions, and brokering or selling securities to investors. They differ from traditional banking functions that seek cash deposits to make interest-bearing customer loans.
The front office of an investment bank generates revenues by helping its clients raise capital, such as through mergers and acquisitions (M& A), IPOs or bond offerings. The investment banking department also handles research, sales, trading, and client services.
An investment banker’s responsibilities include the following:
- Preparing financial reports and presentations.
- Managing databases.
- Making travel arrangements and ensuring work is completed on time.
They are also responsible for preparing pitch books used when marketing the bank to potential clients.
A finance, management, business studies, mathematics or economics degree is often required to enter investment banking. You may also need to take professional qualifications approved by the Financial Services Authority (FSA). Some banks are keen to attract school leavers and offer apprenticeships that could lead to a full-time roles.